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sr-050812-8a (2)
City Council Meeting: May 8, 2012 Agenda Item: 8A To: Mayor and City Council From: Gigi Decavalles- Hughes, Director of Finance Subject: Issuance of General Obligation Refunding Bonds and Wastewater Refunding Revenue Bonds Recommended Actions Staff recommends that the City Council: 1. Adopt the attached Resolution Authorizing Issuance of General Obligation Refunding Bonds (Attachment A), and approve the related documents required for the Issuance of General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (Attachments B, C, D, and E). 2. Adopt the attached Resolution Authorizing Issuance of Wastewater Refunding Revenue Bonds (Attachment F), and approve the related documents required for the Issuance of Wastewater Refunding Revenue Bonds, Series 2012A (Attachments G through K). 3. Appropriate the budget increases as outlined in the Financial Impacts & Budget Actions section of this report. Executive Summary Staff is requesting the issuance of refunding bonds to take advantage of a reduction in interest rates since the bonds were initially issued. The net proceeds of the General Obligation Refunding Bonds, Series 2012 would be used to refund the City's General Obligation Bonds issued in 2002 and pay the costs incurred in connection with the issuance of the Series 2012 Bonds. The net proceeds of the Wastewater Refunding Revenue Bonds would be used to refund the City's Wastewater Enterprise Revenue Bonds issued in 1993 and pay the costs incurred in connection with the issuance of the Series 2012A Bonds. Background The City electorate, at an election held on November 3, 1998, approved issuance of the Series 2002 Bonds. In August 2002, the City issued its General Obligation Bonds, Series 2002 in the amount of $25,000,000 to finance a portion of the construction of the 1 Main Library. Of the $25 million Series 2002 Bonds issued, $13,750,000 are outstanding with interest rates ranging from 3.80% to 4.60% and a final maturity date of July 1, 2022. In December 1993, the City issued its Wastewater Enterprise Revenue Bonds, Series 1993 in the amount of $38,620,000 to refund certain prior bonds used to finance a portion of the City's share of costs to upgrade the Hyperion Sewage Treatment Plant operated by the City of Los Angeles. The Series 1993 Bonds were partially refunded by the City in 2005 to take advantage of lower interest rates at the time; however, a portion of the Series 1993 Bonds remained outstanding since there were no cost savings to be realized by refunding these bonds in 2005. At present, $9,670,000 of the Series 1993 Bonds are outstanding with interest rates ranging from 4.25% to 4.50% and a final maturity date of January 1, 2022. Discussion The proposed issuance of the General Obligation Refunding Bonds, Series 2012 is intended to redeem the City's General Obligation Bonds, Series 2002. Refunding the Series 2002 Bonds takes advantage of lower current interest rates and thereby reduces future debt service payments. Based on current tax - exempt interest rates, the reduction in interest cost is expected to save approximately $185,000 each year in property taxes paid by property owners in the City, with an expected present value savings of approximately $1.6 million over the life of the bonds. The actual savings achieved through the proposed refunding plan, however, will depend on interest rates at the time the Series 2012 Bonds are sold. The costs of issuing the bonds will be paid from bond proceeds. The Series 2002 Bonds may be redeemed starting on July 1, 2012 upon 30 days of notice. At the present time, the City would be able to significantly reduce the interest cost on the Series 2002 Bonds maturing on July 1, 2013 through July 1, 2022. The yields on the new Series 2012 Bonds are expected to range from 0.25% to 2.25% 2 based on current tax - exempt interest rate levels. The proposed Series 2012 Bonds designated to refund the Series 2002 Bonds are intended to have a final maturity date of July 1, 2022, to correspond with the July 1, 2022 final maturity date of the Series 2002 Bonds. The proposed issuance of the Wastewater Refunding Revenue General Bonds, Series 2012A is intended to redeem the City's Wastewater Enterprise Revenue Bonds, Series 1993. Refunding the Series 1993 Bonds also takes advantage of lower current interest rates and thereby reduces future debt service payments. The Series 2012A Bonds would also be issued under a new Wastewater Bond Indenture (Indenture) that would not require the City to fund a "debt service reserve account for the Series 2012A Bonds. Payments made on the Series 2012A Bonds would be subordinate to payments made on the City's Series 2005 Wastewater Enterprise Revenue Bonds that would remain outstanding. The City would also agree not to issue any additional bonds under the Indenture securing the Series 2005 Bonds. Any future wastewater revenue bonds could be issued pursuant to the new Indenture on parity with the Series 2012A Bonds. At the present time it is expected that the City will evaluate refunding the remaining Series 2005 Bonds early in 2013, when the Series 2005 Bonds become eligible for a tax- exempt refinancing. Based on current tax - exempt interest rates, the reduction in interest cost is expected to save approximately $1,700,000 in interest cost for sewer ratepayers with an expected present value of approximately $1,500,000. The actual savings achieved through the proposed refunding plan, however, will depend on interest rates at the time the Series 2012A Bonds are sold. The Series 1993 Bonds may be redeemed at any time upon 30 days of notice. At the present time, the City would be able to reduce the interest cost on the Series 1993 Bonds maturing on January 1, 2019 through January 1, 2022. The yields on the new Series 2012A Bonds are expected to range from 1.60% to 2.35 %, based on current tax- 3 exempt interest rate levels. The proposed Series 2012A Bonds designated to refund the Series 1993 Bonds are intended to have a final maturity date of February 1, 2022, to correspond with the January 1, 2022 final maturity date of the Series 1993 Bonds. The Series 2012 General Obligation Refunding Bonds and the Series 2012A Wastewater Refunding Revenue Bonds would be sold 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. In order to facilitate the sale of the prospective bonds, the City published a Notice of Intention to Sell Bonds, as required by State law, prior to the City Council meeting. However, publication of the Notice does not obligate the City to actually approve the issuance of the refunding bonds. The attached resolutions and documents permit the City to proceed with all steps necessary for the issuance of the General Obligation Bonds, Series 2012 and Wastewater Refunding Revenue Bonds, Series 2012A and refunding of the Series 2002 General Obligation Bonds and Series 1993 Wastewater Enterprise Revenue Bonds. The resolutions approve the attached documents and authorize their execution and delivery by City officials and employees. The resolutions also approve the preparation, execution, and delivery of Final Official Statements, 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 2012 Bonds, and Series 2012A Bonds. The Resolutions authorize the issuance of the General Obligation Refunding Bonds, Series 2012 with a maximum principal amount of $13,000,000 and with a final maturity date of June 1, 2022 and a maximum true interest cost of 4.00% and the issuance of the Wastewater Refunding Revenue Bonds, Series 2012A with a maximum principal amount of $10,000,000 and with a final maturity date of February 1, 2022 and a maximum true interest cost of 4.00°/x. Financial Impacts & Budget Actions The City will issue up to $13,000,000 in tax - exempt General Obligation Refunding Bonds, Series 2012. At current interest rates, it is anticipated that the principal amount of the Bonds will be approximately $11,100,000. The estimated annual debt service on the Series 2012 Bonds, to be paid from property taxes, would range from approximately $1,100,000 to $1,600,000 depending on the maturity date of the bonds. Total savings is expected to be $1.8 million over the remaining 10 years that bonds will be outstanding. The City will issue up to $10,000,000 in tax - exempt Wastewater Revenue Refunding Bonds, Series 2012A. At current interest rates, it is anticipated that the principal amount of the Bonds will be approximately $8,565,000. The estimated annual debt service on the Series 2012A Bonds, to be paid from the Wastewater Enterprise sewer charges, would range from approximately $250,000 to $2,300,000 depending on the maturity date of the bonds. Total savings is expected to be $1.7 million over the remaining 10 years that bonds will be outstanding. For FY 2011 -12, an appropriation in the amount of $241,400 to account number 31661.555980 (Costs of Issuance) is required. Revenue and appropriation budget actions required to record the sale of the Series 2012 Bonds and defeasance of the Series 2002 General Obligation Bonds follow: Other financing sources bond proceeds Other financing uses - refunding Cost of issuance Account 01990.601001 01990.602003 01274.555980 Amount $ 1 2,756,150 $ 12,769,531 $ 255,225 Budget authority for subsequent years will be requested in each budget cycle for Council approval. Future funding is contingent upon Council approval. 5 Prepared By: David Carr, Treasury Administrator Approved: t / j Gigi Decava I s g es Director of Finance Attachments: Forwarded to Council: Rod Gould City Manager A. Resolution Authorizing Issuance of General Obligation Refunding Bonds, Series 2012 B. Supplement to Resolution Authorizing Issuance of General Obligation Refunding Bonds, Series 2012 C. Preliminary Official Statement for General Obligation Refunding Bonds, Series 2012 and Continuing Disclosure Certificate D. Escrow Agreement for General Obligation Refunding Bonds, Series 2012 E. Notice Inviting Bids for General Obligation Refunding Bonds, Series 2012 F. Resolution Authorizing Issuance of Wastewater Refunding Revenue Bonds, Series 2012A G. Preliminary Official Statement for Wastewater Refunding Revenue Bonds, Series 2012A H. Escrow Agreement for Wastewater Enterprise Revenue Bonds, Series 1993 I. Notice Inviting Bids for Wastewater Refunding Revenue Bonds, Series 2012A J. Indenture of Trust for Wastewater Refunding Revenue Bonds, Series 2012A K. Continuing Disclosure Certificate for Wastewater Refunding Revenue Bonds, Series 2012A L. Notice of Intention to Sell General Obligation Refunding Bonds, Series 2012 and Wastewater Refunding Revenue Bonds, Series 2012A R ATTACHMENT B SUPPLEMENT TO RESOLUTION NO. GOVERNING TERMS OF THE $ CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) DATED AS OF MAY 1, 2012 DOC SOC/ 1551875 v3 /200119 -0006 SUPPLEMENT TO RESOLUTION NO. THIS SUPPLEMENT TO RESOLUTION NO. executed as of this 1st day of May, 2012 governs the terms of the City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project). RECITALS: WHEREAS, pursuant to the provisions of Chapter 4 of Division 4 of Title 4 of the California Government Code (Sections 43600 et seq.), as amended (the "Law "), and pursuant to Ordinance No. 1919 (CCS) adopted by the City Council of the City of Santa Monica on July 28, 1998 (the "Ordinance "), an election was duly and regularly held on November 3, 1998, in that territory included within the boundaries of the City (the "Election"), at which Election there was submitted to the qualified voters of said City the following: To construct, improve and remodel the Main and branch libraries and related facilities, shall the City of Santa Monica incur general obligation bonded indebtedness in the principal amount of not to exceed $25 Million? ;and WHEREAS, two- thirds or more of the votes cast at the Election were in favor of and assented to the incurring of such indebtedness for the stated purpose (the "Project "), and all the requirements of the Constitution and laws of the State of California have been complied with in the holding of the Election; and WHEREAS, the City previously issued pursuant to the authorization of the Election and the Law $25,000,000 original principal and denominational amount of City of Santa Monica General Obligation Bonds, Series 2002 (Library Improvement Project) (the "Prior Bonds ") payable from the levy of an ad valorem tax against the taxable property in the City; and 1 DOC SO C/ 1551875v3/200119 -0006 WHEREAS, pursuant to Section 53550 of the Government Code of the State of California, the City is authorized to issue refunding bonds to refund all or a portion of the Prior Bonds (the "Refunded Bonds "); and WHEREAS, in accordance with the Election, the Ordinance, the Law and Articles 9 and 11, Chapter 3, Part 1 of Division 2 of the California Government Code (commencing with Sections 53550 and 53580, respectively) (the "Bond Law "), the City now desires to issue approximately $ in refunding bonds to refinance the Refunded Bonds; WHEREAS, it is found and determined by this City Council that the best interests of the City would be served by proceeding according to the provisions of the Law and the Bond Law to issue the General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (the "Bonds ") to refund the Refunded Bonds; and WHEREAS, the City Council has determined that The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent") shall act as the initial paying agent and registrar for the Bonds subsequent to the adoption of this Resolution; and WHEREAS, it is found and determined by this City Council that the best interests of the City would be served by proceeding with the authorization of the issuance of General Obligation Refunding Bonds of the City according to the provisions of the Law for the purpose of financing in part the construction and acquisition of the Project approved by the voters; NOW, THEREFORE, in order to establish the terms and conditions upon and subject to which the General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (the "Series 2012 Bonds" or the "Bonds ") are to be issued, the City Council does hereby covenant and agree, for the benefit of the Owners of the Series 2012 Bonds, as follows: 2 DOC SOC/ 1551875v3/200119 -0006 SECTION 1. Definitions. Unless the context clearly otherwise requires the following terms or as defined in the recitals hereof shall have the respective meanings ascribed to them in this Section 1: Auditor. The term "Auditor" means the County Auditor - Controller of the County of Los Angeles, California, being the Auditor - Controller of such County. Authorized Investments. The term "Authorized Investments" means any investment permitted by law to be made with any moneys belonging to or in the custody of the City and by any policy guidelines promulgated by the City; including: 1. Generally approved qualifying investment instruments: a. Obligations of the U.S. Government, its agencies, and instrumentalities. b. Certificates of deposit with banks and savings and loans doing business in the State of California. C. Prime Banker's Acceptances. d. Prime Commercial Paper. e. Repurchase Agreements and Money Market Funds whose underlying collateral consists of the foregoing. f. Los Angeles County's Investment Pool for local agencies, which includes the purchase of Reverse Repurchase Agreements. g. Pools and other investment structures incorporating investments listed in a through e. 3 DOCSOC/ 1551875v3/200119-0006 2. Generally approved qualifying investment instruments for City funds, as further limited by the investment policy: a. United States Treasury Bills, Bonds, and Notes, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. b. Obligations issued by the United States Government Agencies such as the Government National Mortgage Association (GNMA), Federal Farm Credit Bank System (FFCB), the Federal Home Loan Bank Board (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA), and the Student Loan Marketing Association (SLMA). C. Bills of exchange or time drafts drawn on and accepted by a commercial bank otherwise known as banker's acceptances. Purchases of banker's acceptances may not exceed 180 days to maturity. d. Commercial paper ranked PI by Moody's Investor Services and Al by Standard and Poor's, and issued by a domestic corporation having assets in excess of $500 million and having an A or better rating on its long -term debentures as provided by Moody's or Standard and Poor's. e. Local Agency Investment Fund. The City may invest in the Local Agency Investment Fund (LAIF) established by the State Treasurer 4 DOCSOC/ 1551875v3/200119 -0006 for the benefit of local agencies up to the maximum amount permitted by State law. f Money market funds rated in the highest category of Moody's or Standard and Poor's, or administered by a domestic bank with long- term debt rated in one of the top two categories of Moody's or Standard and Poor's. Authorized Representative of the City. The term "Authorized Representative of the City" means the Mayor, the City Manager, the Director of Finance or any other person or persons designated by any of them in a written certificate or by the City Council of the City and authorized to act on behalf of the City by a written certificate signed on behalf of the City by the Mayor of the City and containing the specimen signature of each such person. Bond Counsel. The term "Bond Counsel" means an attorney or firm of attorney of whose opinions are nationally accepted in matters pertaining to the tax - exempt status of interest on bonds issued by states and their political subdivisions. Bonds or Series 2012 Bonds. The term "Bonds" or "Series 2012 Bonds" means the $ City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project). Closing Date. The term "Closing Date" is the date the bonds are delivered to the initial purchaser thereof. Code. The term "Code" means the Internal Revenue Code of 1986, as amended, and any regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. Computation Year. The term "Computation Year" means, with respect to the Bonds, the period beginning on the Delivery Date and ending on July 1, 2011 and each 12 -month period 5 DOCSOC/1551875v3/200119 -0006 ending on July 1 thereafter until there are no longer any Bonds outstanding, or such other computation year as may be established pursuant to the Tax Certificate. Costs of Issuance. The term "Costs of Issuance" means all of the costs of authorized to be paid from the proceeds of the Refunding Bonds are all of the authorized costs of issuance set forth in Section 53550(e) and (I) and Section 53587 of the Government Code, including, but not limited to, all printing and document preparation expenses in connection with this Resolution, the Bonds and the Official Statement pertaining to the Bonds and any and all other agreements, instruments, certificates or other documents prepared in connection therewith; financial advisory fees; bond counsel fees; underwriter's fees; rating agency fees; auditor's fees; CUSIP service bureau charges; legal fees and expenses of counsel with respect to the financing; the initial fees and expenses of the Paying Agent; other fees for professional consulting services fees for credit enhancement relating to the Bonds; and other fees and expenses incurred in connection with the issuance of the Bonds, to the extent such fees and expenses are approved by the City. Costs of Issuance Fund. The term "Costs of Issuance Fund" means the fund of that name established under the Bond Law and Section 11 hereof. Debt Service Fund. The term "Debt Service Fund" means the fund of that name established under the Law and Section 13 hereof. Depository. The term "Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depository under this Indenture. Depository System Participant. The term "Depository System Participant" means any participant in the Depository's book -entry system. DTC. The term "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. Director of Finance. The term "Director of Finance" means the person responsible for the financial affairs of the City, appointed by the City Manager from time to time. 0 DOCSOC/ 1551875v3/200119-0006 Escrow Agreement. The term "Escrow Agreement" means the Escrow Agreement relating to the Refunded Bonds by and between the City and The Bank of New York Mellon Trust Company, N.A., or anty other successor thereto, as escrow agent. Federal Securities. Means direct or indirect noncallable obligations of, or noncallable, nonrepayble obligations unconditionally guaranteed as to full and timely payment of principal and interest by, the United States of America, but excluding investments in mutual funds or unit investment trusts. Interest Payment Date. The term "Interest Payment Date" means each July 1 and January 1, commencing January 1, 2013. Owner. The term "Owners" or "Bond Owner" or any similar term, when used with .respect to the Bonds, means any person in whose name a Bond is registered in the books of registration maintained by the Paying Agent, Participants. The term "Participants" means those broker- dealers, banks and other financial institutions from time to time for which DTC holds Bonds as securities depository. Paying Agent. The term "Paying Agent" means that entity so designated from time to time by the City Council of the City to serve as, paying agent, transfer agent and registrar for the Bonds. The initial Paying Agent shall be The Bank of New York Mellon Trust Company, N.A. Rebate Regulations. The term "Rebate Regulations" means the Treasury Regulations issued under Section 148(f) of the Code. Record Date. The term "Record Date" shall mean the fifteenth day of the month preceding an Interest Payment Date. Resolution. The term "this Resolution" shall mean, collectively, Resolution No. of the City Council, together with this Supplement to Resolution. 7 D OCSOC/ 1551875v3/200119 -0006 Tax Certificate. The term "Tax Certificate" shall mean that certain certificate of such name executed by the City on the Closing Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. Treasurer. The term "Treasurer" means the City Treasurer of the City. SECTION 2. Authorization to Issue. Bonds of the City in the sum of $ shall be issued for the purpose of refunding the Refunded Bonds, which were issued for the purpose stated in the proposition set out in the recitals hereof. Said Bonds are further issued pursuant to the provisions of the Law and the Bond Law. Said Bonds shall be designated the "City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project)." The Series 2012 Bonds shall be issued in the form of fully registered bonds in the denomination of $5,000 each or any whole multiple thereof and shall mature on the dates and in the amounts, and shall bear interest at the rates, per annum, for each of the years as follows: Year Jul 1 Principal Amount Interest Rate 2013 $ 2014 2015 2016 2017 2018 2019 2020 2021 2022 The Bonds shall bear interest at the rates set forth above, from the Closing Date, payable on January 1, 2013 and thereafter semiannually on each July 1 and January 1. Each Bond shall bear interest until its principal sum has been paid; provided, however, that if funds are available for the payment thereof on such Bonds applicable maturity date in full accordance with the terms of this 8 DOCSOC/1551875v3/200119 -0006 Resolution, such Bond shall then cease to bear interest. Interest on the Bonds shall be calculated on the basis of a 360 -day year comprised of twelve 30 -day months. The Bonds shall be numbered No. I and sequentially upwards and shall be dated the Closing Date, except that Bonds issued upon exchanges and transfers of other Bonds shall be dated so that no gain or loss of interest shall result from the exchange or transfer. Interest on each Bond shall be paid by the Paying Agent by check mailed by first class mail, postage prepaid, on the Interest Payment Date to the Owner as his/her name and address appear on the register kept by the Paying Agent at the close of business on the applicable Record Date. At the request of any owner of at least $1,000,000 in aggregate principal amount of Bonds, interest on the Bonds will be paid by wire transfer in immediately available funds if such request is made at least fifteen days before the Record Date for such payment, any such designation to remain in effect until withdrawn. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication with respect to which interest has been paid or provided for (unless (i) the date of authentication is prior to the first Record Date, in which event from the Closing Date, (ii) the date of authentication is after a Record Date and before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated as of an Interest Payment Date, in which event it shall bear interest from such date) until the principal hereof shall have been paid. $ of proceeds of the Bonds (comprising $ aggregate principal amount, plus /minus $ in net original issue premium /discount, less $ of underwriter's discount) shall be disbursed, as follows: DOCSOC/1551875v3 /200119 -0006 $ .00 to the Costs of Issuance Fund, $ to be applied to pay Costs of Issuance in accordance with Section 11 to the Escrow Fund established pursuant to the Escrow Agreement for the defeasance and prepayment of the Refunded Bonds $ TOTAL The amount designated above for transfer to the Escrow Fund is hereby determined to be that amount necessary to purchase the Federal Securities sufficient to refund the Refunded Bonds. SECTION 3. Place of Payment. The Bonds shall be payable in lawful money of the United States of America and principal of the Bonds shall be payable upon surrender thereof at the principal corporate trust office of the Paying Agent in Los Angeles, California. SECTION 4. Paying Agent. The initial Paying Agent for the Bonds shall be The Bank of New York Mellon Trust Company, N.A. The Paying Agent may at any time resign and be discharged of the duties and obligations created by this Resolution by giving at least 60 days' written notice to the City. The Paying Agent may be removed at any time by an instrument filed with such Paying Agent and signed by the City. A successor Paying Agent shall be appointed by the City and shall be a bank or trust company organized under the laws of any state of the United States, a national banking association or any other financial institution, having capital stock and surplus aggregating at least $75,000,000 and doing business in the State and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Resolution. Such Paying Agent shall signify the acceptance of its duties and obligations hereunder by executing and delivering to the City a written acceptance thereof. Resignation or removal of the Paying Agent shall be effective upon appointment and acceptance of a successor Paying Agent. 10 DOCSOC/1551875v3/200119 -0006 In the event of the resignation or removal of the Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or, if there is no successor, to the Director of Finance. In the event that for any reason there shall be a vacancy in the office of the Paying Agent, the Director of Finance shall act as such Paying Agent. The City shall cause the new Paying Agent appointed to replace any resigned or removed Paying Agent to mail notice of its appointment and the address of its principal office to all registered Owners. SECTION 5. Form of Bonds. The Bonds shall be substantially in the form attached hereto as Exhibit "A." Such form is hereby approved and adopted as the form of the Bonds and of the redemption, exchange, registration and assignment provisions pertaining to them, with necessary or appropriate variations, omissions, and insertions, as permitted or required by this Resolution. Any Bonds issued pursuant to this Resolution may be initially issued in temporary form exchangeable for definitive Bonds when the same are ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the City, shall be in fully registered form and may contain references to any of the provisions of this Resolution as may be appropriate. Every temporary Bond shall be executed by the City and be authenticated by the Paying Agent upon the same conditions and in substantially the same form and manner as the definitive fully registered bonds. If the City issues temporary Bonds, it will execute and furnish definitive Bonds without delay, and, thereupon, the temporary Bonds shall be surrendered for cancellation at the principal office of the Paying Agent in Los Angeles, California, or at such other place in California as the City may approve. The Paying Agent shall deliver in exchange for the surrendered temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations of this same issue. Until exchanged, the temporary Bonds shall be entitled to the same benefits under this Resolution as definitive Bonds of this same issue. 11 DOCSOC/ 1551875v3 /200119 -0006 SECTION 6. Execution and Authentication of the Bonds. The Bonds shall be signed on behalf of the City by its Mayor and by its Treasurer by facsimile signatures and by its City Clerk, or authorized Deputy City Clerk, by facsimile signature, and the seal of the City shall be impressed, imprinted or reproduced thereon. The foregoing officers are hereby authorized and directed to sign the Bonds in accordance with this Section 6. If any City officer whose facsimile signature appears on the Bonds ceases to be an officer before delivery of the Bonds, his or her signature is as effective as if he or she had remained in office. The Paying Agent shall authenticate the Bonds on registration and /or exchange to effectuate the registration and exchange provisions set forth in Section 7 below; and only those Bonds that have endorsed on them a certificate of authentication, substantially in the form set forth in the form of Bond, duly executed by the Paying Agent, shall be entitled to any rights, benefits or security under this Resolution. No Bond shall be valid or obligatory for any purpose unless and until the certificate of authentication thereon has been duly executed by the Paying Agent. The certificate of the Paying Agent upon any Bond shall be conclusive and the only evidence required that the Bond has been duly authenticated and delivered under this Resolution. The Paying Agent's certificate of authentication on any Bond shall be deemed to have been duly executed if signed by an authorized officer of the Paying Agent, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds that may be issued hereunder. SECTION 7. Registration, Transfers and Exchanges. Any Bond may, in accordance with its terms, be transferred, upon the registration books required to be kept by the Paying Agent, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such fully registered Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. 12 DOCSO C/1551875v3/200119-0006 Whenever any Bond or Bonds shall be surrendered for transfer, the Paying Agent shall authenticate and deliver a new Bond or Bonds of the same series and maturity, for the like aggregate principal amount of Bond or Bonds surrendered. Bonds may be exchanged at the principal corporate trust office of the Paying Agent in Los Angeles, California, for a like aggregate principal amount of Bonds of other authorized denominations of the same series and maturity. The person, firm or corporation requesting the transfer or exchange shall pay any costs or charges in connection with the transfer or exchange as are established by the Paying Agent, in addition to paying any tax or governmental charge that may be imposed in connection with the transfer or exchange. The Paying Agent shall not be required, however, to register a transfer or make an exchange of any Bond (i) during the 15 days before the selection of Bonds for redemption, or (ii) if such Bond has been called for redemption in whole or in part. SECTION 8. Registration Books. The Paying Agent will keep at its principal corporate trust office in Los Angeles, California, or at such other place as the City may approve, sufficient books for the registration and transfer of the Bonds. The books shall at all times be open to inspection by the City; and, upon presentation for such purpose, the Paying Agent shall under such reasonable regulations as it may prescribe, register or transfer, or cause to be registered or transferred, on the register, the Bonds as hereinbefore provided. SECTION 9. Book -Entry Only System. DTC shall act as the initial Depository for the Bonds. One Bond for each maturity of the Bonds shall be initially executed, authenticated, and delivered as set forth herein with a separate fully registered certificate (in print or typewritten form). Upon initial execution, authentication, and delivery, the ownership of the Bonds shall be registered in the Bond Register kept by the Paying Agent for the Bonds in the name of Cede & Co., as nominee of DTC or such nominee as DTC shall appoint in writing. 13 DOCSO C/ 1551875v3/200119-0006 The representatives of the City and the Paying Agent are hereby authorized to take any and all actions as may be necessary and not inconsistent with this Resolution to qualify the Bonds for the Depository's book -entry system, including the execution of the Depository's required representation letter. With respect to Bonds registered in the Bond Register in the name of Cede & Co., as nominee of DTC, neither the City nor the Paying Agent shall have any responsibility or obligation to any broker- dealer, bank, or other financial institution for which DTC holds Bonds as Depository from time to time (the "DTC Participants ") or to any person for which a DTC Participant acquires an interest in the Bonds (the "Beneficial Owners "). Without limiting the immediately preceding sentence, neither the City nor the Paying Agent shall have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co., or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant, any Beneficial Owner, or any other person, other than DTC, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository of the beneficial interests in the Bonds to be redeemed in the event the City elects to redeem the Bonds in part, (iv) the payment to any DTC Participant, any Beneficial Owner, or any other person, other than DTC, of any amount with respect to the principal of or interest on the Bonds, or (v) any consent given or other action taken by the Depository as Owner of the Bonds; except that so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, anyone representing themselves to be the Beneficial Owner of $1,000,000 or more in aggregate principal amount of Bonds who has filed a written request with the Paying Agent to receive notices, containing such Beneficial Owner's name and address, shall be provided with all notices relating to such Bonds by the Paying Agent. Except as set forth above, the Paying Agent may treat as and deem DTC to be the absolute Owner of each Bond for which DTC is acting as Depository for the purpose of payment of the principal of and interest on such Bonds, for the purpose of giving notices of prepayment and other 14 DOCSOC/ 1551875v3/200119-0006 matters with respect to such Bonds, for the purpose of registering transfers with respect to such Bonds, and for all purposes whatsoever. The Paying Agent shall pay all principal of and interest on the Bonds only to or upon the order of the Owners as shown on the Bond Register, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to the principal of and interest on the Bonds to the extent of the sums or sums so paid. Upon delivery by DTC to the Paying Agent of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the transfer provisions hereof, references to "Cede & Co." in this Section 9 shall refer to such new nominee of DTC. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the Paying Agent during any time that the Bonds are Outstanding, and discharging its responsibilities with respect thereto under applicable law. The City may terminate the services of DTC with respect to the Bonds if it determines that DTC is unable to discharge its responsibilities with respect to the Bonds or that continuation of the system of book - entry transfers through DTC is not in the best interest of the Beneficial Owners, and the City shall mail notice of such termination to the Paying Agent. Upon the termination of the services of DTC, as provided in the previous paragraph, and if no substitute Depository willing to undertake the functions hereunder can be found which is willing and able to undertake such functions upon reasonable or customary terms, or if the City determines that it is in the best interest of the Beneficial Owners of the Bonds that they be able to obtain certificated Bonds, the Bonds shall no longer be restricted to being registered in the Bond Register of the Paying Agent in the name of Cede & Co., as nominee of DTC, but may be registered in whatever name or names the Owners shall designate at that time, in accordance with Section 7. SECTION 10. Redemption. (a) Optional Redemption. The Bonds are not subject to optional redemption prior to maturity. 15 DOCSO C/1 551875v3/200119 -0006 (b) Mandatory Sinking Fund Redemption. The Bonds are not subject to mandatory sinking fund redemption prior to maturity. SECTION 11. Costs of Issuance Fund. The proceeds of the sale of the Bonds identified in Section 2 for deposit into the Costs of Issuance Fund shall be deposited with the Paying Agent to the credit of; and the Paying Agent shall establish a fund designated the "City of Santa Monica Series 2012 General Obligation Refunding Bonds Costs of Issuance Fund," (the "Costs of Issuance Fund "), and the moneys in said fund shall be applied. exclusively to pay Costs of Issuance in accordance with the Bond Law, except as otherwise provided in the provisions of the Bond Law. If, upon completion of the payment of all Costs of Issuance from the Costs of Issuance Fund as designated in a written certificate signed by an Authorized Representative from the City, amounts remain therein, the Paying Agent shall transfer such amounts to the Debt Service Fund. At such time that no amounts remain on deposit in the Costs of Issuance Fund, the Paying Agent shall close the Costs of Issuance Fund. SECTION 12. Rebate Fund. The City shall establish the Series 2012 General Obligation Refunding Bonds (Library Improvement Project) Rebate Fund (the "Rebate Fund "). All money at any time deposited in the Rebate Fund shall be held by the City in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund shall be governed by this Section and the Tax Certificate, unless the City obtains an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds shall not be adversely affected for federal income tax purposes if such requirements are not satisfied. (a) Annual Computation. Within 55 days of the end of each Computation Year with respect to the Bonds, the City shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148 -3 of the Rebate Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments 16 DOC SOC/ 1551875v3/200119 -0006 exceptions of Section 148(f)(4)(B) and (C) of the Code), and taking into account whether the 1 -1/2% Penalty has been elected), for this purpose treating the last day of the applicable Computation Year as a computation date, within the meaning of Section 1.148 -1(b) of the Rebate Regulations (the "Rebatable Arbitrage "). The City shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (b) Annual Transfer. Within 55 days of the end of each applicable Computation Year with respect to the Bonds, an amount shall be transferred by the City to be deposited to the Rebate Fund from any legally available funds, including the other funds and accounts established herein, so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this Subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, the Director of Finance shall withdraw the excess from the Rebate Fund and then credit the excess to the Debt Service Fund. (c) Payment to the Treasury. The City shall pay to the United States Treasury, out of amounts in the Rebate Fund: (1) Not later than 60 days after the end of (A) the fifth Computation Year with respect to the Bonds, and (B) each applicable fifth Computation Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Computation Year; and (2) Not later than 60 days after the payment of all the Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Computation Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code. 17 DOCSOC/ 1551875v3/200119 -0006 In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source, including the other funds and accounts established herein, equal to such deficiency in the Rebate Fund prior to the time such payment is due. Each payment required to be made pursuant to this Subsection (1) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038 -T prepared by the City, or shall be made in such other manner as provided under the Code. (d) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the Bonds and the payments described in Subsection (1), may be utilized in any lawful manner by the City. (e) Survival of Defeasance. Notwithstanding anything in this Section or the Resolution to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance of the Bonds. SECTION 13. Security/Debt Service Fund. The City Council, so far as is practicable, shall fix such rate or rates for a tax to be levied in the City as will result in revenues which will pay the interest on the Bonds, and provide a sinking or other fund for the payment of the principal of the Bonds as such principal may become due. The City Council shall determine the fiscal year for all of the amounts above set forth, and shall fix the rate or rate of tax to be levied which will raise the amounts of money required by the City for such purposes, and as required by the provisions of the Law, the City Council shall certify to the County Auditor - Controller of the County of Los Angeles (the "Auditor ") the rate or rates so fixed and shall furnish to the Auditor a statement in writing containing the following: (a) an estimate of the minimum amount of money required to be raised by taxation during the fiscal year for the payment of the principal of and interest on the Bonds, as will 18 DOC SOC/1551875v3/200119 -0006 become due before the proceeds of a tax levied at the next general tax levy will be available; (b) an estimate of the minimum amount of money required to be raised by taxation during the fiscal year for all other purposes of the City; and (c) any other items required by the provisions of the Law. The Auditor shall compute and enter in the county assessment roll the respective sums to be paid as a City tax on the property within the City using the rate or rates of levy as fixed by the City Council and the assessed value as found on the assessment roll for the property subject to the tax. It shall be the duty of all county officers charged with the duty of collecting taxes to collect such tax in time, form and manner as county taxes are collected and when collected to pay the same to the City. All such taxes for the payment of principal and interest on the Bonds shall be established, levied and collected as provided in the provisions of the Law. All moneys derived from such taxes and all other moneys allocated and designated for payment of said Bonds and the interest thereon shall be placed in a fund of the City and designated "City of Santa Monica Series 2012 General Obligation Refunding Bonds (Library Improvement Project) Debt Service Fund" (the "Debt Service Fund "), (and accounts therein to the extent created pursuant to Section 10 or 16 hereof) shall be kept separate and apart from all other funds of the City (and are hereby irrevocably pledged for the payment of the Bonds in accordance with the purpose and intent of this Resolution), and until all of said Bonds and all interest thereon have been fully paid (or defeased) the moneys in said fund shall be used for no other purpose than the payment of said Bonds or additional series of bonds issued by the City pursuant to the authorization of Measure A and the interest thereon; provided, however, that when all of the principal and interest on all of the Bonds have been paid, any balance of money then remaining in said funds shall be transferred to the general fund of the City. Interest earned on the investment of monies in the Debt Service Fund shall be retained in the Debt Service Fund and used by the City to pay principal and interest on the Bonds when due. 19 DOC SOC/ 1551875v3/200119 -0006 The Director of Finance shall transfer available monies from the Debt Service Fund to the Paying Agent in amounts sufficient and at such time as are necessary to promptly pay principal (including mandatory sinking fund payments), interest and redemption premium, if any, on the Bonds as such shall become due; and the Paying Agent shall establish a fund designated the "City of Santa Monica Series 2012 General Obligation Refunding Bonds (Library Improvement Project) Bond Fund" (the "Bond Fund ") for such purpose and shall make payments to the Bond Owners of principal (including mandatory sinking fund payments), interest and redemption premium, if any, on the Bonds as such shall become due; provided that, in the event of any deficiencies, moneys on deposit in the Bond Fund shall be applied first to the payment of interest and then to the payment of principal and, in all such cases, ratably and without preference among all maturities. SECTION 14. Investments. (a) Moneys in the Costs of Issuance Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an investment agreement are available without penalty, as close as practicable to the date the City estimates the moneys represented by the particular investment will be needed for withdrawal from the Costs of Issuance Fund. Earnings on investments of monies in the Costs of Issuance Fund shall be retained therein and applied in accordance with authorized uses thereof and applicable law. (b) Moneys in the Debt Service Fund and the Bond Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an investment agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due. The Paying Agent shall be under no obligation to invest moneys in the Bond Fund except on the written instruction of the Director of Finance. Investment earnings, if any, in the Bond Fund in excess of amounts held for the benefit of Owners shall be returned to the City for deposit in the Debt Service Fund. 20 DO C S OC/ 15 51875v3/200119-0006 In the event that an Authorized Representative of the City does not so direct the Paying Agent, the Paying Agent shall invest moneys in the Bond Fund in the Authorized Investments described in paragraph 2(f) of the definition contained herein and as set forth in the letter of authorization and directions executed by the City and delivered to the Paying Agent. If no investment directions are provided, such amount shall be held in cash, uninvested. The City and the Paying Agent, at the direction of the City, shall sell at the best price obtainable, or present for redemption, any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such funds and accounts or from such funds and accounts. For the purpose of determining at any given time the balance in any such funds, any such investments constituting a part of such funds and accounts shall be valued at their market value. Notwithstanding anything herein to the contrary, the Paying Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of this Resolution. SECTION 15. Tax Covenants. The City hereby covenants and agrees with the owners of the Bonds to take no action or refrain from taking any action which, in the opinion of Bond Counsel, would result in the interest received by the Owners being includable in gross income for federal income tax purposes. In order to preserve the exclusion from gross income of interest on the Bonds for federal income tax purpose, the City covenants to comply with all applicable requirements of the Code, and any Regulations which are necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, that: (a) Private Activity. The City will take no action or refrain from taking any action or make any use of the proceeds of the Bonds issued on a tax - exempt basis or of any other monies or property which would cause the Bonds issued on a tax - exempt basis to be "private activity bonds" within the meaning of Section 141 of the Code; 21 DOCSOC/ 1551875v3 /200119 -0006 (b) Arbitrage. The City will make no use of the proceeds of the Bonds issued on a tax - exempt basis or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the Bonds issued on a tax - exempt basis to be "arbitrage bonds" within the meaning of Section 148 of the Code; (c) Federal Guaranty. The City will make no use of the proceeds of the Bonds issued on a tax - exempt basis or take or omit to take any action that would cause the Bonds issued on a tax - exempt basis to be "federally guaranteed" within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code; (e) Hedge Bonds. The City will make no use of the proceeds of the Bonds issued on a tax - exempt basis or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the Bonds issued on a tax - exempt basis to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Bonds issued on a tax - exempt basis for federal income tax purposes; (f) Miscellaneous. The City will take no action or refrain from taking any action inconsistent with its expectations stated in that certain Tax Certificate executed by the City in connection with each issuance of Bonds issued on a tax - exempt basis and will comply with the covenants and requirements stated therein and incorporated by reference herein; (g) Subsequent Opinions. If the City obtains a subsequent opinion of Bond Counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation ( "SYCR" ), where such opinion is required in connection with a change or amendment to this Resolution or the procedures set forth in the Tax Certificate, it will obtain an opinion substantially to the effect 22 DOCSOC/1 551875v3/200119-0006 originally delivered by SYCR that interest on the Bonds is excluded from gross income for federal income tax purposes. SECTION 16. Defeasance. The Bonds may be defeased in whole or in part prior to maturity by irrevocably depositing with the City in a separate account of the Debt Service Fund to be held separate and apart from all other funds of the City, and which is irrevocably pledged to the Bonds so defeased (or an entity designated by the Director of Finance to act as escrow agent with respect thereto): (a) An amount of cash which together with amounts then on deposit in the Debt Service Fund, is sufficient, without reinvestment, to pay and discharge all or part of the Bonds outstanding (including all principal, interest and premium, if any) at or before their stated maturity date; or (b) Federal Securities not subject to call, together with cash, if required, in such amount as will, without reinvestment, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Debt Service Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all of the corresponding Bonds (including all principal and interest and premium, if any) to be defeased at or before their stated maturity date. In such event, notwithstanding that any of the Bonds shall not have been surrendered for payment, all obligations of the City with respect to all said outstanding Bonds shall cease and terminate, except only the obligation of the City to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) of this Section, to the owners of said Bonds not so surrendered and paid all sums due with respect thereto; provided that the City shall have received an opinion of bond counsel for said Bonds, that said Bonds have been defeased. SECTION 17. Supplemental Resolutions. 23 DOC SOC/ 1551875v3/200119 -0006 (a) This Resolution, and the rights and obligations of the City and of the Owners of the Bonds issued hereunder, may be modified or amended at any time by a supplemental resolution adopted by the City with the written consent of Owners owning at least 60% in aggregate principal amount of the outstanding Bonds, exclusive of Bonds, if any, owned by the City; provided, however, that no such modification or amendment shall, without the express consent of the Owner of each Bond affected, reduce the principal amount of any Bond, reduce the interest rate payable thereon, advance the earliest redemption date thereof, extend its maturity or the times for paying interest thereon or change the monetary medium in which principal and interest is payable, nor shall any modification or amendment reduce the percentage of consents required for amendment or modification. No such supplemental resolution shall change or modify any of the rights or obligations of any Paying Agent without its written assent thereto. Notwithstanding anything herein to the contrary, no such consent shall be required if the Owners are not directly and adversely affected by such amendment or modification. (b) This Resolution, and the rights and obligations of the City and of the Owners of the Bonds issued hereunder, may be modified or amended at any time by a supplemental resolution adopted by the City without the written consent of the Owners; (i) To add to the covenants and agreements of the City in this Resolution, other covenants and agreements to be observed by the City which are not contrary to or inconsistent with this Resolution as theretofore in effect; To add to the limitations and restrictions in this Resolution, other limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this Resolution as theretofore in effect; (iii) To confirm as further assurance any pledge under, and the subjection to any lien or pledge created or to be created by, this Resolution, of any moneys, securities or funds, or to establish any additional funds or accounts to be held under this Resolution; 24 DOCS 0 C/ 1551875v3/200119 -0006 (iv) To cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in this Resolution; or (v) To amend or supplement this Resolution in any other respect, provided such supplemental resolution does not adversely affect the interests of the Owners. (c) Any act done pursuant to a modification or amendment so consented to shall be binding upon the Owners of all the Bonds and shall not be deemed an infringement of any of the provisions of this Resolution, whatever the character of such act may be, and may be done and performed as fully and freely as if expressly permitted by the terms of this Resolution, and after consent relating to such specified matters has been given, no Owner shall have any right or interest to object to such action or in any manner to question the propriety thereof or to enjoin or restrain the City or any officer or agent of the City from taking any action pursuant thereto. SECTION 18. Resolution to Constitute Contract. In consideration of the purchase and acceptance of any and all of the Bonds authorized to be issued hereunder by those who shall own the same from time to time, this Resolution shall be deemed to be and shall constitute a contract by and between the City and the Owners from time to time of the Bonds; and the pledge made in this Resolution shall be for the equal benefit, protection and security of the Owners of any and all of the Bonds, all of which, regardless of the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof. SECTION 19 Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of its obligations under its Continuing Disclosure Certificate to be executed and delivered by the City in connection with the issuance of the Bonds. Notwithstanding any other provision of this Resolution, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an event of default under this Resolution; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations 25 D O CSOC/ 1551875v3/200119 -0006 under this Section 19. For purposes of this Section, `Beneficial Owner" means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). [REMAINDER OFPAGEINTENTIONALLYLEFTBLANK] 26 D OCSOC/ 1551875v3 /200119 -0006 SIGNED AND APPROVED as of May 1, 2012. CITY OF SANTA MONICA [SEAL] By: Its: ATTEST: City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney S -1 DOCSOC/ 1551875v3/200119 -0006 Mayor R-_ EXHIBIT A UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE SUPPLEMENT TO RESOLUTION NO. TO THE PAYING AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANYPA YMENTIS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF LOS ANGELES CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BOND SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) INTEREST RATE MATURITYDATE DATED DATE CUSIP NO. REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: AND NO /100 DOLLARS THE CITY OF SANTA MONICA, a charter city situated in the County of Los Angeles, State of California (the "City "), duly organized and existing under and by virtue of the Constitution and laws of the State of California, hereby acknowledges its indebtedness and promises to pay to the registered owner named above or registered assigns (the "Registered Owner "), the Principal Amount stated above on the Maturity Date stated above, and to pay such registered owner by check mailed by first class mail, postage prepaid, thereto at its address as it appears on the register kept by the Paying Agent at the close of business on the fifteenth day of the month preceding the Interest Payment Date (as hereinafter defined) (the "Record Date "), or, at the request of an owner of in excess of $1,000,000 aggregate principal amount of bonds, by wire transfer, interest on such principal amount on each July 1 and January 1, commencing January 1, 2013 (each, an "Interest Payment Date ") next preceding the date of authentication (unless (i) the date of authentication is prior to the first Record Date in which event from the Dated Date shown above, (ii) the date of authentication is after a Record Date and before the following Interest Payment Date in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated as of an Interest Payment Date, in which event it shall bear interest from such date until the Principal Amount hereof shall have been paid or provided for in accordance with Resolution No. (CCS) adopted by the City Council of the City on , 2012, as supplemented by Supplement to Resolution No. , dated as of May 1, 2012, executed A -1 DOCSOC /1551875v3 /200119 -0006 in connection therewith (as supplemented, the "Resolution "), at the interest rate stated above, payable on each Interest Payment Date. Principal and any premium upon the redemption prior to the maturity of all or part hereof are payable at the principal corporate trust office of The Bank of New York Mellon Trust Company, N.A., Paying Agent for the Bonds (the "Paying Agent'), in Los Angeles, California. All such amounts are payable in lawful money of the United States of America. Capitalized terms used herein and not defined shall have the meanings given such terms in the Resolution. The principal of and interest on the Bonds shall be paid from taxes levied for the payment thereof as set forth in the Resolution, which taxes shall be levied exclusively upon the taxable property in the City. This Bond is issued in fully registered form. It may be exchanged for a like aggregate principal amount of bonds of other authorized denominations of the same series and maturity, all as more fully set forth in the Resolution. This Bond is transferable by the Registered Owner hereof, in person or by its attorney duly authorized in writing, at the designated corporate trust office of the Paying Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Resolution, upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond of authorized denomination or denominations for the same aggregate principal amount of the same series and maturity will be issued to the transferee in exchange therefor. Bonds are not subject to optional or mandatory sinking fund redemption prior to maturity. The City and the Paying Agent may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Paying Agent shall not be affected by any notice to the contrary. This Bond shall not be entitled to any benefit under the Resolution, or become valid or obligatory for any purpose, until the certificate of authentication hereon endorsed shall have been signed by the Paying Agent. The rights and obligations of the City and of the registered owners of the Bonds may be amended at any time, and in certain cases without notice to or consent of the registered owners, to the extent and upon the terms provided in the Resolution. It is hereby recited, certified and declared that the total amount of indebtedness of the City, including the amount of this Bond, is within the limit provided by law and that any and all acts, conditions and things required to exist, to happen and to be performed precedent to and in the issuance of this Bond exist, have happened and have been performed in due time, form and manner as required by the Constitution and laws of the State of California. A -2 DOCS OC/1551875v3/200119 -0006 IN WITNESS WHEREOF, THE CITY OF SANTA MONICA has caused this Bond to be signed by the Mayor and the City Treasurer of said City, and countersigned by the City Clerk of said City, by their facsimile signatures. CITY OF SANTA MONICA By: Its: Mayor By: Its: City Treasurer COUNTERSIGNED: City Clerk of the City of Santa Monica A -3 DOCSOC/1551875v3/200119 -0006 [FORM OF CERTIFICATE OF AUTHENTICATION] This is one of the fully registered Bonds described in the within - mentioned Resolution. Date of Authentication: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Paying Agent By: Its: Authorized Signatory [FORM OF LEGAL OPINION] The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a Professional Corporation, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office. City Clerk of the City of Santa Monica A -4 DOCSOC/ 1551875v3/200119 -0006 [FORM OF ASSIGNMENT] For value received, the undersigned do(es) hereby sell, assign and transfer unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within Bond and do(es) hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Paying Agent with full power of substitution in the premises. Dated: Signature Guarantee: Notice: Signature(s) must be guaranteed by a Notice: The signature on this assignment must qualified guarantor. correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. . A -5 DOCS OC/ 1 551875 v3 /200119 -0006 o G � a y � a a c U �4C p� O .o 0 o c 0 ,a o °c ~ 0 0 0 0 >~ v � C V O N U vUi N " �p 4� aw o °a h o a n U U 4 acJi c o C = N O o x a C W O va y 0 � O ,o, v I P� y I � p ATTACHMENT C PRELIMINARY OFFICIAL STATEMENT DATED 2012 NEW ISSUE —BOOK -ENTRY ONLY RATINGS: Fitch: Moody's: S &P: 4G » (See "RATINGS" herein) In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, 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. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income taxes. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to the Bond constitutes original issue discount. See "LEGAL MATTERS" herein. $ CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) Dated: Date of Delivery Due: July 1 as shown below The general obligation bonds captioned above (the "Bonds ") are being issued by the City of Santa Monica (the "City") under the provisions of Chapter 4 (commencing with Section 43600) of Division 4 of Title 4 and Articles 9 and 11, Chapter 3, Part 1 of Division 2 of the California Government Code, pursuant to Resolution No. _(CCS) and Supplement to Resolution No. _(CCS), each adopted by the City Council of the City on 2012 (as supplemented, the "Resolution "). The City has appointed The Bank of New York Mellon Trust Company; N.A. (the "Paying Agent ") to act as paying agent for the Bonds. The Bonds are being issued to refund the City of Santa Monica General Obligation Bonds Series 2002 (Library Improvement Project) (the "Refunded Bonds "). The Refunded Bonds were authorized at an election of the registered voters of the City held on November 3, 1998, at which more than two - thirds of the persons voting on the proposition voted to authorize the issuance and sale of not to exceed $25,000,000 principal amount of general obligation bonds to construct, improve and remodel the City's Main and branch libraries and related facilities (the "Project "). See "REFUNDING PLAN Purpose of Issue" herein. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied on behalf of the City and collected by Los Angeles County (the "County"). The City Council is empowered to direct the County, and the County is obligated to levy ad valorem taxes for the payment of principal of and interest on the Bonds upon all property subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS" herein. The Bonds will be issued in book -entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( "DTC "). The Bonds are issuable as fully registered securities in denominations of $5,000 or any integral multiple of $5,000. Purchasers of the Bonds (the "Beneficial Owners ") will not receive physical certificates representing their interest in the Bonds. See "THE BONDS" herein and APPENDIX 17---"DTC AND THE BOOK -ENTRY ONLY SYSTEM." Interest on the Bonds accrues from the date of delivery and is payable semiannually on January 1 and July 1 of each year, commencing January 1, 2013. Payments of principal of and interest on the Bonds will be paid by the Paying Agent, to DTC for subsequent disbursement to DTC Participants, which will remit such payments to the Beneficial Owners of the Bonds. See "THE BONDS — Description of the Bonds" herein. The Bonds are not subject to optional or mandatory sinking fund redemption prior to maturity. See "THE BONDS— Redemption" herein. DOC SOC/1551522v4 /200119 -0006 CITY OF SANTA MONICA General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) MATURITY SCHEDULE Serial Bonds CUSIP, Prefix Maturity Principal Interest (July 1) Amount Rate 07/01/2012 07/01/2013 07/01/2014 07/01/2015 07/01/2016 07/01/2017 07/01/2018 07/01/2019 07/01/2020 07/01/2021 07/01/2022 CUSIPt Yield Suffix — % Term Bonds maturing July 1, 20_; Yield: %— CUSIPt: The Bonds will be offered for sale pursuant to competitive bid on or about 2012. This cover page contains information for general reference only. It is not a summary of this issue. Potential purchasers of the Bonds are advised to read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds will be offered when, as and if issued and received by the Underwriter subject to the approval of legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Stradling Yocca Carlson & Rauth is also acting as Disclosure Counsel to the City. Certain matters will be passed upon for the City by the City Attorney. It is expected that the Bonds, in book - entry form, will be available for delivery on or about May _, 2012. Dated: 2012 t t Copyright 2011, American Bankers Association. CUSIe data herein in provided by Standard & Poor Is, CUSIP' Service Bureau, a division of The McGraw -Bill Companies, Inc. The City takes no responsibilityfor the accuracy ofsuch data. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of the holders of the Bonds. The City is not responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Bonds a• as included herein. The CUSIP number far a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part m• as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. DOC SOC/ 1551522v4/200119 -0006 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in pail, for any other purpose. This Official Statement is not a contract between any bond owner and the City or the Underwriter. This Official Statement and the information contained herein are subject to completion or amendment without notice. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the City or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the City, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward - looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Information in Official Statement. The information set forth in this Official Statement has been furnished by the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by the City. The City maintains a website. Unless specifically indicated otherwise, the information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds. Document Summaries. All summaries of the Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety by reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the City, or the other parties described in this Official Statement, or the condition of the property within the City since the date of this Official Statement. DOCSO C/ 1551522v4/200119 -0006 CITY OF SANTA MONICA (County of Los Angeles, California) City Council Richard Bloom, Mayor Gleam Davis, Mayor Pro Tempore Robert T. Holbrook Pam O'Connor Kevin McKeown Terry O'Day Bobby Shriver City Manager Rod Gould City Attorney Marsha Jones Moutrie City Clerk Maria M. Stewart Director ofFinance,10ty Treasurer Gigi Decavalles- Hughes PROFESSIONAL SERVICES FinancialAdvisor Public Resources Advisory Group Los Angeles, California Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California PayingAgent/Escrow Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California DOCSOC/1551522v4/200119-0006 TABLE OF CONTENTS Page INTRODUCTION................................................................................................................. ............................... 1 THEREFUNDING PLAN .................................................................................................... 3 ............................... Sourcesand Uses of Funds ................................................................................................ ............................... 4 THEBONDS ...........................................................................................:............................. ............................... 4 Authorityfor Issuance ....................................................................................................... ............................... 4 Descriptionof the Bonds ................................................................................................... ............................... 4 Redemption....................................................................................................................... ............................... 6 Registration, Transfer and Exchange of Bonds ................................................................. ............................... 6 DebtService ...................................................................................................................... ............................... 6 Creation and Establishment of Funds ................................................................................ ............................... 6 TaxCovenants ................................................................................................................... ............................... 8 Amendmentto Resolution ................................................................................................. ............................... 9 Defeasance........................................................................................................................ ............................... 9 DEBTSERVICE SCHEDULE ........................................................................................... ............................... 10 SECURITYFOR THE BONDS ......................................................................................... ............................... 10 AdValorem Taxes ........................................................................................................... ............................... 10 LimitedObligation .......................................................................................................... ............................... 11 PROPERTYTAXATION ................................................................................................... ............................... 11 Property Tax Collection Procedures ................................................................................ ............................... 11 Taxation of State - Assessed Utility Property ................................................................... ............................... 12 AssessedValuation .......................................................................................................... ............................... 13 TaxRates ......................................................................................................................... 14 ............................... Tax Levies and Delinquencies on Outstanding City General Obligation Bonds ............. ............................... 15 MajorTaxpayers .............................................................................................................. ............................... 16 Directand Overlapping Debt ........................................................................................... ............................... 16 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS........................................................................................................... ............................... 18 Article XIIIA of the State Constitution ........................................................................... ............................... 18 Legislation Implementing Article XIIIA ......................................................................... ............................... 18 Article XIIIB of the State Constitution ........................................................................... ............................... 19 Articles XIIIC and XIIID of the State Constitution ......................................................... ............................... 19 Proposition62 ................................................................................................................. ............................... 20 PropositionIA ................................................................................................................... .............................20 PossibleFuture Initiatives ............................................................................................... ............................... 21 LEGALMATTERS ............................................................................................................ ............................... 21 Approvalof Legal Proceedings ....................................................................................... ............................... 21 Absenceof Material Litigation ........................................................................................ ............................... 21 TaxMatters ..................................................................................................................... ............................... 21 CONTINUINGDISCLOSURE .......................................................................................... ............................... 23 RATINGS............................................................................................................................ ............................... 23 FINANCIALADVISOR ..................................................................................................... ............................... 24 UNDERWRITING.............................................................................................................. ............................... 24 FINANCIAL STATEMENTS OF THE CITY ................................................................... ............................... 24 EXECUTION...................................................................................................................... ............................... 24 i DOCSOC/ I551522v4/200119 -0006 TABLE OF CONTENTS (continued) Page APPENDIX A GENERAL DEMOGRAPHIC AND ECONOMIC INFORMATION REGARDING ii DOCSO C/1551522vV200119 -0006 THE CITY OF SANTA MONICA AND LOS ANGELES COUNTY . ............................... A -1 APPENDIX B CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2011 ............................... ............................B -I APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL ...................... ............................0 -1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE ................ ............................... D -1 APPENDIX E DTC AND THE BOOK -ENTRY ONLY SYSTEM ... ............................... ............................E -1 ii DOCSO C/1551522vV200119 -0006 S CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) The purpose of this Official Statement, which includes the cover page and attached appendices, is to set forth certain information concerning the sale and delivery of the bonds captioned above (the "Bonds ") by the City of Santa Monica (the "City "). All capitalized terms used in this Official Statement, unless noted otherwise, have the meanings set forth in the Resolution (as defined below). INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of Bonds to potential investors is made only by means of the entire Official Statement. The City. 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, 2011, had an estimated population of 90,174 persons. The City of Santa Monica was incorporated in 1886 and adopted its City Charter in 1945. The City has a Council- Manager form of government made up of seven City Council Members elected to four-year overlapping terms. [The City provides police protection, fire protection, animal control, emergency medical aid, building safety regulation and inspection, street lighting, water, wastewater and stormwater service, refuse collection, land use planning, and zoning, maintenance and improvement of street and related structures, traffic safety maintenance and improvement, and recreational and cultural programs for citizen participation. In addition, the City operates an airport, bus line, cemetery, pier and civic auditorium.] See APPENDIX A----"GENERAL DEMOGRAPHIC AND .ECONOMIC INFORMATION REGARDING THE CITY OF SANTA MONICA AND LOS ANGELES COUNTY" and APPENDIX B— "CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2011," for certain demographic, statistical and financial information regarding the City. Authority for Issuance. The Bonds were authorized at an election of the registered voters of the City held on November 3, 1998, at which more than two- thirds of the persons voting on the proposition voted to authorize the issuance and sale of not to exceed $25,000,000 principal amount of general obligation bonds (the "Authorization "). Purpose for Issuance. The Bonds are being issued to refund the City of Santa Monica General Obligation Bonds Series 2002 (Library Improvement Project) (the "Refunded Bonds ") issued in the aggregate principal amount of $25,000,000. The Refunded Bonds were authorized at an election of the registered voters of the City held on November 3, 1998, at which more than two - thirds of the persons voting on the proposition voted to authorize the issuance and sale of not to exceed $25,000,000 principal amount of general obligation bonds to construct, improve and remodel the City's Main and branch libraries and related facilities (the "Project "). See "REFUNDING PLAN — Purpose of Issue." The Bonds are being issued under the provisions of Chapter 4 (commencing with Section 43600) of Division 4 of Title 4 and Articles 9 and 11, Chapter 3, Part 1 of Division 2 of the California Government Code and Resolution No. _(CCS) and Supplement to Resolution No. _(CCS), dated as of May 1, 2012, each adopted by the City Council of the City (the "City Council ") on , 2012 (as supplemented, the "Bond Resolution "). The Refunded Bonds were the first and only series of bonds to be sold and issued under this DOCSOC/ 1551522v4/200119-0006 authorization. See "THE BONDS — Authority for Issuance." The City has appointed The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent ") to act as paying agent for the Bonds. Security and Sources of Payment for the Bonds. The Bonds are general obligations of the City payable solely from ad valorem property taxes levied and collected by the County. The City Council is empowered to direct the County and the County is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the City subject to taxation by the City, without limitation of rate or amount (except with respect to certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS." Payment and Registration of the Bonds. The Bonds will be dated their date of original issuance and delivery (the "Dated Date ") and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple of $5,000, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( "DTC "), and will be available under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described below. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See "THE BONDS" and APPENDIX E — "DTC AND THE BOOK -ENTRY ONLY SYSTEM." Interest on the Bonds accrues from the Dated Date and is payable semiannually on January 1 and July I of each year, commencing January 1, 2013. See "THE BONDS — Description of the Bonds." Early Redemption. The Bonds are not subject to optional and mandatory sinking fund redemption prior to their maturity as described in "THE BONDS — Redemption." Other Information. This Official Statement speaks only as of its date, and the information contained herein is subject to change. The City's financial statements for the fiscal year ended June 30, 2011 included as Appendix B hereto have been audited by Macias, Gini & O'Connell LLP, certified public accountants, Los Angeles, California (the "Auditor "). See Appendix B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,2011" herein. The City's financial statements 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. Copies of documents referred to in this Official Statement and information concerning the Bonds are available from the City of Santa Monica City Clerk, 1685 Main Street, Santa Monica, California 90401 (310) 458 -8411. The City may impose a charge for copying, mailing and handling. DOCSOC/ 1551522v4/200119 -0006 THE REFUNDING PLAN Purpose of Issue. The Bonds are being issued to refund the Refunded Bonds. The Refunded Bonds were authorized at an election of the registered voters of the City held on November 3, 1998, at which more than two- thirds of the persons voting on the proposition voted to authorize the issuance and sale of not to exceed $25,000,000 principal amount of general obligation bonds to construct, improve and remodel the City's Main and branch libraries and related facilities (the "Project "). The Refunded Bonds were issued in 2002 in the aggregate principal amount of $25,000,000 and are currently outstanding in the amounts set forth below (exclusive of Refunded Bonds maturing July 1, 2012, debt service for which has been fully funded). THE REFUNDED BONDS Maturity Principal (July 1) Amount CUSIP 2013 $ 1,250,000 802377BU4 2014 1,250,000 802377BV2 2015 1,250,000 802377BWO 2016 1,250,000 802377BX8 2017 1,250,000 802377BY6 2018 1,250,000 802377BZ3 2019 1,250,000 802377CA7 2020 1,250,000 802377CB5 2021 1,250,000 802377CC3 2022 1.250,000 802377CDI 12.500.000 preliminary, subject to change [The Project consisted specifically of the construction of a new main library of the City located at 601 Santa Monica Boulevard in the City and certain other library improvements. All of the proceeds of the Refunded Bonds have been expended and the Project has been completed.] Refunding Plan. The 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 $ at a redemption price equal to the principal amount thereof plus accrued interest to July 1, 2012, the date of redemption. Pursuant to the Resolution, the Authority will deliver a portion of the proceeds of the Bonds to the Paying Agent to transfer to the Escrow Agent for deposit in an escrow fund (the "Escrow Fund ") established under the Escrow Agreement, dated as of May 1, 2012, by and between the City and the Escrow Agent (the "Escrow Agreement "). Proceeds of the Bonds and other moneys held in the Escrow Fund to redeem a portion of 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 being called for redemption on July 1, 2012, together with accrued interest to the redemption date. 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. DOCSOC/ 1551522v4/200119 -0006 Sources and Uses of Funds The estimated sources and uses of funds with respect to the Bonds will be applied as follows: Sources of Funds Principal Amount of Bonds Plus: Reoffering Premium Total Sources Uses of Funds Deposit to Escrow Fund Deposit for Costs of Issuance( �) Underwriter's Discount Deposit to Debt Service Fund Total Uses $ .00 Includes Bond Counsel and Disclosure Counsel fees, financial advisor fees, rating fees, printing expenses and other costs of issuance with respect to the Bonds. THE BONDS Authority for Issuance The Bonds are issued under the provisions of Chapter 4 (commencing with Section 43600) of Division 4 of Title 4, and Articles 9 and 11, Chapter 3, Part 1 of Division 2 of the California Government Code (the "Law" and the "Bond Law" respectively) and the Resolution to refinance the Refunded Bonds. Pursuant to the provisions of the Law, as amended, and pursuant to Ordinance No. 1919 (CCS) adopted by the City Council of the City on July 28, 1998 (the "Ordinance "), a special election was held on November 3, 1998 in the City at which there was submitted to the voters the following proposition: "To construct, improve and remodel the Main and branch libraries and related facilities, shall the City of Santa Monica incur general obligation bonded indebtedness in the principal amount ofnot.to exceed $25 Million?" More than two- thirds of the votes cast at the election were in favor of the incurring of such indebtedness. The Refunded Bonds were the only bonds issued pursuant to this voter approval and were issued in the original principal amount of $25,000,000. Pursuant to the Bond Law, the City Council of the City is now authorized to provide for the form of bonds of the City and for the issuance of any part thereof to refinance the Refunded Bonds. The Bonds are payable as to principal and interest from ad valorem taxes levied exclusively upon the taxable property within the City as permitted by law. See "SECURITY FOR THE BONDS" herein. Description of the Bonds Paying Agent. The Bank of New York Mellon Trust Company, N.A., located in Los Angeles, California, will act as the registrar, transfer agent, and paying agent for the Bonds (the "Paying Agent "). Book -Entry Form. The Bonds will be issued in book -entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( "DTC "). Purchasers of the Bonds (the `Beneficial Owners ") will not receive physical certificates representing their interest in the Bonds. 'Payments of principal of and interest on the Bonds will be paid by the DOCSO C/1551522v4/200119 -0006 Paying Agent to DTC for subsequent disbursement to DTC Participants which will remit such payments to the Beneficial Owners of the Bonds. As long as DTC's book -entry method is used for the Bonds, the Paying Agent will send any notice of prepayment or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the prepayment of the Bonds called for prepayment or of any other action premised on such notice. The Paying Agent, the City, and the Underwriter of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Bonds. In the event that either (i) DTC determines not to continue to act as securities depository for the Bonds, or (ii) the City determines to terminate DTC as a securities depository for the Bonds, then the City will discontinue the book entry system with DTC. If the City fails to identify another securities depository to replace DTC, then the Bonds shall no longer be required to be registered in the registration books maintained by the Paying Agent in the name of DTC, but shall be registered in whatever name or names the owners transferring or exchanging Bonds shall designate, in accordance with the provisions of the Resolution. See APPENDIX E — "DTC AND THE BOOK -ENTRY ONLY SYSTEM." Payment of Principal and Interest. The Bonds will be dated their Dated Date, will bear interest from their Dated Date, payable semiannually on January 1 and July 1 (each, and "Interest Payment Date "), commencing January 1, 2013, and will mature on July 1 in each of the designated years and in the principal amounts shown on the cover of this Official Statement. Interest will be calculated on the basis of a 360 -day year composed of twelve 30 -day months. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication with respect to which interest has been paid or provided for (unless (i) the date of authentication is prior to the first Regular Record Date, in which event from the Dated Date, (ii) the date of authentication is after a Regular Record Date and before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated as of an Interest Payment Date, in which event it shall bear interest from such date) until the principal thereof shall have been paid. The Bonds will be in fully registered form, without coupons, in the denominations of $5,000 or any integral multiple thereof, provided that no Bond will have principal maturing on more than one principal maturity date. Interest on each Bond shall be paid by the Paying Agent by check mailed by first class mail, postage prepaid, on the Interest Payment Date to the owner as his or her name and address appear on the register kept by the Paying Agent at the close of business on the applicable Record Date. At the request of any owner of at least $1,000,000 in aggregate principal amount of Bonds, interest on the Bonds will be paid by wire transfer in immediately available funds if such request is made at least fifteen days before the Record Date for such payment, any such designation to remain in effect until withdrawn. Principal of the Bonds is payable in lawful money of the United States of America at the principal office of the Paying Agent in Los Angeles, California. Denominations and Maturity. The Bonds will be issued in the denomination of $5,000 each or any integral multiple of $5,000. The Bonds mature July 1 in the years 2011 through 2031, in the amounts set forth on the cover page of this Official Statement. See the maturity schedule on the cover page hereof and "DEBT SERVICE SCHEDULE" below. DOCSOC/ 1551522v4 /200119 -0006 Redemption No Optional or Mandatory Redemption. The Bonds are not subject to optional or mandatory sinking fund redemption prior to maturity. Registration, Transfer and Exchange of Bonds The Paying Agent shall keep or cause to be kept sufficient books for the registration and transfer of the Bonds (the "Bond Register "), which shall at all times be open to inspection by the City upon reasonable notice; and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the Bands. In the event that the book entry system as described above is no longer used with respect to the Bonds, the followingprovisions will govern the registration, transfer, and exchange of the Bonds. Any Bond may, in accordance with its terms, be transferred, upon the registration books required to be kept by the Paying Agent, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such fully registered Band for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. Whenever any Bond or Bonds shall be surrendered for transfer, the Paying Agent shall authenticate and deliver a new Bond or Bonds of the same series and maturity, for the like aggregate principal amount of Bond or Bonds surrendered. Bonds may be exchanged at the principal corporate trust office of the Paying Agent in Los Angeles, California, for a like aggregate principal amount of Bonds of other authorized denominations of the same series and maturity. The person, firm or corporation requesting the transfer or exchange shall pay any costs or charges in connection with the transfer or exchange as are established by the Paying Agent, in addition to paying any tax or governmental charge that may be imposed in connection with the transfer or exchange. The Paying Agent shall not be required, however, to register a transfer or make an exchange of any Bond (i) during the 15 days before the selection of Bonds for redemption, or (ii) if such Bond has been called for redemption in whole or in part. Debt Service Pursuant to the Resolution, the City Treasurer will transfer available monies from the Debt Service Fund (as defined herein) to the Paying Agent in amounts sufficient and at such time as are necessary to promptly pay principal and interest on the Bonds as such shall become due. Creation and Establishment of Funds Costs of Issuance Fund. The proceeds of the sale of the Bonds not required for the defeasance and refunding of the Refunded Bands pursuant to the Escrow Agreement (and except premium, if any, which shall be deposited in the Debt Service Fund (as hereinafter defined) shall be forthwith placed in the treasury of the City to the credit of the "City of Santa Monica, Series 2012 General Obligation Refunding Bond Costs of Issuance Fund," (the "Costs of Issuance Fund ") and the moneys in said fund shall be disbursed from time to time by the City and applied exclusively to the authorized costs of issuance of the Bonds. Debt Service Fund. All moneys derived from such taxes and all other moneys allocated and designated for payment of said Bonds and the interest thereon shall be placed in a fund of the City and designated "City of Santa Monica General Obligation Refunding Bond Series 2012 Debt Service Fund" (the 6 DOCS OC/1551522v4/200119-0006 "Debt Service Fund ") (and accounts therein to the extent created pursuant to the Resolution), shall be kept separate and apart from all other funds of the City (and are irrevocably pledged for the payment of the Bonds in accordance with the purpose and intent of the Resolution), and until all of said Bonds and all interest thereon have been fully paid (or defeased) the moneys in said fund shall be used for no other purpose than the payment of said Bonds or additional series of bonds issued by the City pursuant to the authorization of Measure A and the interest thereon; provided, however, that when all of the principal and interest on all of the Bonds have been paid, any balance of money then remaining in said funds shall be transferred to the general fund of the City. Interest earned on the investment of monies in the Debt Service Fund shall be retained in the Debt Service Fund and used by the City to pay principal and interest on the Bonds when due. Bond Fund. The City shall transfer available monies from the Debt Service Fund to the Paying Agent in amounts sufficient and at such time as are necessary to promptly pay principal (including mandatory sinking fund payments), interest and redemption premium, if any, on the Bonds as such shall become due; and the Paying Agent shall establish a fund designated the "City of Santa Monica Series 2012 General Obligation Refunding Bond Bond Fund" (the "Bond Fund ") for such purpose and shall make payments to the Bond Owners of principal (including mandatory sinking fund payments), interest and redemption premium, if any, on the Bonds as such shall become due; provided that, in the event of any deficiencies, moneys on deposit in the Bond Fund shall be applied first to the payment of interest and then to the payment of principal and, in all such cases, ratably and without preference among all maturities. Rebate Fund. The City shall calculate rebatable arbitrage for the Bonds and shall pay required amounts to the United States Government pursuant to the Internal Revenue Code of 1986, as amended (the "Code "). Moneys in the Debt Service Fund and in the Bond Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same becomes due. Investment of Funds. The City, or the Paying Agent at the direction of the City, shall sell at the best price obtainable, or present for redemption, any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment of transfer to such funds and accounts or from such funds and accounts. For the purpose of determining at any given time the balance in any such funds, any such investments constituting a part of such funds and accounts shall be valued at their market value. Pursuant to the Resolution, Authorized Investments means any investments permitted by law to be made with any moneys belonging to or in custody of the City and by any policy guidelines adopted by the City. Currently, the City is authorized by the Resolution to invest in the following (subject to any limitations in the City's Investment Policy (as amended from time to time, the "Investment Policy "), as it may exist from time to time): Generally approved qualifying investment instruments: a. Obligations of the U.S. Government, its agencies, and instrumentalities. b. Certificates of deposit with banks and savings and loans doing business in the State of California. C. Prime Banker's Acceptances. d. Prime Commercial Paper. DOCSOC/ 1551522v4/200119 -0006 e. Repurchase Agreements and Money Market Funds whose underlying collateral consists of the foregoing. Los Angeles County's Investment Pool for local agencies, which includes the purchase of Reverse Repurchase Agreements. g. Pools and other investment structures incorporating investments listed in a. through C. 2. Generally approved qualifying investment instruments for City funds, as further limited by the investment policy: a. United States Treasury Bills, Bonds, and Notes, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. b. Obligations issued by the United States Government Agencies such as the Government National Mortgage Association (GNMA), Federal Farm Credit Bank System (FFCB), the Federal Home Loan Bank Board (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA), and the Student Loan Marketing Association (SLMA). C. Bills of exchange or time drafts drawn on and accepted by a commercial bank otherwise known as banker's acceptances. Purchases of banker's acceptances may not exceed 180 days to maturity. d. Commercial paper ranked Pt by Moody's Investor Services and Al by Standard and Poor's, and issued by a domestic corporation having assets in excess of $500 million and having an A or better rating on its long -term debentures as provided by Moody's or Standard and Poor's. e. Local Agency Investment Fund. The City may invest in the Local Agency Investment Fund (LAIF) established by the State Treasurer for the benefit of local agencies up to the maximum amount permitted by State law. f. Money market funds rated in the highest category of Moody's or Standard and Poor's, or administered by a domestic bank with long -term debt rated in one of the top two categories of Moody's or Standard and Poor's. Pursuant to the City's Investment Policy, the concentration, maturity and type of investments is further restricted. The investments are directed by the City Treasurer or other City officials to whom such function is delegated, in accordance with the procedures set forth in the investment policy. The City's Investment Policy is subject to change by the City from time to time. Tax Covenants In order to preserve the exclusion from gross income for federal income tax purposes of interest due with respect to the Bonds, the City covenants to comply with all applicable requirements of the Code, together with any amendments thereto or regulations promulgated thereunder necessary to preserve such exclusion. See "LEGAL MATTERS —Tax Matters" herein. DOCSOC/ 1551522v4/200119-0006 Amendment to Resolution The Resolution may be modified or amended at any time by a supplemental resolution adopted by the City with the written consent of Owners owning at least 60% in aggregate principal amount of the outstanding Bonds under the circumstances set forth in the Resolution; provided, however, that no such modification or amendment shall, without the express consent of the Owner of each Bond affected, reduce the principal amount of any Bond, reduce the interest rate payable thereon, advance the earliest redemption date thereof, extend its maturity or the times for paying interest thereon or change the monetary medium in which principal and interest is payable, nor shall any modification or amendment reduce the percentage of consents required for amendment or modification. In addition, amendments to the Resolution may be made without the consent of the owners to add to the covenants and agreements of the City, to cure any ambiguity or defect or to amend or supplement the Resolution in any other respect, provided such supplemental resolution does not adversely affect the interests of the Owners. Defeasance The Bonds may be defeased in whole or in part prior to maturity by irrevocably depositing with the City (or an entity designated by the City to act as escrow agent with respect thereto): (a) An amount of cash which together with amounts then on deposit in the Debt Service Fund, is sufficient, without reinvestment, to pay and discharge all or pail of the Bonds outstanding (including all principal, interest and premium, if any) at or before their stated maturity date; or (b) Federal Securities (as hereinafter defined).not subject to call, together with cash, if required, in such amount as will, without reinvestment, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Debt Service Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all of the' corresponding Bonds (including all principal and interest and premium, if any) to be defeased at or before their stated maturity date. In such event, notwithstanding that any of the Bonds shall not have been surrendered for payment, all obligations of the City with respect to all said outstanding Bonds shall cease and terminate, except only the obligation of the City to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) above, to the owners of said Bonds not so surrendered and paid all sums due with respect thereto; provided that the City shall have received an opinion of bond counsel for said Bonds, that said Bonds have been defeased. For purposes of defeasance of the Bonds, "Federal Securities" shall mean United States Obligations (as defined below) (including the Department of the Treasury of the United States of America). "United States Obligations" shall mean direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America. DOCSOC/ 1551522v4/200119 -0006 DEBT SERVICE SCHEDULE The following table shows the semi - annual debt service schedule with respect to the Bonds (assuming no optional redemptions). Period Ending Principal Payment* Interest Payment Annual Debt Service 01/01/2013 07/01/2013 01/01/2014 07/01/2014 01/01/2015 07/01/2015 01/01/2016 07/01/2016 01/01/2017 07/01/2017 01/01/2018 07/01/2018 01/01/2019 07/01/2019 01/01/2020 07/01/2020 01/01/2021 07/01/2021 01/01/2022 07/01/2022 Totals * Includes mandatory sinking fund payments. SECURITY FOR THE BONDS Ad Valorem Taxes Bonds Payable from Ad Valorem Property Taxes. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied and collected pursuant to the Authorization. The City has the power, is obligated and has covenanted to direct the County to levy ad valorem taxes upon all property within the City subject to taxation without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of the Bonds and the interest thereon. All such taxes for the payment of principal and interest on such Bonds shall be established, levied and collected as provided in the provisions of Chapter 4 (commencing with Section 43600) of Division 4 of Title 4 of the California Government Code. The first such levy for the Bonds will occur in Fiscal Year 2012 -13. Levy and Collection. Each year, the City Council, so far as is practicable, shall fix such rate for a tax to be levied in the City as will result in revenues which will pay the interest on the Bonds, and provide a sinking or other fund for the payment of the principal of the Bonds as such principal may become due. The City Council shall determine the fiscal year for all of the amounts above set forth, and shall fix the rate of tax to be levied which will raise the amounts of money required by the City for such purposes, and as required by the provisions of the law, the City Council shall certify to the County Auditor of the County of Los Angeles (the "County Auditor ") the rate so fixed. [The City shall furnish to the County Auditor a statement in writing containing the following: (a) an estimate of the minimum amount of money required to be raised by taxation during the fiscal year for the payment of the principal of and interest on the Bonds, as will become due before the proceeds of a tax levied at the next general tax levy will be available] [DISCUSS]; and (b) any other items 10 DOCS OC/ 1551522v4/200119 -0006 required by the provisions of the Law. The County Auditor shall compute and enter in the County assessment roll the respective sums to be paid as a City tax on the property within the City using the property subject to the tax. Information regarding assessed valuation of taxable property in the City is set forth below under "TAX BASE FOR REPAYMENT OF BONDS." The City will levy and the County will collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service. Such taxes, when collected, will be deposited into the "City of Santa Monica Series 2012 General Obligation Refunding Bonds Debt Service Fund" (the "Debt Service Fund ") which is held by the City separate and apart from all other funds of the City and which is irrevocably pledged for the payment of principal of and interest on the Bonds when due. City property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property. Annual Tax Rates. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the City and the amount of debt service due on the Bonds. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the City will cause the annual tax rate to fluctuate. Economic and other factors beyond the City's control, such as economic recession, deflation of land values, a relocation out of the City or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood or other natural disaster, could cause a reduction in the assessed value within the City and necessitate a corresponding increase in the annual tax rate. Limited Obligation The Bonds are payable solely from the proceeds of an ad valorem tax levied by the City, and collected by the County, for the payment of principal and interest on the Bonds. Although the County is obligated to levy and collect the ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County. PROPERTY TAXATION Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing state assessed public utilities' property and property, the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% 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 of the fiscal year. Such property may 11 DOCSO C/1551522v4/200119-0006 thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1 %2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January I. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January I lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of I %2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting 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 record 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 assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. Taxation of State - Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ( "SBE ") and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as "unitary property," a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State - assessed unitary and "operating nonunitary" property (which excludes nommitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nommitary property is taxed at special county -wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. 12 DOCSOC/ 1551522v4/200119 -0006 O h y w b N °h N M ° d rmbd M hao� W y Ooh N�D� a. NN_ON V a 5 [r N N N N N 'tl 00 7 N O� vi d h h V V) O !: O w N rmbd M hao� W 5 '� ctli d'N hO7 `1 O � a `� •� V Fy ti Nb�7 V o <Fhm" X tj o vi N .moo 0 47 H R i �N �ONi� N V doovoM o U C �° oo� U MNa, a� � k6 �' >• ti W V 1 M M W � N '�a yqN NN N � v .. H V tl ti y M o0 D\O. -�N FL W� N N N N N O 0 T 0 N N h U bN, 0, FI N Assessed Valuation by Land Use. The following table shows the land use of parcels in the City, according to net assessed valuation. As shown, the majority of land in the City is used for residential purposes. TABLE2 CITY OF SANTA MONICA Assessed Valuation by Land Use Fiscal Years 2010 -11 and 2011 -12 Total $23,882,175,673 Fiscal Year 2011 -12 Fiscal Year 2010 -11 2007 -08 Net Taxable Value Residential $14,897,694,638 Commercial 7,000,642,619 Unsecured 880,330,859 Industrial 497,456,691 [Cross Reference] 303,385,442 Institutional 166,137,486 Vacant 91,620,670 Recreational 38,973,190 Dry Farm 3,903,142 Miscellaneous 1,288,571 SBE Nonunitary 742 365 Total $23,882,175,673 Fiscal Year 2011 -12 2006 -07 2007 -08 Net Taxable Value $ Change % Change $ 15,291,112,581 $ 393,417,943 2.6% 7,256,621,126 255,978,507 3.7 902,707,005 22,376,146 2.5 504,413,302 6,956,611 1.4 324,597,974 21,212,532 7.0 209,616,031 43,478,545 26.2 102,975,207 11,354,537 12.4 45,829,349 6,856,159 17.6 4,208,435 305,293 7.8 1,298,273 9,702 0.8 742.365 1.12 0.00 $ 24.644.121.648 761.945.975 3_2 M City of Santa Monica Finance Department from Los Angeles County Assessor 2011/12 Combined Tax Rolls Source: California Municipal Statistics, Inc. Tax Rates The table below summarizes the total ad valorem tax rates levied by all taxing entities in the City Tax Rate Area for each $100 of assessed valuation during the fiscal years 2006 -2007 through 2011 -12. Such rates reflect the levy associated with the Refunded Bonds. Taxable Property in the City is located in _ tax rate areas and the rates shown relate to tax rate area 4, the largest tax rate area in the City. Tax rates in other tax rate areas in the City may vary slightly. TABLE3 CITY OF SANTA MONICA Summary of Ad Valorem Tax Rates Ad Valorem Tax 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 City General Fund 0.01 0.01 0.01 0.01 0.01 0.01 County General Fund 1.00 1.00 1.00 1.00 1.00 1.00 School Districts 0.08 0.10 0.09 0.13 0.13 0.13 Miscellaneous Special Districts 0.01 0.01 0.01 -- -- -- Total Tax Rate ].,10 1.12 111 1.14 1.14 1.14 Source: City of Santa Monica Finance Department, from Los Angeles County Auditor - Controller 14 DOCSOC/ 1551522x4/200119 -0006 Tax Levies and Delinquencies on Outstanding City General Obligation Bonds The following table is a five year summary of property tax levies attributable to the second property tax levy in the City, including taxes levied to pay debt service on outstanding City general obligation debt(including the Refunded Bonds but excluding the Bonds), delinquency amounts attributable to the City and Delinquency data reflects City of Santa Monica proportionate share of county -wide outstanding delinquencies. City specific statistics are not available from the County of Los Angeles. TABLE 4 CITY OF SANTA MONICA Total Property Tax Levies, Collections and Delinquencies to Pay City General Obligation Debt Service (As of June 30) 2006 -07 through 2010 -11 (D Exclusive of penalties and collections related to tax overrides for debt service on general obligation bonds. (2) Reflects City of Santa Monica proportionate share of county -wide outstanding delinquencies. City specific statistics are not available from the County of Los Angeles Source: City of Santa Monica Finance Department, from County of Los Angeles [Auditor Controller]. . 15 DOCSOC/1551522v4/200119 -0006 Total Outstanding Secured Delinquent Tax Taxes as Collections Percent of Percent of Delinquent as Percent Outstanding Total Fiscal Total Secured Current Secured Levy Secured Tax Total Tax of Total Delinquent Secured Year Tax Levy Tax Collections Collected Collections() Collections Tax Levy Taxes(2) Tax Levy 2006 -07 $19,352,421 $18,418,938 95.2% $ 376,559 $18,795,497 97.1% $271,740 1.4% 2007 -08 20,654,045 19,309,774 93.5 528,207 19,837,981 96.0 442,105 2.1 2008 -09 22,439,401 21,195,066 94.5 1,237,357 22,432,423 100.0 662,983 3.0 2009 -10 22,585,685 21,724,105 96.2 1,262,484 22,986,589 101.8 690,928 3.1 2010 -11 22,293,648 21,759,685 97.6 937,340 22,697,025 101.8 669,232 3.0 (D Exclusive of penalties and collections related to tax overrides for debt service on general obligation bonds. (2) Reflects City of Santa Monica proportionate share of county -wide outstanding delinquencies. City specific statistics are not available from the County of Los Angeles Source: City of Santa Monica Finance Department, from County of Los Angeles [Auditor Controller]. . 15 DOCSOC/1551522v4/200119 -0006 Major Taxpayers The following table shows the largest taxpayers in the City as determined by their net secured and unsecured assessed valuations in 2011 -12: TABLES CITY OF SANTA MONICA Largest 2011 -12 Local Secured Taxpayers (Based on Taxes Levied)(t1 "' Does not reflect the impact of pending appeals of assessed valuation, if any. Source: City of Santa Monica Finance Department (from data from Los Angeles County Assessor) Direct and Overlapping Debt 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: Set forth below is a direct and overlapping governmental activities debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and effective as of June 30, 2011. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long -term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long -term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 16 DOCSOC/ 1551522v4/200119 -0006 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) LUI2 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 $ 2.563.291.097 10.40% "' Does not reflect the impact of pending appeals of assessed valuation, if any. Source: City of Santa Monica Finance Department (from data from Los Angeles County Assessor) Direct and Overlapping Debt 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: Set forth below is a direct and overlapping governmental activities debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and effective as of June 30, 2011. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long -term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long -term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 16 DOCSOC/ 1551522v4/200119 -0006 TABLE 6 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 Los Angeles County Flood Control District Metropolitan Water District Los Angeles Community College District Santa Monica Community College District Los Angeles Unified School District Santa Monica - Malibu Unified School District City of Santa Monica Los Angeles County Regional Park and Open Space Assessment District 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 $ Los Angeles County Superintendent of Schools Certificates of Participation Santa Monica Community College District Certificates of Participation Los Angeles Unified School District Certificates of Participation Santa Monica - Malibu Unified School District Certificates of Participation City of Santa Monica General Fund Obligations 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 Adjusted 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) 53,795,000 227,670,000 3,536,745,000 327,892,982 11,596,250,000 229,595,034 15,000,000 197,285,000 1,496,977,755 12,204,890 22,400,000 492,042,567 15,591,501 61,505,000 Applicable l �1 1.854% 0.935 0.010 57.038 0.0002 57.115 100. 1.824 1.824% 1.824 57.038 0.0002 57.115 100. 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 61,505,000121 $ 110,715,073 324,771 $ 110,390,302 $ 76,505,000 $ 374,468,296 $ 374,143,525 $ 450,973,296131 $ 450,648,5251;1 ", Percentage of overlapping agency's assessed valuation located within boundaries of the city. (2) Excludes Series 2011 Bonds. 131 Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. 17 DOC SOC/ 1551522v4/200119 -0006 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS Principal of and interest on the Bonds are payable from the proceeds of an ad valorem tax levied by the City for the payment thereof. See "THE BONDS — Security for the Bonds" above. Articles XIIIA, XIIIB, XIIIC and XIIID of the State Constitution, Propositions 62, 111, and 218 and 1A, and certain other provisions of law discussed below are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the City to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the City to levy taxes for payment of the Bonds. The tax levied by the City for payment of the Bonds was approved by the City's voters in compliance with Article XIIIA and all applicable laws. Article XIIIA of the State Constitution On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service (i) on indebtedness approved by the voters prior to July 1, 1978, (ii) on bonded indebtedness approved by a two - thirds vote on or after July 1, 1978, for the acquisition or improvement of real property or (iii) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters voting on the proposition. Article XIIIA defines full cash 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 when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed two percent per year to account for inflation. 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, 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 other minor or technical ways. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter - approved indebtedness). The one percent property tax is automatically levied by the County and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property is shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. 18 DOCSOC/ 15 51522v4/200119.0006 Article X11111 of the State Constitution In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual "appropriations limit" imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non -tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on Bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two - thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. [UPDATE] Proposition 111 requires that each agency's actual appropriations be tested against its limit every two years. If the aggregate "proceeds of taxes" for the preceding two -year period exceeds the aggregate limit, the excess must be returned to the agency's taxpayers through tax rate or fee reductions over the following two years. The City has never exceeded its appropriations limit Articles XI11C and XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City's General Fund, require a two- thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property - related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a 19 DOCS OC/ 1551522v4/200119 -0006 "special benefit," as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. If the City is unable to continue to collect these revenues, the services and programs funded with these revenues would have to be curtailed and /or the City's General Fund might have to be used to support them. The City is unable to predict whether or not in the future it will be able to continue all existing services and programs funded by the fees, charges and assessments in light of Proposition 218 or, if these services and programs are continued, which amounts (if any) would be used from the City's General Fund to continue to support these activities. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. 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 currently comprising a substantial part of the City's General Fund. Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election and (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two - thirds vote of the governmental entity's legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two- thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was 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 July, 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988. California appellate court cases have overturned the provisions of Proposition 62 pertaining to the imposition of taxes for general government purposes. However, the California Supreme Court upheld Proposition 62 in its decision on August 28, 1995, in Fresno County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court's decision, such as what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. The City has not experienced any substantive adverse financial impact as a result of the passage of this initiative. Proposition IA Proposition IA, proposed by the Legislature in connection with the State's Fiscal Year 2004 -05 Budget, approved by the voters in November 2004 and generally effective in Fiscal Year 2006 -07, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition lA generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two - thirds of both houses of the Legislature. Proposition IA provides, however, that beginning in fiscal year 2008 -09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two - thirds of 20 DOCSOC/ 1551522v4i200119 -0006 both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA also provides that if the State reduces the motor vehicle license fee rate currently in effect, 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. Proposition IA may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State. However, Proposition IA could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing spending on other State programs or other action, some of which could be adverse to the City. Possible Future Initiatives Articles XII1A, XIIIB, XIIIC and X1111) and Propositions 62, 111, 218 and IA 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 adopted, further affecting revenues of the City or the City's ability to expend revenues. The nature and impact of these measures cannot be anticipated by the City. LEGAL MATTERS Approval of Legal Proceedings The legality of the sale, execution and delivery of the Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, acting as Bond Counsel. A proposed form of such legal opinion is attached hereto as Appendix C. Stradling Yocca Carlson & Rauth, Newport Beach, California, is acting as disclosure counsel to the City in connection with the issuance of the Bonds. Certain matters will be passed upon for the City by its City Attorney. Payment of the fees and expenses of Stradling Yocca Carlson & Rauth, a Professional Corporation are contingent upon issuance of the Bonds. Absence of Material Litigation No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to the purchasers at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to receive ad valorem taxes or to collect other revenues or contesting the City's ability to issue and repay the Bonds. 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 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 the Bonds is exempt from State of California personal income tax. Bond Counsel notes 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. 21 DOCSOC/ 1551522v4/200119 -0006 The difference between the issue price of a 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 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 Bond before receipt of cash attributable to such excludable income (with respect to the Bonds). The amount of original issue discount deemed received by the owner of a Bond will increase the owner's basis in the Bond. In the opinion of Bond Counsel original issue discount that accrues to the owner of a Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and 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 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 complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to issuance of the 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 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with all such requirements applicable to each, respectively. The amount by which a Bond Owner's original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner's basis in the applicable Bond (and the amount of tax - exempt interest received with respect to the Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. 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 Resolution 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. Bond 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 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 Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bands might be affected as a result of such an audit of the 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 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the 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. Recently, proposed legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state 22 DOCSOC/ 15515220/200119-0006 tax being imposed on owners of tax - exempt state or local obligations, such as the Bonds: The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the Bonds. No assurance can be given that, subsequent to the issuance of the Bonds, such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the Bonds. Although Bond Counsel has rendered an opinion that the interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Bonds. Should the interest (and original issue discount) on the Bonds become includable in gross income for federal income tax purposes, the Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until maturity or until otherwise redeemed in accordance with the Resolution. The form of Bond Counsel's proposed opinion with respect to the Bonds is attached hereto in Appendix C. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain annual financial information and operating data relating to the Bonds and the City by not later than nine months after the end of the City's fiscal year (which date would be the March 31 following the current end of the City's fiscal year on June 30), commencing March 31, 2013, with the report for the 2011 -12 fiscal year (the "Annual Report "), and to provide notices of the occurrence of certain enumerated events, if material. For a complete listing of items of information to be included in each Annual Report and further description of the City's undertaking with respect to the annual report and certain enumerated events, see APPENDIX D — "FORM OF CONTINUING DISCLOSURE CERTIFICATE," attached to this Official Statement. 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 Underwriter (as defined below) in complying with Securities Exchange Commission Rule 15c2- 12(b)(5) (the "Rule "). The City has never failed to comply in all material respects with any previous undertakings with respect to said Rule to provide annual reports or notices of certain enumerated events. RATINGS Fitch Ratings, Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, have given the 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, Inc., 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 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 Bonds. 23 DOCSOC/1551522v4/200119 -0006 FINANCIAL ADVISOR The City has retained Public Resources Advisory Group, of Santa Monica, California, as financial advisor (the "Financial Advisor ") in connection with the issuance of the Bonds. The Financial Advisor will receive compensation contingent upon the sale and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. UNDERWRITING Under the terms of a competitive bid held on , 2012, (the "Underwriter ") has agreed to purchase the Bonds at a price of $ (which is equal to the aggregate principal amount of the Bonds of $ , plus a net original issue premium of $. less an Underwriter's discount of $). The Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the "Official Notice Inviting Proposals for Purchase of Bonds," including the approval of certain legal matters by counsel and certain other conditions. The Underwriter intends to offer the Bonds to the public at the offering prices set forth on the cover page of this Official Statement. The Underwriter may offer and sell to certain dealers and others at a price lower than the offering prices stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter. 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, 2011, together with the report thereon dated January 30, 2012 of Macias, Gini & O'Connell LLP, Los Angeles, 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. EXECUTION The execution of this Official Statement and its delivery have been approved by the City Council. CITY OF SANTA MONICA in City Manager 24 DOCSOC/ I551522v4/200119 -0006 APPENDIX A GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA AND LOS ANGELES COUNTY Information contained in herein is presented as general background data. The Bonds are payable solely from the ad valorem taxes of the City of Santa Monica. The County of Los Angeles and the State of California have no obligation to make any payments with respect to the Bonds.. See "SECURITY FOR THE BONDS" herein for a description of the security for the Bonds. 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, 2011, had an estimated population of 90,174 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. APPENDIX A A -1 DOC SOC/ 1551522v4/200119 -0006 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 2011 90,174 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 APPENDIX A A -2 DOC SOC/ 1551522v4/20 0 1 1 9 -00 0 6 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 modem, 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 water /wastewater 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 of the City of Los Angeles. 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 currently reimburse the City 1% of their annual salary, an amount that will increase to 2% in Fiscal Year 2011 -12 and 3% in Fiscal Year 2012 -13. Miscellaneous employees' currently reimburse the City for the cost of an enhanced benefit at the rate amount of 6.7% [of their covered salary]. All groups currently reimburse the City for the value of the employer paid member contributions (8% for miscellaneous employees and 9% for safety). The reimbursement was $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 APPENDIX A A -3 DOCSOC/1551522v4/200119 -0006 requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by PERS. 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. Generally, 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. For all miscellaneous employees hired after July 1, 2012, the City provides a separate tier retirement plan, in which the benefit factor is 2% per year of credited employment payable at age 55 or later. Such employees in the second tier are not eligible for the OPEB medical benefit described below, and must reimburse the City for the entire 7% members contribution. 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 I% 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 Years 2011 -12 and 2012 -13, employer contribution rates are as follows: Annual Rate Miscellaneous Safety Category Components Category Fire Police 2011 -12 2012 -13 2011 -12 2012 -13 2011 -12 2012 -13 A. Normal cost rate 9.307% 9.322% 14.362% 14.586% 19.02% 19.161% B. Unfunded liability rate 8.384 8.586 11.451 12.470 19.387 18.884 C. Total Required 17.691% 17.908% 25.813% 27.056% 38.389% 38.045% The contribution to PERS for Fiscal Year 2010 -11 of $44,499,980 was made in accordance with actuarially determined requirements 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. APPENDIX A A -4 DOCS 0 C/ 1551522v4/200119-0006 The three -year trend information for the Annual Pension Cost funding for the plan (unaudited) is set forth below. Fiscal Year ended Annual pension cods) Percentage ofAPC Netpension June 30 (APQ contributed obligation 2011 $30,322,397 100% — 2010 28,660,350 100 — 2009 26,944,672 100 — Excludes required employee contributions paid by the City. 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 2011 covered PERS' Fiscal Year ended June 30, 2010). 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, 2010, that was delivered in October 2011; will affect the City's Fiscal Year 2012 -13 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 "MAL "). 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 recent years. 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 was decreased,from 8.25 percent to 7.75 percent. The long term payroll growth assumption was decreased from 3.75 percent to 3.25 percent. APPENDIX A A -5 DOCSOC/ 1551522v4/200119 -0006 • 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. • 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 ftom Fiscal Year 2009, as described below). Establishing a rolling 30 -year amortization on all remaining net 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 the amortization of 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: APPENDIX A A -6 DOC SOC/ 1551522v4/200119 -0006 • 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. In March of 2012, the PERS Bond adopted a resolution lowering the assumed investment return from 7.75% down to 7.50% and reducing the inflation assumption from 3.0% to 2.75 %. [The City estimates a 1 to 2 percent increase in contribution rates for the Miscellaneous Plan resulting from the change in the assumed investment return.] As of June 30, 2010, the date of the latest actuarial valuation, the City's underfunded actuarial liability was $237,292,251. This underfunded liability is 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 underfunded liability through additional contributions ($10,000,000 in Fiscal Year 2010 -I1, of which approximately $7,300,000 related to the City's General Fund), in excess of the amount required to fund the current normal cost liability. Maintaining this funding schedule PERS has estimated that the underfunded 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. APPENDIX A A -7 DOCSOC/ 1551522v4/200119 -0006 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, 2008 through 2010 are as follows: Valuation date (June 30) 2010 2009 2008 Valuation date (June 30) 2010 2009 2008 Valuation date (June 30) 2010 2009 2008 Entry age normal accrued liability $ 649,678 608,461 523,122 Entry age normal accrued liability $ 163,845 155,343 142,775 Entry age normal accrued liability $ 289,882 276,030 251,441 DOCSOC/ I551522v4/200119 -0006 Actuarial value of assets $ 505,032 470,981 438,590 Actuarial value of assets $ 134,365 129,054 124,224 Actuarial value of assets $ 226,716 215,162 204,336 Miscellaneous Members (dollars in thousands) Underfunded liability (UAAL) Funded ratio $ 144,646 77.7% 137,480 77.4 84,532 83.8 Fire Safety Members (dollars in thousands) Underfunded liability (UAAL) $ 29,480 26,289 18,551 Police Safety Members (dollars in thousands) Underfunded liability (UAAL) $ 63,166 60,868 47,105 APPENDIX A A -8 Funded ratio 82.0% 83.1 87.0 Funded ratio 78.2% 77.9 81.3 Annual covered payroll $ 119,583 116,219 108,404 Annual covered payroll $ 13,752 13,350 12,514 Annual covered payroll $ 25,907 24,169 23,481 UAAL as a percentage ofpayroll 121.0% 118.3 78.0 UAAL as a percentage ofpayroll 214.4% 196.9 148.2 UAAL as a percentage ofpayroll 243.8% 251.8 200.6 In addition to the foregoing plans, the City has a Lifeguard Safety Plan which is now closed to new participants. The Lifeguard Plan provides benefits to 15 retired and 1 separated participant. Because the Lifeguard Plan consists of less than 100 members it is part of a larger risk pool. At the time the plan joined the risk pool a side fund was created to account for the difference between the funded status of the pool and the funded status of the Lifeguard Plan. As of June 30, 2010, the side pool was super - funded, and the City is not required to make any contributions to the Lifeguard Plan in Fiscal Year 2011 -12. 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 retired employees. Employees of the Supervisory Team Associates bargaining unit are eligible for a medical insurance benefit at retirement 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 participate in one of the City's health plans at their own expense at the same rate as active employees after retirement. The City also maintains minimum benefits for certain police and fire employees provided by the City's contract with its healthcare provider. In Fiscal Year 2010 -11, the City paid $586,000 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 for police and fire 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. APPENDIX A A -9 DOCSOC/ 1551522v4 /200119 -0006 The table below sets forth unfunded actuarial accrued liability of the City with respect to OPEB as of July 1 for years 2007 through 2011 (dollars in thousands). DOCSOC/1551522v4/200119 -0006 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 DOCSOC/1551522v4/200119 -0006 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% APPENDIX A A -10 Interest Rate Salary Scale 5.00% 3.25% 5.00 3.25 5.00 3.25 5.00 3.25 Medical Trusts In addition to other post - employment benefits described above, the City has agreed, pursuant to bargaining unit agreements, to contribute monies to the medical trusts that provide post - employment medical benefits to trust members. The amount of benefits provided under these plans is not a defined benefit and is limited solely to the amount contributed, related investment earnings, and forfeitures. During Fiscal Year 2010 -11 the City contributed $2,735,630 towards these medical trusts. The trusts 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. The City's financial commitment to the medical trusts does currently extend beyond the term of any of its applicable collective bargaining agreements. Labor Relations In accordance with the Meyers -Milias-Brawn 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. The table below sets forth the City's existing bargaining units and the term of each current agreement. City of Santa Monica Bargaining Units Bargaining unit Administrative Team Associates Executive Pay Plan Management Team Associates Municipal Employee Association Public Attorneys' Legal Staff Support Union Public Attorneys Union Santa Monica Firefighters Santa Monica Police Officers Association Supervisory Team Associates United Transportation Union APPENDIX A A -I1 DOCSOC/ 1551522v4/200119 -0006 Term From To July 1, 2011 June 30, 2013 July 1, 2011 No term July 1, 2011 June 30, 2012 July 1, 2011 June 30, 2013 July 1, 2011 June 30, 2012 July 1, 2011 June 30, 2012 July 1, 2011 June 30, 2014 July 1, 2011 June 30, 2014 July 1, 2011 June 30, 2013 July 1, 2011 June 30, 2014 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 internet 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, Nordstrom, Bloomingdale's, Louis Vuitton and Coach, the Santa Monica Pier, Main Street, and Montana Avenue. The City provides support for the Santa Monica Convention & Visitors 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, 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 business climate has improved since the onset 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 for the third quarter of calendar year 2011 were 7.4% lower than the first 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 were 83.7% , up 2.5% for over 2010 totals. Average room rates for the same period showed an 8.4% increase over the prior year. 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% compared to Los Angeles County's 12.1 %rate. 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. APPENDIX A A -12 DOC SOC/ 1551522v4/200119 -0006 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) APPENDIX A A -13 DOC SOC/ 1551522v4/200119 -0006 Average %of Total Annual %of Total Annual %of Total Major Division Industry Finns Firnes Employment Employment Payroll Payroll Professional, Scientific, &'technical Services 1,207 18.3% 9,591 13.1% $ 253,929,806 18.7% 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- ClassiSed 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 & Hunting 2 * ** * ** * ** * ** * ** State Govt 1 * ** 15 * ** 75,120 * ** Mining 1 * ** * +* * ** * ** * ** Total 6 =574 Will g $1 355 626 014 Source: City of Santa Monica (from data by Major NAICS Sectors) APPENDIX A A -13 DOC SOC/ 1551522v4/200119 -0006 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 City of Santa Monica Santa Monica College Saint John's Hospital Medical Center Santa Monica -UCLA Hospital Santa Monica - Malibu Unified School District The Rand Corporation Universal Music Group Activision Blizzard Inc. ET Whitehall Santa Monica Partners LP MTV Networks Loews Hotels Total jobs provided by principal employers Total jobs in Santa Monica Principal Employers As Percent Of Total Jobs Number of Employees 2,190 2,086 1,796 1,780 1,500 894 850 692 534 506 434 13,262 74,103 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 APPENDIX A A -14 DOCSOC/ 1551522v4/200119 -0006 City of Santa City of Los County of Los State of Year Monaca 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 10.6 14.1 12.6 12.4 9.6 2011 10.5 14.4 13.0 12.7 9.1 Source: State of California, Employment Development Department, Labor Market Information Division and U.S. Department of Labor, Bureau of Labor Statistics. APPENDIX A A -14 DOCSOC/ 1551522v4/200119 -0006 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: 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 -11(') "I Estimated. 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 APPENDIX A A -15 D OCSOC/ 1551522v4/200119 -0006 Los Angeles -Long Beach -Santa Ana Year Statistical Area 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 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 -11(') "I Estimated. 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 APPENDIX A A -15 D OCSOC/ 1551522v4/200119 -0006 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. The City has constructed in 2011 a secure bicycle parking station in Parking Structures 7 and 8. The City continues to have a profound effect on the development of art and culture in this country. More 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. 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 Charnock 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 placed them under contract to design the parks. The City 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 corner Cloverfield and Pico Boulevards, is anticipated to begin APPENDIX A A -16 DOC SOC/1551522v4/200119 -0006 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 Koning Eizenberg Architecture in February 2010. An updated site survey and a geotechnical report were both started in spring of 2010 and in September 2011, the City 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 from calendar years 2006 through 2010. City of Santa Monica Taxable Transactions by Type of Business for Calendar Years 2007 - 2011 (in Thousands of Dollars) Business 2007 2008 2009 2010 2011 Apparel Stores $ 327,768 $ 325,835 $ 272,133 $ 296,127 $ 365,317 General Merchandise 60,131 .48,371 26,308 65,804 109,578 Food Stores 85,551 87,818 85,034 80,927 84,035 Eating & drinking places 459,782 452,371 425,412 448,986 495,313 Building materials 132,959 119,383 90,123 87,510 93,028 Auto dealers & auto suppliers 724,018 678,604 607,195 605,107 631,893 Service stations 137,758 146,172 109,105 111,322 1,365,462 Other retail stores 682.816 640,299 527,997 577,165 656,756 Retail stores total 2,610,783 2,498,853 2,143,307 2,272,948 25,726,558 All other outlets 331,111 320,235 283,257 285,868 296,791 Total all outlets $ 2.941.894 $ 2.819,088 $ 2.426.564 $ 2.558.816 $ 2.869.467 Source: Hinderleiter, de Llamas and Associates APPENDIX A A -17 D OCSOC/ 1551522v4/200119 -0006 The table below compares 2010 fourth quarter calendar sales taxes with 2009 fourth quarter calendar sales taxes as indicated taxable sales. Sales taxes are up versus 2009 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 2010 Difference New Motor Vehicle Dealers $ 1,076,434 $ 1,050,611 2.5% Restaurants Liquor 694,721 627,752 10.7 Auto Lease 360,666 364,815 (1.1) Electronics /Appliance Sales 671,971 496,757 35.3 Family Apparel 579,559 487,816 18.8 Restaurants No Alcohol 334,075 306,182 9.1 Department Stores 306,831 299,047 2.6 Service Stations 338,535 292,523 15.7 Women's Apparel 236,529 227,688 3.9 Specialty Stores 302,567 278,842 8.5 Home Furnishings 213,882 221,454 (3.4) Hotels — Liquor 191,788 168,595 13.8 Restaurants Beer & Wine 187,248 162,931 14.9 Grocery Stores Liquor 146,313 146,633 (0.2) All Others 1,893,144 1,813,770 4.4 County /State Pools 862,206 739,131 16.7 Less Cost of Administration (78,821) (77,667) 1.5 Total $ 8.317.648 $ 7.606.880 9.3% 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. City of Santa Monica Building Construction For 2007 through 2011* Source: Construction Industry Research Board * Through August 2011. APPENDIX A A -18 DOCSOC/1551522v4/200119-0006 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. APPENDIX A A -18 DOCSOC/1551522v4/200119-0006 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 are included as Appendix B hereto. See "FINANCIAL STATEMENTS" and APPENDIX B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2011." 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. 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 over the past four years have resulted in either flat or modest growth in key revenue sources for the City. The adopted biennial budget for Fiscal Years 2011 -12 and 2012 -13 reflects actions taken to offset the softened economic environment. Revenues have begun to recover after several APPENDIX A A -19 D OCSOC/ 1551522x4/200119 -0006 somewhat weak years, but employment costs continue to rise. The City has a balanced budget for the biennial Fiscal Years 2011 -12 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 % %. 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. Since the onset 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. In accordance with fiscal policy, the biennial budget for Fiscal Years 2011 -12 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. 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 30,2011." The following table sets forth General Fund tax revenues received by the City, by source: City of Santa Monica Tax Revenues by Source(l) For Fiscal Years 2006 -07 through 2010 -I1 ($'s in thousands) Fiscal Year Ended June 30 Source 2007 2008 2009 2010 2011 Utility User's Tax $ 31,243 $ 31,622 $ 31,579 $ 31,620 $ 31,625 Sales Taxes 33,267 32,357 28,297 26,637 31,690 Property Taxes (2) 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 25,480 Parking Facility Taxes 7,400 7,826 7,980 7,848 8,786 Vehicle License Fees 608 390 263 273 492 Real Property Transfer Tax 6,409 4,739 2,653 3,432 3,954 Condominium Taxes 39 50 35 19 21 Total 166,081 S 172,675 166,051 163,606 170,843 0) 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. (2) Includes ad valorem property taxes for purposes of paying debt service on general obligation bonds, vehicle license fee back611 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. Source: City of Santa Monica Finance Department APPENDIX A A -20 DOCSOC/ 1551522v4/200119 -0006 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 "PROPERTY TAXATION" and "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE AND APPROPRIATIONS" 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 bonds 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. 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 %. 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 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 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. The Utility User's Tax does not sunset. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE 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 $31,011, or $27,062 for persons living alone (as of July 1, 2011). 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 2010 -11 were $7,151,652 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 APPENDIX A A -21 DOCS OC/ 1551522v4/200119 -0006 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 the City the sales tax rate is 9.25 %. 7.25% is collected and administered by the State on taxes collected within the City as follows: StateGeneral Fund .............. ............................... ..........................5.00% Proposition 172 (public safety use) .................... ..........................0.50% Proposition 57 (State financing bond) ................ ..........................0.25% County Health/VJelfare ....... ............................... ..........................0.50% County Transportation ........ ............................... ..........................0.25% City................................................................ ............................... 0.75% The 0.75% City share of sales tax revenue collected by the State is deposited monthly into the City's General Fund. The 1.5% sales tax is authorized locally under Propositions A and C and Measure 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 Propositions A and C and Measure 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 %z 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. Measure Y has no sunset provision. 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 PROVISIONS AFFECTING CITY REVENUE 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 PROVISIONS AFFECTING CITY REVENUE 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, APPENDIX A A -22 DOCSOC/1551522v4/200119 -0006 respectively, in Fiscal Year 2010 -11, approximately 5% of the General Fund total revenue. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE 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; Redevelopment Agency Legislation and Litigation." For the Fiscal Year ended June 30, 2011, the City received approximately $491,000 in total vehicle license fees. Vehicle license fee apportionments were ended as part of the State's FY 2011 -12 budget with the money instead being used for local law enforcement grant programs. [DISCUSS] 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. See "PROPERTY TAXATION— Direct and Overlapping Debt" above. APPENDIX A A -23 D OCSOC/ 1551522v4/200119 -0006 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 Lease Obligations $ 15,000,000 2022 Lease Revenue Bonds (Public Safety Facilities) 2002( �) 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 Debt(2) 106,310,000 Plus: Overlapping Debt 374,143,525 Total Net Debt i7 556,958.525 O' Refunded by Series 2011B Bonds in November 2011. (2) Debt of the former Santa Monica Redevelopment Agency. to 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 THE YEAR ENDED JUNE 30,201 L" On an annual basis, the City receives significant revenues from its Redevelopment Agency and from properties owned or formerly owned by the Redevelopment Agency which may be affected by ABx1 26. On June 29, 2012, the Governor signed Assembly Bills ( "AB ") xl 26 and xl 27 (enacted as Slats. 2011, 1st Ex. Sess. 2011 -2012, chs. 5 -6 and codified in Parts 1.8 and 1.85 of Division 24 of the California Health and Safety Code), which purported to dissolve each redevelopment agency ( "RDA ") in the State unless each RDA made "voluntary" payments to both the county Educational Revenue Augmentation Fund APPENDIX A A -24 DOCSOC/1551522v4/200119 -0006 ( "ERAF ") and a new county special district augmentation fund. The California Redevelopment Association filed its challenge to both statutes directly to the California Supreme Court. The Supreme Court issued a stay of certain portions of AB ix 26 and AB xl 27, pending issuance of a final decision. On December 29, 2011, the California Supreme Court upheld AB xl 26 and struck down AB x1 27. While AB xl 26 dissolved redevelopment agencies as of February 1, 2012 and created successor agencies ( "Successor Agencies ") to manage the winding down of the former redevelopment agency's business and liquidation and distribution of former RDA assets, it preserved certain provisions of the Community Redevelopment Law (Health and Safety Code sections 33000 et seq.) relating to the calculation and distribution of statutory and negotiated pass through payments to affected taxing entities (local agencies and schools that levy taxes on property located within a redevelopment project area), although it shifted the responsibility for calculation and distribution of all pass through payments from the RDAs to county auditors - controllers. The City of Santa Monica has been designated as the Successor Agency to its redevelopment agency and will implement the dissolution of the former Agency assets under AB xl 26. Impact on City. AB xl 26 will adversely impact the City. The City has historically received approximately $4 million annually in tax - increment funds from the former Agency to cover the former Agency's share of general 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 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 to a number of Agency properties. Such payments and prepayments are reflected in the increase in restricted cash and deferred revenue shown in the table below. AB xl 26 may result in other adverse impacts to the City's general fund although the exact impacts will not be known until after the City's Oversight Board, which will supervise the AB xl 26 dissolution process makes certain decisions, and the County of Los Angeles Auditor - Controller, State Controller and State Department of Finance have completed their review, as required by AB xl 26. In 2003 and 2004 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. 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 ") 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. In total, the City received prior to the dissolution of the Agency approximately $14 million in annual revenues for the general fund attributable to redevelopment agency transfers or parking revenues attributable to parking facilities owned by the Agency prior to 2011. As noted above, such revenues may be reduced or eliminated based on the ultimate implementation of AB xl 26. There can be no assurances that AB xl 26 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. To the extent that the former Agency's assets are liquidated for distribution to the affected taxing entities, the City's general fund will receive a share of approximately [17 %] of all of the former Agency's liquidated assets. Ongoing State Budget Risks. [UPDATE FOR 2012 -13 STATE BUDGET] 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 APPENDIX A A -25 DOC S O C/ 1551522v4/200119 -0006 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 materially 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 AB x1 26 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. On June 30, 2011, Governor Brown signed into law the Fiscal Year 2012 State budget (the "Fiscal Year 2012 State Budget "). The Fiscal Year 2012 State Budget attempted to close a $26.6 billion budget gap. However, the Fiscal Year 2012 State Budget recognized the potential risk if revenues might fall short of the forecast and established automatic mid -year expenditure reductions ( "trigger cuts ") that would go into effect in that event. On December 13, 2011, the State Department of Finance issued a revenue forecast indicating that the "trigger cuts" would occur. As a result, the Department of Finance called for a combination of reductions and adjustments to certain expenditures, totaling approximately $1 billion. [The City does not anticipate any material changes to its revenues as a result of these trigger cuts.] 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 budgets. On January 5, 2012, Governor Brown proposed a budget for Fiscal Year 2012 -13 (the "2012 -2013 Governor's Budget "), which attempts to address the State's continued structural deficit, then estimated at approximately $15 billion. The cornerstone of the Governor's 2012 -2013 Budget was its assumption that the voters will approve temporary increases in personal income and sales taxes through an initiative that the Governor has proposed to be on the November 2012 ballot. If approved, the estimated $6.9 billion of additional annual revenues would be used to pay for Proposition 98 school funding obligations and to help balance the budget by paying for other state programs, including funding for public safety at the local level. In addition, the Governor's 2012 -2013 Budget proposed significant reductions to social services and child care programs and additional state borrowing. In the event the Governor's proposed tax increase fails to pass, the Governor's 2012 -2013 Budget specifies approximately $5.4 billion in expenditure reductions in, among other APPENDIX A A -26 DOCSO CA 551522v4/200119 -0006 things, education (accounting for 90% of the targeted reductions) and judicial branch appropriation. [DISCUSS CITY IMPACT] A copy of the City's audited financial statements for the fiscal year ended June 30, 2011 is attached as Appendix B hereto. Audited financial statements for prior years are available upon request from the Finance Department of the City. City of Santa Monica General Fund Balance Sheet For Fiscal Years 2006 -07 through 2010 -11 Assets Cash and investments Receivables (net, where applicable, of allowance for uncollectibles Accounts Notes Property taxes Interest Due from other funds Inventory Deposits Prepaids Cash — restricted Advances to other funds TOTAL ASSETS Liabilities and Fund Balance Liabilities Accounts payable and accrued liabilities Contracts payable (retained percentage) Due to other governments Deferred revenue Deposits – payable from restricted assets TOTAL LIABILITIES Fund Balance: Total Reserved Fund Balance Total Unreserved Fund Balance – Designated Total Unreserved Fund Balance – Undesignated TOTAL FUND BALANCE TO'T'AL LIABILITIES & FUND BALANCE 10 Unaudited Actuals. m 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; Redevelopment Agency Legislation and Litigation." 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. o) 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 June 30, 2011 is $48.1 million. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2010 -11. APPENDIX A A -27 D OCSOC/ 1551522v4/200119 -0006 Fiscal Year Ended June 30 2007 2008 2009 2010 2011ao $ 125,143,099 $ 114,281,987 $ 164,482,336(a $ 186,285,798 $ 408,495,339 8,306,186 7,301,931 6,804,986 6,885,295 8,256,026 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 3,402,840 1,376,555 - 1,959,754 909,796 938,999 1,381,714 1,348,954 1,042,923 58,528 189,741 855,343 300,046 387,130 392,304 13,249,853 10,177,842 8,530,444 3,150,761 288,254 34.269 608 35.105.966 32.208.198 38.196,477 $ 185,557,126 $ 180,202,851 $ 225,748,103 $ 242,599,555 $ 463,256,250 $ 11,747,860 $ 12,293,534 $ 11,156,793 $ 10,266,766 $ 15,547,629 236,491 473,755 515,899 185,085 721,499 -- 438,629 -- -- -- 16,977,041 17,440,343 996,991 16,180,610 42,668,870 926.130 754.711 15.727 952 496,398 3.997734 $ 29,887,522 $ 31,400,972 $ 28,793,873 $ 27,128,859 $ 62,935,732 91,843,183 81,056,800 41,432,273 36,257,776 27,768,796 54,416,418, 62,572,543 147,861,39 loan 171,347,411 264,475,561 9.410.003 5.172.536 7.660566 7,865.509 108.076.161 155,669.604 148.801,879 196,954 230 215.470,696 400,320,518 Ji 185 557.126 $ 180202.851 ji 225 748 103 $ 242.599.555 $� 256 250 10 Unaudited Actuals. m 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; Redevelopment Agency Legislation and Litigation." 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. o) 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 June 30, 2011 is $48.1 million. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2010 -11. APPENDIX A A -27 D OCSOC/ 1551522v4/200119 -0006 City of Santa Monica General Fund Summary of Revenues and Capital and Operating Expenditures For Fiscal Years 2006 -07 through 2010 -11 Unaudited actuals. lxt 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 restrictions on expenditures of funds were lifted. o' Includes parking revenues. of Includes a one -time contribution of $2.4 million towards public safety component and $4.9 million towards miscellaneous component of the City's unfunded liability to PERS. t't Includes transfers to the capital project fund. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2010 -11. APPENDIX A A -28 DOCSO C/ 1551522v4/200119-0006 Fiscal Year Ended Arne 30 2007 2008 2009 2010 2011(a Revenues Property taxes $ 32,586,134 $ 36,067,632 $ 36,763,026 $ 37,419,658 $ 36,048,260 Sales taxes 33,267,253 32,356,941 28,296,696 26,636,653 31,689,531 Othertaxes 100,228,061 104,250,391 100,991,562 99,548,866 103,104,849 Licenses and permitstrt 19,093,485 20,109,435 20,315,341 20,595,032 27,467,859 Intergovernmental 1,101,941 446,800 652,174 759,204 639,035 Charges for services 25,578,687 25,778,223 28,122,186 33,176,413 32,361,833 Fines and forfeitures 14,191,722 14,567,262 14,113,906 17,492,928 15,952,957 Investment income 7,979,847 5,799,315 5,411,464 4,862,312 6,481,617 Rental income 5,873,728 5,696,255 5,388,721 6,299,606 7,497,868 Other 1980,180 5.117 139 7,510,00 5294.878 5,080,783 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 $ 60,908,549trt Public safety _ 86,716,041 88,308,262 93,282,777 98,340,403 98,379,391(a General services 32,679,323 36,943,004 45,437,347 41,049,858 28,263,567 Cultural and recreation services 42,987,556 32,316,853 33,498,492 30,851,014 47,937,089 Library 9,218,047 10,219,930 10,024,203 10,057,815 10,579,925 Housing and community development 29,684,528 31,538,299 29,377,311 24,885,265 24,848,485 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 72,076,5800) 38,110,047 197,993,796 Transfers outo (13,767,964) (28,417,466) (15,135,727) (10,837,746) (8,551,561) Premium on debt issued 558.699 Total other financing sources $ 3,956,936 $ (17,008,648) $ 56,940,853. $ 27,507,150 $ 189,442,235 Excess of revenues and other sources over expenditures and other uses $ 2,701,372 $ (6,867,725) $ 48,152,351 $ 18,516,466 $ (4,592,413) Fund balance at beginning of year $ 152.968232 $ 155. 669,604 $ 148.801,879 $ 196.954 230 $ 215.470 696 Fund balance at end of year 155.669.604 148 801 822 196 54 230 215,470,696 400,320,518 Unaudited actuals. lxt 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 restrictions on expenditures of funds were lifted. o' Includes parking revenues. of Includes a one -time contribution of $2.4 million towards public safety component and $4.9 million towards miscellaneous component of the City's unfunded liability to PERS. t't Includes transfers to the capital project fund. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2010 -11. APPENDIX A A -28 DOCSO C/ 1551522v4/200119-0006 The following table sets forth the budgetary information for Fiscal Years 2010 -11 and 2011 -12 and estimated actual results for Fiscal Year 2010 -11. City of Santa Monica General Fund Revenues and Expenditures- Appropriations Fiscal Year 2011 -12 Adopted Budget Appropriations City Council $ 624 Fiscal Year $ 643 City Manager Fiscal Year 2010 -11 Fiscal Year Records and Election Services 2010 -11 Actual 2011 -12 City Attorney Adopted Budget' (audited) Adopted Budget Finance ($000's) ($000's) ($000's) Budgeted Revenues: 3,325 3,115 3,672 Property Taxes $ 36,426 $ 36,048 $ 35,853 Sales Taxes 28,765 31,690 41,950 Other Taxes(i) 100,448 103,105 105,703 Licenses and Permits 21,540 27,468 29,744 Intergovernmental 736 639 410 Charges for Services 36,488 32,362 38,987 Fines and Forfeitures 17,647 15,953 17,679 Investment 3,602 6,482 5,118 Other 8,884 12,579 10,734 Total Revenues $254,535 $ 266,325 $286,178 Appropriations City Council $ 624 $ 635 $ 643 City Manager 8,096 7,605 9,412 Records and Election Services 2,586 2,286 2,169 City Attorney 8,461 8,524 8,672 Finance 17,285 18,716 21,321 Human Resources 3,325 3,115 3,672 Information Systems 5,893 5,666 6,385 Community Maintenance 27,108 Planning and Community Development 15,183 14,743 15,902 Police 67,020 68,514 69,224 Fire 28,804 29,262 29,835 Community & Cultural Services 31,992 43,698 34,294 Library 10,951 10,549 10,968 Housing & Economic Development 10,980 9,918 6,798 Public Works 10,200 24,384 25,997 Non - departmental 5,928 24,913 Subtotal 248,509 253,541 270,205 Interfund transfers 6,928 84,397 8,496 Operating budget surplus available for capital projects 12,954 97,181 24,469 Less: Capital Projects 13,284 17,376 14,817 Budgeted Fiscal Year Revenues Less Appropriations for Operating and Capital 330 79,805 9,652 Comprehensive Annual Report for Fiscal Year ended June 30, 2011 APPENDIX A A -29 DOCSOC/ 1551522v4/200119 -0006 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 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. Speck 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 the Treasurer 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 December 31, 2011, indicates that 80.6% of the City's pooled investment portfolio ($499.2 million) was invested in Federal Agency securities, 5.6% ($34.5 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, 7.6% ($47.1 million) was invested in the Local Agency Investment Fund of the State (LAIF) and 6.2% ($38.6 million) was invested in money market funds or in a depository bank account. The market value of the City's investment portfolio was 100.1% of its book value. As of December 31, 2011, the City Treasurer reports an average annual yield to maturity of the City's investment portfolio of 0.96% and an average weighted maturity of 671 days. APPENDIX A A -30 D 0 CSOC/ 1551522v4/200119 -0006 Self 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 access to 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. The City retains self - insurance up to $1,000,000 for general liability, automobile liability, and bus operations liability. The ACCEL pool covers all general liability losses between $1,000,000 and $5,000,000, and purchases excess liability insurance to cover losses over $5,000,000 and up to $100,000,000. The City shares limits with another Southern California City to cover losses over $100,000,000 and up to $150,000,000. 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 $5,807,682 (16.0% of ACCEL's total deposits) net of unpaid claims with ACCEL. Total assets of ACCEL at June 30, 2011 were $38,595,160. ACCEL has no capital 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. APPENDIX A A -31 DOCSOC/ 1551522v4 /200 1 1 9 -0006 APPENDIX B CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2011 APPENDIX B B -1 DOCSOC/1551522v4/200119 -0006 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL [Closing Date] City Council City of Santa Monica Santa Monica, California Re: $ City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) Members of the City Council: We have acted as bond counsel for the City of Santa Monica (the "City ") in connection with the authorization and issuance of the above - referenced bonds (the "Bonds "). The Bonds are authorized pursuant to Chapter 4 (commencing with Section 43600) of Division 4 of Title 4 and Articles 9 and 11, Chapter 3, Part I of Division 2 of the Government Code of the State of California (collectively, the "Act ") and Resolution No. _(CCS) of the City adopted on , 2012, together with that certain Supplement to Resolution No. _(CCS) dated as of May 1, 2011 executed in connection therewith (collectively, the "Resolution "). Capitalized terms used herein and not defined shall have the meanings given such terms in the Resolution. In such connection, we have examined originals or copies identified to our satisfaction as being true copies of the Resolution and certain other documents and records of the City. As to questions of fact material to our opinion, we have relied upon certifications of officers of the City, the initial purchasers of the Bonds and others which have been famished to us, but we have not undertaken to verify the accuracy thereof through independent investigation. Based upon and subject to the foregoing, and in reliance thereon, we are of the following opinions: 1. The Bonds have been duly and validly authorized and constitute legal, valid and binding obligations of the City enforceable in accordance with their terms and the terms of the Resolution, 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 limitations on legal remedies against public agencies in the State of California. The Bonds are obligations of the City but are not a debt of the City, the State of California or any other political subdivision thereof within the meaning of any constitutional or statutory limitation. 2. The Resolution has been duly adopted by the City Council of the City and constitutes a legal, valid and binding obligation of the City. The Resolution is enforceable in accordance with its terms 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 limitations on legal remedies against public agencies in the State of California, provided, however, we express no opinion as to the enforceability of provisions of the Resolution as to indemnification, penalty, contribution, choice of law, choice of forum or waiver contained therein. 3. The Bonds are secured by the proceeds of ad valorem taxes levied upon all property subject to such taxes in the City which taxes are unlimited as to rate or amount (except as to certain personal property which is taxable at limited rates) for payment of the Bonds and the interest thereon. APPENDIX C C -1 D 0 CSOC/ 1551522v4/200119-0006 4. Under existing statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. 5. Interest on the Bonds is exempt from State of California personal income tax. 6. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is 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 Bondowner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bondowner will increase the Bondowner's basis in the applicable Bond. Original issue discount that accrues to the Bondowner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 7. The amount by which a Bond owner's original basis for determining loss on sale or exchange in the applicable Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond owner's basis in the applicable Bond (and the amount of tax - exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond owner realizing a taxable gain when a Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The opinions expressed herein as to the exclusion from gross income for federal income tax purposes of interest on the Bonds is subject to the condition that the City complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the issuance of the Bonds to assure that such interest will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with all such requirements. Except as expressly stated herein, we express no opinion as to any tax consequences related to the Bonds. Certain agreements, requirements and procedures contained or referred to in the Resolution and the Tax Certificate executed by the City with respect to the Bonds may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents. We express no opinion as to the effect on the exclusion from gross income for federal income tax purposes of the interest on the Bonds if any such change occurs or action is taken or omitted upon advice or approval of bond counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. 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 and express no opinion as to the enforceability of the choice of law provisions contained in the Resolution. The opinions expressed herein and the exclusion of interest on the Bonds from gross income for federal income tax purposes may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Our engagement as Bond Counsel terminates upon the issuance of the Bonds APPENDIX C C -2 DOCSOC/I 551522v4/200119 -0006 and we have not undertaken to determine, or to infonn any person, whether any such actions or events are taken (or not taken) or do occur (or do not occur). The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Bonds or other offering material relating to the Bonds and expressly disclaim any duty to advise the purchaser or owners of the Bonds with respect to matters contained in the Official Statement. Respectfully submitted, APPENDIX C C -3 DOCSOC/ 1551522v4/200119 -0006 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate ") is executed and delivered by the City of Santa Monica (the "City ") in connection with the issuance of City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (Bank Qualified) (the "Bonds "). The Bonds are being issued pursuant to a Resolution of the City dated , 2012 (the "Resolution "). The City covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, 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 Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "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. "Dissemination Agent" shall mean initially 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. "Holders" shall mean registered owners of the Bonds. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "Participating Underwriter" shall mean or any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http: / /emma.msrb.org/, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. "Rule" shall mean Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, [not later than April 1 of each year], commencing with the report for the 2011 -12 Fiscal Year, provide to the Participating Underwriter and the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross - reference other information as provided in Section 4 of this Disclosure Certificate; APPENDIX D D -1 DOCSOC/ 1551522v4/200119 -0006 provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (b) Not later than 30 days (nor more than 60 days) prior to said date the Dissemination Agent shall give notice to the City that the Annual Report shall be required to be filed in accordance with the terms of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the City shall provide the Annual Report in a format suitable for reporting to the Repository to the Dissemination Agent (if other than the City). If the City is unable to provide to the Repository an Annual Report by the date required in subsection (a), the City shall send a notice to the Repository in substantially the form attached as Exhibit A with a copy to the Dissemination Agent. The Dissemination Agent shall not be required to file a Notice to Repository of Failure to File an Annual Report. (c) Upon being provided with the Annual, Report, the Dissemination Agent shall file a report with the City stating it has filed the Annual Report in accordance with its obligations hereunder, stating the date it was provided and listing the Repository to which it was provided. SECTION 4. Content and Form of Annual Reports. (a) The City's Annual Report shall contain or include by reference the following: 1. The audited financial statements of the City for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. 2. Material financial information and operating data with respect to the City of the type included in the Official Statement in the following categories (to the extent not included in the City's audited financial statements): Summary financial information on revenues, expenditures and fund balances for the City's general fund reflecting adopted budget for the current fiscal year, annual assessed values, top taxpayers and overlapping debt. 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 the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. (b) The Annual Report shall be filed in an electronic format accompanied by identifying information prescribed by the Municipal Securities Rulemaking Board. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, not more than ten (10) Business Days after the event: APPENDIX D D -2 DOC SOC/ 1551522v4/200119 -0006 I . principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 -TEB) or other material notices or, determinations with respect to the tax status of the Bonds; 6. defeasances; 7. tender offers; 8. bankruptcy, insolvency, receivership or similar proceedings; and 9. ratings changes. (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 Bonds, if material: 1. mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination; 2. appointment of a successor or additional trustee or the change of the name of a trustee; 3, non payment related defaults; 4. modifications to the rights of Bondholders; 5. notices of prepayment; and 6. release, substitution or sale of property securing repayment of the Bonds. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event the City shall as soon as possible determine if such event would be material under applicable federal securities laws. (c) If the City determines that knowledge of the occurrence of a Listed Event under Subsection (b) would be material under applicable federal securities laws, the City shall promptly file a notice of such occurrence with the Repository or provide notice of such reportable event to the Dissemination Agent in format suitable for filing with the Repository. The Dissemination Agent shall have no duty to independently prepare or file any report of Listed Events. The Dissemination Agent may conclusively rely on the City's determination of materiality pursuant to Section 5(c). SECTION 6. Termination of Reportine Obli ag tion. The City's obligations 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(a). APPENDIX D D -3 DOC SOC/ 1551522v4/200119 -0006 SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign upon 15 days written notice to the City. Upon such resignation, the City shall act as its own Dissemination Agent until it appoints a successor. 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 Certificate and shall not be responsible to verify the accuracy, completeness or materiality of any continuing disclosure information provided by the City. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the City shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition except as may be provided by written notice from the City. The City shall compensate the Dissemination Agent for its fees and expenses hereunder as agreed by the parties. Any entity succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor Dissemination Agent without the execution or filing of any paper or further act. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; (c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds; and (d) No rights, protections or duties of the Dissemination Agent hereunder shall be amended without its written consent thereto. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, 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 5(a), and (ii) the Annual Report for the year in which the change is made should 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 Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. APPENDIX D D -4 DO CSOC/ 1551522v4/200119-0006 SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The Dissemination Agent acts hereunder solely for the benefit of the City; this Disclosure Certificate shall confer no duties on the Dissemination Agent to the Participating Underwriters, the Holders and the Beneficial Owners. The City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees and expenses) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's gross negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall have no liability for the failure to report any event or any financial information as to which the City has not provided an information report in format suitable for filing with the Repository. The Dissemination Agent shall not be required to monitor or enforce the City's duty to comply with its continuing disclosure requirements hereunder. The Dissemination Agent shall have the same rights and protections hereunder as afforded to it under the Supplement to Resolution dated as of May 1, 2012, between the City and the Dissemination Agent, as paying agent. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. APPENDIX D D -5 DOCSOC/ 1551522v4 /200119 -0006 SECTION 13. Governing Law. This Disclosure Certificate shall be governed by the laws of the State of California. Dated: , 2012 CITY OF SANTA MONICA By: Its: [City Manager] [APPROVED AS TO FORM: [Marsha Jones Moutrie, City Attorney] APPENDIX D D -6 DO C S O C/ 15 51522v4/200119 -0006 EXHIBIT A NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Santa Monica, California Name of Bond Issue: City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) Date of Issuance: , 2012 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above -named Bonds as required by the Continuing Disclosure Certificate relating to the Bonds. The City anticipates that the Annual Report will be filed by CITY OF SANTA MONICA By [form only; no signature required] APPENDIX D D -7 DOCSOC/ 1551522v4/200119-0006 APPENDIX E DTC AND THE BOOK -ENTRY ONLY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, redemption premium, if any, and interest with respect to the Bonds to DTC, its Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, its Participants and the Beneficial Owners is based solely on the understanding of the City of such procedures and record keeping from information provided by DTC. Accordingly, no representations can be made concerning these matters and neither DTC, its Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or its Participants, as the case may be. The City, the Paying Agent and the Underwriter understand that the current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and that the current "Procedures" of DTC to be followed in dealing with Participants are on file with DTC. I. The Depository Trust Company ( "DTC "), New York, NY, will act as securities depository for the 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 turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be APPENDIX E E -1 DOCSOC/ r 551522v4/200119 -0006 accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 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 Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 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 NMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts 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 City 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 City, 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 City 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. APPENDIX E E -2 DOCSOC/ 1551522v4/200119 -0006 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the City 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 City 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. The foregoing information concerning DTC and DTC's book -enhT system has been provided by DTC, and neither the City nor the Paying Agent takes any responsibility for the accuracy thereof. NEITHER THE CITY NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION. Neither the City nor the Paying Agent can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement. In the event that the book -entry system is discontinued as described above, the requirements of the Resolution will apply. The City and the Paying Agent cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the City nor the Paying Agent are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. APPENDIX E E -3 DO CSOC/ 1551522v4/200119 -0006 ATTACHMENT D ESCROW AGREEMENT RELATING TO THE DEFEASANCE OF $25,000,000 CITY OF SANTA MONICA General Obligation Bonds, Series 2002 (Library Improvement Project) THIS ESCROW AGREEMENT, dated as of May 1, 2012, by and between the City of Santa Monica (the "City "), and The Bank of New York Mellon Trust Company, N.A., acting in its capacity as escrow agent (the "Escrow Agent ") pursuant to this Escrow Agreement (the "Agreement "); WITNESSETH: WHEREAS, pursuant to the provisions of a resolution of issuance and a Fiscal Agent Agreement between the City and The Bank of New York Mellon Trust Company, N.A. (as "Paying Agent") dated as of August 1, 2002 (the "Refunded Bonds Resolution "), the City previously issued its $25,000,000 City of Santa Monica General Obligation Bonds, Series 2002 (Library Improvement Project) (the "Refunded Bonds "); WHEREAS, the City did, pursuant to a resolution adopted by the City Council of the City on , 2012 (the "Resolution "), determine that it is in the City's best interest to issue its General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (the "Bonds ") to provide proceeds to refund all of the outstanding Refunded Bonds; and WHEREAS, in order to accomplish such refinancing it is necessary and desirable for the City to secure payment of debt service on the Refunded Bonds to redeem and retire the Refunded Bonds; and WHEREAS, the City will provide funds necessary to secure payment of debt service on the Refunded Bonds through July 1, 2012 and redeem and retire the Refunded Bonds on such date by authorizing the preparation and issuance of the Bonds, to be issued on 2012; and WHEREAS, the City has determined that it is in its best interests and desirable for the Bonds to be issued and for a portion of the proceeds of the Bonds to be applied to the advance refunding of the Refunded Bonds in accordance with the terms of this Agreement; and NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City and the Escrow Agent agree as follows: SECTION I. Deposit of Moneys. (a) As used herein, the term "Investment Securities" means the Investment Securities set forth in Schedule A hereto. The City hereby deposits with the Escrow Agent $ (representing $ proceeds of the Bonds and $ from tax receipts allocated to the City), to be held in irrevocable escrow by the Escrow Agent separate and apart from other funds of the City and the Escrow Agent in a fund hereby created and established and to be known as the "Escrow Fund" and to be applied solely as provided in this Agreement. Such moneys are at least equal to an amount sufficient to purchase the principal amount of Investment Securities set forth in Schedule A hereto, which, together with all interest due or to become due on such Investment Securities, and $ to be held as cash, will be sufficient: (i) to pay the interest DOCSOC/1551909v2/200119 -0006 and principal due on the Refunded Bonds on each scheduled payment date through and including July 1, 2012, and (ii) to redeem the Refunded Bonds maturing on or after July 1, 2013 at a redemption price equal to the principal amount thereof, without premium, on July 1, 2012, the first optional redemption date for such bonds. (b) The Escrow Agent hereby acknowledges receipt of the written opinion of , certified public accountants, dated 2012 relating to the Investment Securities (the "Verification Report"), and the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, dated 2012, and relating to this Agreement. (c) Notwithstanding any provision in the legal documents pertaining to the Refunding Bonds, the City hereby directs the Escrow Agent to redeem the Refunded Bonds on July 1, 2012 at a redemption price equal to the principal amount to be redeemed, without premium. SECTION 2. Use and Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees: (a) immediately to invest $ of the moneys described in Section 1(a) hereof in the Investment Securities set forth in Schedule A hereto and to deposit all of such Investment Securities in the Escrow Fund and to hold $ uninvested as cash; and (b) to make the payments required under Section 3(a) hereof at the times set forth in Section 3(a) hereof. SECTION 3. Payment of Refunded Bonds. (a) Payment. As the principal of the Investment Securities set forth in Schedule A hereof and the investment income and earnings thereon are paid, the Escrow Agent shall transfer from the Escrow Fund to the paying agent for the Refunded Bonds (the "Paying Agent") amounts sufficient to pay interest and principal on the Refunded Bonds due on and prior to July 1, 2012, and to redeem on July 1, 2012 the outstanding principal of the remaining outstanding Refunded Bonds maturing on and after July 1, 2013, without premium. Such transfers shall constitute the respective payments of the interest on the Refunded Bonds and redemption price due from the City. (b) Unclaimed Moneys. Any moneys which remain unclaimed for two years after the date such moneys have become due and payable hereunder shall be repaid by the Escrow Agent to the City and deposited by the City in the Debt Service Fund relating to the Bonds. Any moneys remaining in the Escrow Fund established hereunder after July 1, 2012 (aside from unclaimed monies of the Refunded Bonds) that are in excess of the amount needed to pay owners of the Refunded Bonds payments of principal and interest and redemption premium, if any, with respect to the Refunded Bonds or to pay any amounts owed to the Escrow Agent shall be immediately transferred by the Escrow Agent to the City and deposited by the City in the Debt Service Fund relating to the Bonds. (c) Priority of Pam. The holders of the Refunded Bonds shall have a first lien on the moneys and Investment Securities in the Escrow Fund which are allowable and sufficient to pay the Refunded Bonds until such moneys and Investment Securities are used and applied as 2 DOCSOC/1551909v2/200 1 1 9 -0 0 06 provided in this Agreement, as verified by the Verification Report. Any cash or securities held in the Escrow Fund are irrevocably pledged only to the holders of the Refunded Bonds. (d) Termination of Obli ag tion. Upon deposit of the moneys set forth in Section 1 hereof with the Escrow Agent pursuant to the provisions of Section 1 hereof and the simultaneous purchase of the Investment Securities as provided in Section 2 hereof, all obligations of the City with respect to the Refunded Bonds shall cease and terminate, except only the obligation to make payments therefor from the moneys provided for hereunder. SECTION 4. Performance of Duties. The Escrow Agent agrees to perform the duties set forth herein. SECTION 5. Reinvestment. Upon written direction of the City, the Escrow Agent may reinvest any uninvested amounts held as cash under this Agreement in noncallable nonprepayable obligations which are direct obligations issued by the United States Treasury or obligations which are unconditionally guaranteed as to full and timely payment by the United States of America provided (i) the amounts of and dates on which the anticipated transfers from the Escrow Fund to the Paying Agent for the payment of the principal of, redemption price of and interest on the Refunded Bonds will not be diminished or postponed thereby, (ii) the Escrow Agent shall receive the unqualified opinion of nationally recognized municipal bond counsel to the effect that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or the Refunded Bonds, (iii) the Escrow Agent shall receive from a firm of independent certified public accountants a certification that, immediately after such reinvestment, the principal of and interest on obligations in the Escrow Fund will, together with other cash on deposit in the Escrow Fund available for such purposes, be sufficient without reinvestment to pay, when due, the principal or redemption price of and interest on the Refunded Bonds; and (iv) the Escrow Agent shall receive an opinion of nationally recognized bond counsel that such reinvestment is permissible under this Agreement. SECTION 6 Indemnity. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of its Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and securities deposited therein, the purchase of the Investment Securities, the retention of the Investment Securities or the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the City shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Agent's respective successors, assigns, agents and employees or the breach by the Escrow Agent of the terms of this Agreement. In no event shall the City or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this section. The indemnities contained in this section shall survive the termination of this Agreement. DOCSOC/ 1551909v2/200119 -0006 SECTION 7. Responsibilities of the Escrow Agent. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or securities deposited therein, the purchase of the Investment Securities, the retention of the Investment Securities or the proceeds thereof, the sufficiency of the Investment Securities to accomplish the refunding and defeasance of the Refunded Bonds or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non - negligent act, non- negligent omission or non - negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statements of the City and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the Investment Securities to accomplish the refunding and defeasance of the Refunded Bonds or to the validity of this Agreement as to the City and, except as otherwise provided herein, the Escrow Agent shall incur no liability with respect thereto. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. SECTION 8. Substitution of Investment Securities. At the written request of the City and upon compliance with the conditions hereinafter set forth, the Escrow Agent shall have the power to sell, transfer, request the redemption or otherwise dispose of some or all of the Investment Securities in the Escrow Fund and to substitute noncallable nonprepayable obligations (the "Substitute Investment Securities ") constituting direct obligations issued by the United States Treasury or obligations which are unconditionally guaranteed as to full and timely payment by the United States of America. The foregoing may be effected only if. (i) the substitution of Substitute Investment Securities for the Investment Securities (or Substitute Investment Securities) occurs simultaneously; (ii) the amounts of and dates on which the anticipated transfers from the Escrow Fund to the Paying Agent for the payment of the principal of and/or redemption price of and/or interest on the Refunded Bonds will not be diminished or postponed thereby; (iii) the Escrow Agent shall receive the unqualified opinion of nationally recognized municipal bond counsel to the effect that such disposition and substitution would not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Refunded Bonds or the Bonds, and that the conditions of this Section 8 as to the disposition and substitution have been satisfied and that the substitution is permitted by this Agreement; and (iv) the Escrow Agent shall receive from a firm of independent certified public accountants a certification that, immediately after such transaction, the principal of and interest on the Substitute Investment Securities in the Escrow Fund will, together with other cash on deposit in the Escrow Fund available for such purpose, be sufficient without reinvestment to pay, when due, the principal or redemption price of and interest on the Refunded Bonds. Any cash from the sale of Investment Securities (including U.S. Treasury Securities) received from the disposition and substitution of Substitute Investment Securities pursuant to this Section 8 to the extent such cash will not be required, in accordance with this Agreement, and as demonstrated in the certification described in (iv) above, at any time for the payment when due of the principal or redemption price of 4 DOCSOC/1551909v2/200119 -0006 or interest on the Refunded Bonds shall be paid to the City as received by the Escrow Agent free and clear of any trust, lien, pledge or assignment securing such Bonds or otherwise existing under this Agreement. Any other substitution of securities in the Escrow Fund not described in the previous sentence must satisfy the requirements of this Section 8. In no event shall the Escrow Agent invest or reinvest moneys held under this Agreement in mutual funds or unit investment trusts. SECTION 9. Irrevocable Instructions as to Notice. The Escrow Agent hereby acknowledges that upon the funding of the Escrow Fund as provided in this Agreement, the receipt of the opinions described in Section 1(b) of this Agreement and the giving of irrevocable instructions to provide notice as provided in the Irrevocable Instructions and Request to Paying Agent and Escrow Agent attached hereto as Schedule B (constituting all of the conditions precedent to the defeasance of the Refunded Bonds), the Refunded Bonds shall be paid in accordance with the terms of the Refunded Bonds and all obligations of the City with respect to the Refunded Bonds shall cease and terminate. SECTION 10. Amendments. This Agreement is made for the benefit of the City and the holders from time to time of the Refunded Bonds and it shall not be repealed, revoked, altered or amended without the written consent of all such holders, the Escrow Agent and the City; provided, however, but only after the receipt by the Escrow Agent of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Bonds and the Refunded Bonds will not be adversely affected for federal income tax purposes, that the City and the Escrow Agent may, without the consent of, or notice to, such holders, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the holders of the Refunded Bonds any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; and (iii) to include under this Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with respect to compliance with this Section 10, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the holders of the Refunded Bonds or that any instrument executed hereunder complies with the conditions and provisions of this Section 10. In the event of any conflict with respect to the provisions of this Agreement, this Agreement shall prevail and be binding. SECTION 11. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either (i) the date upon which the Refunded Bonds have been paid in accordance with this Agreement or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 3(b) of this Agreement. SECTION 12. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Agent under this Agreement. 5 DOCSOC/1551909v2/200119 -0006 SECTION 13. Resignation or Removal of Escrow Agent. (a) The Escrow Agent may resign by giving notice in writing to the City, a copy of which shall be sent to DTC. The Escrow Agent may be removed (1) by (i) filing with the City an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of the Refunded Bonds then remaining unpaid, (ii) sending notice at least 60 days prior to the effective date of said removal to DTC, and (iii) the delivery of a copy of the instruments filed with the City to the Escrow Agent or (2) by a court of competent jurisdiction for failure to act in accordance with the provisions of this Agreement upon application by the City or the holders of 5% in aggregate principal amount of the Refunded Bonds then remaining unpaid. (b) If the position of Escrow Agent becomes vacant due to resignation or removal of the Escrow Agent or any other reason, a successor Escrow Agent may be appointed by the City. The holders of a majority in principal amount of the Refunded Bonds then remaining unpaid may, by an instrument or instruments filed with the City, appoint a successor Escrow Agent who shall supersede any Escrow Agent theretofore appointed by the City. If no successor Escrow Agent is appointed by the City or the holders of such Refunded Bonds then remaining unpaid, within 45 days after any such resignation or removal, the holder of any such Refunded Bond or any retiring Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent. The responsibilities of the Escrow Agent under this Escrow Agreement will not be discharged until a new Escrow Agent is appointed and until the cash and investments held under this Escrow Agreement are transferred to the new Escrow Agent. SECTION 14. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the City or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 15. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. SECTION 16. Governing Law. This Agreement shall be construed under the laws of the State of California. SECTION 17. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Escrow Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Agreement, and no interest shall accrue for the period after such nominal date. SECTION 18. Assignment. This Agreement shall not be assigned by the Escrow Agent or any successor thereto without the prior written consent of the City. SECTION 19. Standard & Poor's and Moody' s. The City agrees to provide Standard & Poor's, a Division of the McGraw -Hill Companies, 55 Water Street, New York, New York 10041 DOC SOC/ 1551909v2/200119 -0006 and Moody's Investors Service, 99 Church Street, New York, New York 10007 prior notice of each amendment entered into pursuant to Section 10 hereof and a copy of such proposed amendment, and to forward a copy (as soon as possible) of (i) each amendment hereto entered into pursuant to Section 10 hereof, and (ii) any action relating to severability or contemplated by Section 14 hereof. SECTION 20. Reorganization of Escrow Agent. Notwithstanding anything to the contrary contained in this Agreement, any company into which the Escrow Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which the Escrow Agent is a party, or any company to which the Escrow Agent may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Agent without execution or filing of any paper or any paper or further act, if such company is eligible to serve as Escrow Agent. 7 DOCSOC /1 551909v2/200119-0006 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. CITY OF SANTA MONICA C Director of Finance THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent in Authorized Signatory S -1 DOCSOC/ 1551909v2/200119 -0006 SCHEDULE A Type of Investment Principal Coupon Rate SLGS $ % SLGS A -1 DOCSOC/ 1551909v2/200119 -0006 Maturity Date 07/01/12 SCHEDULE B IRREVOCABLE INSTRUCTIONS AND REQUEST TO ESCROW AGENT December 20, 2005 The Bank of New York Mellon Trust Company, N.A. Los Angeles, CA $25,000,000 CITY OF SANTA MONICA General Obligation Bonds, Series 2002 (Library Improvement Project) Ladies and Gentlemen: As Escrow Agent and Paying Agent with respect to the Refunded Bonds as defined in that certain Escrow Agreement, dated as of May 1, 2012, between the City of Santa Monica and The Bank of New York Mellon Trust Company, N.A. (the "Escrow Agreement"), you are hereby notified of the irrevocable election of the City of Santa Monica: to pay the interest and principal on such Refunded Bonds due on and prior to July 1, 2012, and to redeem on July 1, 2012 the outstanding principal of such Refunded Bonds maturing on or after July 1, 2013 at a price of the principal amount thereof to be so redeemed, without premium. You are hereby irrevocably instructed to provide, as provided in the Fiscal Agent Agreement between the City of Santa Monica and The Bank of New York Mellon Trust Company, N.A., dated as of August 1, 2002, notice of redemption of such principal amounts of said Refunded Bonds as are scheduled to be redeemed prior to maturity to the extent such Refunded Bonds have not been otherwise redeemed or purchased by the Escrow Agent prior to said dates. Such notice shall be in the form annexed hereto as Exhibit X. You are also hereby irrevocably instructed to file a notice of defeasance of the Refunded Bonds with the Nationally Recognized Municipal Securities Information Repositories ( "NRMSIW') that are listed by the U.S. Securities and Exchange Commission. NRMSIR is located at www.sce.gov /info /municipal/nrmsir. B -1 DOCSOC/1551909v21200119 -0006 You are hereby further irrevocably instructed to provide, as soon as practicable, notice to the holders of such Refunded Bonds (in the form annexed hereto as Exhibit Y) that the deposit of investment securities and moneys has been made with you as such Escrow Agent and that you have received a verification report verifying that the projected withdrawals from such escrow have been calculated to be adequate to pay the principal or redemption price of and the interest on said Refunded Bonds outstanding as such become due or are subject to redemption. CITY OF SANTA MONICA Receipt acknowledged and consented to: Director of Finance THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent C Authorized Signatory B -2 DOCSOC/1551909v2/200119 -0006 NOTICE OF REDEMPTION OF $25,000,000 CITY OF SANTA MONICA General Obligation Bonds, Series 2002 (Library Improvement Project) Notice is hereby given to the holders of the outstanding $25,000,000 City of Santa Monica General Obligation Bonds, Series 2002 (Library Improvement Project) maturing on and after July 1, 2013 (the "Refunded Bonds "), that such Refunded Bonds have been called for redemption prior to maturity on July 1, 2012 in accordance with their terms at a redemption price equal to the principal amount thereof, without premium, together with accrued interest evidenced thereby to July 1, 2012. The source of the funds to be used for such redemption is the principal of and interest on investment securities heretofore deposited with The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, together with moneys, if any, heretofore deposited with the Escrow Agent. Interest on the Refunded Bonds and the redemption price shall become due and payable on July 1, 2012 and after July 1, 2012 interest on such Refunded Bonds shall cease to accrue and be payable. Owners of the Refunded Bonds will receive payment of the redemption price and accrued interest to which they are entitled upon presentation and surrender thereof at the principal corporate trust office of The Bank of New York Mellon Trust Company, N.A., Los Angeles, California. Dated this day of 2012. CITY OF SANTA MONICA THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent B -X -1 DOCSOC/1551909v2/200119 -0006 NOTICE OF REFUNDING OF $25,000,000 CITY OF SANTA MONICA General Obligation Bonds, Series 2002 (Library Improvement Project) Notice is hereby given to the holders of the outstanding bonds maturing on and after July 1, 2013 designated City of Santa Monica, General Obligation Bonds, Series 2002 (Library Improvement Project) (the "Refunded Bonds ") (i) that there has been deposited with The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, moneys and investment securities as permitted by the Escrow Agreement, dated as of May 1, 2012, between City of Santa Monica and The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, (the "Agreement'), the principal of and the interest on which when due will provide moneys which, together with such other moneys deposited with the Escrow Agent, shall be sufficient and available (a) to pay on and prior to July 1, 2012 the interest with respect to the Refunded Bonds scheduled to be paid on and prior to July 1, 2012 and (b) to redeem on July 1, 2012 the Refunded Bonds maturing on or after July 1, 2013 at a redemption price (expressed as a percentage of the principal amount of the Refunded Bonds to be prepaid) equal to 100 %; (ii) that the Escrow Agent has been irrevocably instructed to prepay on July 1, 2012 such Refunded Bonds; and (iii) that the Refunded Bonds are deemed to be paid in accordance with Section 3 of the Agreement. Dated this day _ of, 2012. CITY OF SANTA MONICA THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent B -Y -1 DOCSOC/1551909v2/200119 -0006 ATTACHMENT E NOTICE INVITING PROPOSALS FOR PURCHASE OF BONDS CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) NOTICE IS HEREBY GIVEN that electronic (as explained below) unconditioned proposals will be received to and including the hour of a.m., Pacific Standard Time, on , 2012, via the Parity Electronic Bid Submission System ( "PARITY ") of Ipreo LLC at www.newissuehome.i- deal.com, in the manner described below, for the purchase of all, but not less than all, of $ ` principal amount of City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project) (the "Bonds "). No bid will be received after the time for receiving bids specified above. To the extent any instructions or directions set forth in PARITY conflict with this Notice Inviting Proposals for the Purchase of Bonds (the "Notice Inviting Proposals "), the terms of this Notice Inviting Proposals shall control. For further information about PARITY, potential bidders may contact Ipreo LLC at 1359 Broadway, 2nd floor, New York, NY 10018, 877 -588 -5030, or the financial advisor to the City: Public Resources Advisory Group, 310- 477 -8487, e -mail: lchoi @pragla.com (the "Financial Advisor "). The Notice Inviting Proposals and Preliminary Official Statement will be posted to www.i- dealprospectus.com. In the event that the sale has not been awarded by the designated time, bids will be received at a subsequent time and date to be determined by the City and publicized via Bloomberg News Service, The Bond Buyer or Thomson Municipal Market Monitor (www.TM3.com). ALL BIDS ARE SUBMITTED AT THE RISK OF THE BIDDER. I. Terms of the Bonds: The City has made available a Preliminary Official Statement relating to the Bonds, a copy of which has been posted to www.i- dealprospectus.com. The Preliminary Official Statement, including the cover page and all appendices thereto, provides certain information concerning the sale and delivery of the Bonds. Each bidder must have obtained and reviewed the Preliminary Official Statement prior to bidding for the Bonds. This Official Notice Inviting Proposals contains certain information for quick reference only, is not a summary of the issue and governs only the terms of the sale of, bidding for and closing procedures with respect to the Bonds. Bidders must read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. II. Issue: The Bonds will be dated the date of delivery, will be in the denomination of $5,000 each, or integral multiples thereof, and will bear interest from the date of the Bonds to the maturity of each of the Bonds at the rate or rates such that the interest rate shall not exceed 12% per annum, with interest payable on January 1, 2013 and semiannually on January 1 and July 1 of each year during the term of each of the Bonds. The Bonds mature on July I in each of the years 2013 to 2022 inclusive, as follows: Preliminary, subject to change. DOCSOC/1551916v3 /200119 -0006 ATTACHMENT E YEAR PRINCIPAL AMOUNT 2013 $ 2014 2015 2016 2017 2018 2019 2020 2021 2022 III. Adjustment of Principal Amounts: The principal amounts of each maturity of Bonds set forth above reflect certain assumptions of the City of Santa Monica (the "City ") and the Financial Advisor with respect to the likely interest rates of the winning bid or bids. Following the determination of the successful bidder or bidders, the City reserves the right to increase or decrease the principal amount of each maturity of the Bonds, in $5,000 increments of principal amounts, in an amount not to exceed a ten percent (10 %) change in principal amount per maturity. Such adjustment shall be made within 26 hours of the bid opening and in the sole discretion of the City. In the event of any such adjustment, no rebidding or recalculation of the bids submitted will be required or permitted and the successful bid or bids may not be withdrawn, and the successful bidder will not be permitted to change its bid price or the interest rate(s) in its bid for the Bonds. The City shall not be responsible for the effect of any such adjustment on the compensation to the successful bidder and will use its reasonable best efforts to maintain a proportionate level of compensation to the successful bidder. Bidders are advised to consider such a possible change in principal amount when determining their production on each maturity of the 2012 Bonds. IV. Interest Rates: All bids for the purchase of the Bonds must state the rate or rates of interest to be paid and no bid at a price less than 105% or greater than 115% of the par value of the Bonds will be considered. All Bonds of the same maturity must bear the same rate of interest and no Bond may bear more than one rate of interest. The maximum interest rate bid may not exceed six percent (6 %) per annum, and the true interest cost shall not exceed three percent (3 %) per annum. Bidders may specify any number of different rates to be borne on the Bonds; all interest rates must be in multiples of 1/8 or 1/20 of one percent; a zero rate of interest may not be specified. Interest will be computed from the expected dated date of , 2012 (or such later date as specified by the City if the sale is postponed), to each stated maturity date at the interest rate applicable to such maturity as specified in the bid, payable semi - annually on each January 1 and July 1, beginning January 1, 2013 on the basis 2 DOC SOC/1551916v3/200119 -0006 ATTACHMENT E of a 360 -day year consisting of twelve 30 -day months. Any premium must be paid as part of the purchase price, and no bid will be accepted which contemplates the waiver of any interest or other concession by the bidder as a substitute for payment in full of the purchase price. V. Redemption: The Bonds are not subject to redemption prior to their stated maturity. VI. Registration of Bonds as to Principal and Interest and Place of Payment The Bonds, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). DTC will act as securities depository of the Bonds. Individual purchases will be made in book -entry form only, in the denominations of $5,000 and integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal and interest are payable in lawful money of the United States of America and will be paid to DTC which in turn will remit such amounts to the beneficial owners of the Bonds through DTC's Participants, as described in the Preliminary Official Statement. VII. Authority: The Bonds will be issued pursuant to the Constitution and laws of the State of California. The issuance of the Bonds was authorized by a two- thirds vote of the qualified electors of the City voting at an election held on November 3, 1998. VIII. Security: Both principal of and interest on the Bonds are payable from an unlimited ad valorem tax levied against all of the taxable property in the City. IX. Form of Bid: All bids must be submitted electronically via PARITY pursuant to the procedures described below, shall be deemed to constitute a Bid for Purchase of the Bonds and shall be deemed to incorporate by reference all of the terms and conditions of this Notice Inviting Proposals. The submission of a bid electronically via PARITY shall constitute and be deemed the bidder's signature on the Bid for Purchase of the Bonds. X. Procedures Regarding Electronic Bidding: All bids must be submitted electronically via PARITY in accordance with this Notice Inviting Proposals. Bids shall be received until 9 A.M., Pacific Standard Time, on , 2012, but no bid will be received after such time unless the City has postponed the sale as provided for herein. To the extent any instructions or directions set forth in PARITY conflict with this Notice Inviting Proposals, the terms of this Notice Inviting Proposals shall control. For further information about PARITY, potential bidders may contact the City's Financial Advisor or PARITY at (212) 806 -8304. Each bidder submitting a bid for the Bonds via PARITY agrees that: 1. The City will regard the electronic transmission of the bid through PARITY (including information about the purchase price of the Bonds, the interest rate or rates to be borne by the various maturities of the Bonds, the initial public offering price of each maturity and any other DOCSOC/1551916v3/200119 -0006 ATTACHMENT E information included in such transmission) as though the same information were submitted on a Bid for Purchase of the Bonds form, provided by the City and executed by a duly authorized signatory of the bidder. A manually signed Bid for Purchase of the Bonds is not required. However, the terms of the Bid for Purchase of the Bonds and the Notice Inviting Proposals and the information that is electronically transmitted through PARITY shall form a contract and the successful bidder shall be bound by the terms of such contract. 2. PARITY is not an agent of the City, and the City shall have no liability whatsoever based on any bidder's use of PARITY, including but not limited to any failure by PARITY to correctly or timely transmit information provided by the City or information provided by the bidder. 3. Once the bids are communicated electronically via PARITY to the City as described above, each bid will constitute a Bid for Purchase of the Bonds and shall be deemed to be an irrevocable offer to purchase the Bonds on the terms provided in this Notice Inviting Proposals. For purposes of submitting all Bids for Purchase of the Bonds the time as maintained on PARITY shall constitute the official time. 4. Each bidder shall be solely responsible to make necessary arrangements to access PARITY for purposes of submitting its bid in a timely manner and in compliance with this Notice Inviting Proposals. Neither the City nor Ipreo shall have any duty or obligation to undertake such registration to bid for any prospective bidder or to provide or assure such access to any qualified prospective bidder, and neither the City nor Ipreo shall be responsible for a bidder's failure to register to bid or for proper operation of, or have any liability for any delays or interruptions of, or any damages caused by, PARITY. The City is using PARITY as a communication mechanism, and not as the City's agent, to conduct the electronic bidding for the Bonds. By using PARITY, each bidder agrees to hold the City harmless for any harm or damages caused to such bidder in connection with its use of PARITY for bidding on the Bonds. No bid received after the deadline for receipt of bids shall be considered. In any case, each bid must be in accordance with the terms and conditions set forth in this Notice Inviting Proposals. XI. Estimate of True Interest Cost: Bidders are requested (but not required) to supply an estimate of the total true interest cost to the City on the basis of their respective bids, which shall be considered as informative only and not binding on either the bidder or the City. XIL No Good Faith Deposit Required to Bid: A good faith deposit will not be required in connection with the submission of any bid for the Bonds. The winning bidder will be required to submit a Bid Award Deposit (see " —Bid Award Deposit" below). XIII. Bid Award Deposit: Not later than a.m. Pacific Standard Time, on , 2012, the winning bidder is required to submit a Bid Award Deposit to the City equal to 1% of the par value of the Bonds which the bidder has been awarded. The Bid Award Deposit must be made in good funds by wire transfer of the required amount to: DOCSOC/1551916v3/200119 -0006 ATTACHMENT E Name of Bank: Bank of America Name of Account: City of Santa Monica Routing Number: 0260- 0959 -3 Account Number: 14316 -81257 Ref: (must show contact name with City and the company sending the wire) or to such other account as instructed by the City in writing. In the event a bidder's Bid Award Deposit is not received by the designated time, the underlying bid may be disqualified at the option of the City. No interest will be paid by the City on the amount of the Bid Award Deposit. The proceeds of the Bid Award Deposit of the winning bidder will be applied to the purchase price of the Bonds, or in the vent of the failure of a winning bidder to pay for the Bonds in compliance with the terms of the bid, at the option of the City, its Bid Award Deposit may be retained as liquidated damages, as partial payment of actual damages or as security for any other remedy available to the City. XIV. CUSIP Numbers and Other Fees: CUSIP numbers will be applied for and will be printed on the Bonds and the cost of printing thereof and service bureau assignment will be purchaser's responsibility. Any delay, error or omission with respect thereto will not constitute cause for the purchaser to refuse to accept delivery of and pay for the Bonds. The successful bidder shall also be required to pay all fees required by The Depository Trust Company, Municipal Securities Rulemaking Board, and any other similar entity imposing a fee in connection with the issuance of the Bonds (see, "California Debt Advisory and Investment Commission" below). XV. Legal Opinion: The Bonds are sold with the understanding that the purchaser will be furnished with the approving opinion of Bond Counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation. A copy of the opinion will be attached to the Bonds. Said attorneys have been retained by the City as Bond Counsel and in such capacity are to render their opinion only upon the legality of the Bonds under California law and on the exemption of the interest income on such Bonds from federal and State of California income taxes. Fees of Bond Counsel will be paid by the City from Bond proceeds. XVI. Tax - Exempt Status: In the opinion of Bond Counsel, under existing laws, interest on the Bonds is exempt from all present State of California personal income taxes, and assuming compliance with certain covenants made by the City, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purpose, provided that such interest may be included in the calculation for certain taxes, including the corporate alternative minimum tax and the corporate environmental tax. Should changes in the law cause Bond Counsel's opinion to change prior to delivery of the Bonds to the purchaser, the purchaser will be relieved of its responsibility to take delivery of and pay for the Bonds, and in that event its Deposit will be returned. DOCSOC/1551916v3/200119 -0006 ATTACHMENT E XVII. Certification of Reoffering Price: As soon as practicable, but not later than five days following the date of acceptance of the bid for the Bonds, the successful bidder must submit to the City a certificate specifying for each maturity the reoffering price at which at least 10% of the Bonds of such maturity were sold (or were offered in a bona fide public offering and as of the date of award of the Bonds to the successful bidder reasonably expected to be sold) to the public. Such certificate shall be in form and substance satisfactory to Bond Counsel and shall include such additional information as may be requested by Bond Counsel. XVIII. Award: The Bonds will be awarded to the highest responsible bidder submitting the best responsive bid, considering the interest rate or rates specified, (i.e., the bidder with the lowest true interest cost] at a price of par or better. The best bid will be the bid that represents the lowest true interest cost ( "TIC ") to the City for the Bonds. The TIC is the discount rate that, when compounded semiannually and used to discount all debt service payments on the Bonds back to the dated date of the Bonds, results in an amount equal to the price bid for the Bonds. In the event that two or more bidders offer bids for the Bonds at the same lowest TIC, the City will determine by lottery which bidder will be awarded the Bonds. The determination of the bid representing the lowest TIC will be made without regard to any adjustments made or contemplated to be made after the award by the Director of Finance, as described herein under "Adjustment of Principal Amounts," even if such adjustments have the effect of raising the TIC of the successful bid to a level higher than the bid containing the next lowest TIC prior to adjustment. XIX. Delivery: Delivery of the Bonds will be made to the purchaser through DTC upon payment in federal funds payable to or for the account of the City pursuant to instructions provided by the successful bidder and approved by the City. The Closing will take place at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California, 92660, or at the purchaser's request and expense, at any other place mutually agreeable to both the City and the purchaser. XX. Prompt Award: The City Manager or the Director of Finance will take action awarding the Bonds or rejecting all bids not later than twenty-six (26) hours after the expiration of the time herein prescribed for the receipt of proposals, unless such time of award is waived by the successful bidder. Notice of the award will be given promptly to the successful bidder. XXI. No Insurance: THE SUCCESSFUL BIDDER SHALL NOT PURCHASE MUNICIPAL BOND INSURANCE IN CONNECTION WITH THE BONDS. 6 DOCSOC/ 1551916v3/200119 -0006 ATTACHMENT E XXII. California Debt Advisory and Investment Commission: The successful bidder will be required, pursuant to state of California law, to pay any fees to the California Debt and Investment Advisory Commission ( "CDIAC "). CDIAC will invoice the successful bidder after the closing of the Bonds. XXIII. No Litigation and Non - Arbitrage: The City will deliver a certificate stating that no litigation is pending affecting the issuance and sale of the Bonds. The City will also deliver an arbitrage certificate covering its reasonable expectations concerning the Bonds and the use of proceeds thereof. XXIV. Official Statement The City has made available a Preliminary Official Statement relating to the Bonds, a copy of which has been posted to www.i- dealprospectus.com. Such Preliminary Official Statement; together with any supplements thereto, shall be in form "deemed final" by the City for the purposes of SEC Rule 15c2- 12(b)(1), but is subject to revision, amendment and completion in a final official statement. The City shall deliver, at closing, a certificate, executed by appropriate officers of the City acting in their official capacities, to the effect that the facts contained in the Official Statement relating to the Bonds are true and correct in all material respects, and that the Official Statement does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. The City will provide up to 100 copies of the final Official Statement for the Bonds to the successful bidder for the Bonds, without charge, within seven business days after the award of the bid. The successful bidder must notify the City through the Financial Advisor, in writing, within three business days of the award if the bidder requires additional copies of the final Official Statement, which additional copies will be provided at the bidder's cost. By making a bid for the Bonds, the successful bidder agrees (1) to disseminate to all members of the underwriting syndicate copies of the final Official Statement, including any supplements prepared by the City, (2) to promptly file a copy of the final Official Statement, including any supplements prepared by the City, with a Nationally Recognized Municipal Securities Information Repository, and (3) to take any and all other actions necessary to comply with applicable SEC rules and MSRB rules governing the offering, sale and delivery of its Bonds to ultimate purchasers. XXV. Continuing Disclosure: In order to assist bidders in complying with Rule 15c2- 12(b)(5) promulgated under the Securities Exchange Act of 1934, the City will undertake in a Continuing Disclosure Certificate to provide certain annual financial information and Notice of the occurrence of certain events, if material. A description of this undertaking and a form of the Continuing Disclosure Certificate is included in the Preliminary Official Statement. XXVI. Ratings: Fitch Ratings,, Moody's Investors Service and Standard & Poor's have assigned to the Bonds the ratings shown on the cover page of the Preliminary Official Statement or, if not so indicated, will 7 DOCSOC/1551916v3/200 1 1 9 -0006 ATTACHMENT E be available upon request from the Financial Advisor. Such rating reflects only the views of such organization and explanation of the significance of such rating may be obtained from them as follows: Fitch Ratings, One State Street Plaza, New York, NY 10004, (212- 908 - 0500), Standard & Poor's, 55 Water Street, New York, New York 10041, (212) 438 -2000, and Moody's Investors Service, 7 World Trade Center, New York, New York 10007, (212) 553 -0300. There is no assurance that the ratings will continue for any given period of time or that on or both will not be revised downward or withdrawn entirely by either of the rating agencies, if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. XXVII.Additional Information Copies of the Resolutions, this Official Notice Inviting Bids, the Bid Form and Preliminary Official Statement will be furnished to any potential bidder upon request made to the City Financial Advisor at: Public Resources Advisory Group, 11500 West Olympic Blvd, Suite 502, Los Angeles, California 90064, (310) 477 -8487 or lehoi @pragla.com. XXVHL Right To Modify Or Amend: The City reserves the right to modify or amend this Official Notice Inviting Bids including, but not limited to the right to adjust and change the aggregate principal amount of the Bonds being offered. Such notifications or amendments shall be made not later than 2:00 p.m. PDT on the business day immediately preceding the day of the bid opening and communicated through Thomson Municipal News and by facsimile transmission to any qualified bidder timely requesting such notice. XXIX. Right To Reject Bids Or Waive Irregularities: The City reserves the right, in its discretion, to reject any and all bids and, to the extent permitted by law, to waive any irregularity or informality in any bid. XXX. Right to Cancel, Postpone, or Reschedule Sale: The City reserves the right to cancel, postpone or reschedule the sale of the Bonds upon notice given through the Bloomberg News Service, Thompson Municipal Market Monitor (www.tm3.com) or The Bond Buyer not less than eighteen (18) hours prior to the time bids are to be received. If the sale is postponed, bids will be received at the place set forth above, at the date and time as the City shall determine. Notice of the new sale date and time, if any, will be given through Bloomberg News Service, Thompson Municipal Market Monitor (www.tm3.com) or The Bond Buyer no later than eighteen (18) hours prior to the new time bids are to be received. As an accommodation to bidders, telephone or fax notice of the postponement of the sale date and of the new sale date will be given to any bidder requesting such notice from the Financial Advisor. Failure of any bidders to receive such notice shall not affect the legality of the sale. Dated: 2012 CITY OF SANTA MONICA go 8 DOCSOC/15519160/200119 -0006 City Manager ATTACHMENT E DOCSOC/ 1551916v3/200119 -0006 BID FOR THE PURCHASE OF $ CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) 2012 City of Santa Monica Santa Monica, California On behalf of a group which we have formed consisting of: and pursuant to the Notice Inviting Proposals for Purchase of Bonds hereinafter mentioned, we offer to purchase all of the Dollars ($ ) principal amount of the Bonds designated as "City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project)" maturing on July 1 in the years and amounts and bearing interest at the rate or rates set forth in the following schedule: PRINCIPAL INTEREST YEAR AMOUNT` RATE and to pay therefor the aggregate sum of $ (representing the $ principal amount of the Bonds, plus interest accrued on such Bonds to the date of delivery thereof.) We hereby elect to combine the maturities of Bonds maturing on the following dates: Redemption Dates through Maturity Date 1, _ Preliminary, subject to change. See "III. Adjustment of Principal Amounts" in the Notice Inviting Proposals for Purchase of Bonds. DOCSOC/ I551916v3/200119 -0006 ATTACHMENT E This bid is made subject to all the terms and conditions of the Notice Inviting Proposals for Purchase of Bonds heretofore published, all of which terms and conditions are made a part hereof as fully as though set forth in full in this bid. As specified in the Notice Inviting Proposals for Purchase of Current Interest Bonds, this bid is subject to acceptance not later than 26 hours after the expiration of the time for the receipt of bids, and the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation approving the validity of the Bonds will be furnished us (if we are the successful bidder) at the time of the delivery of the Bonds at the expense of the City. There is submitted herewith a memorandum (which shall not constitute a part of this bid) stating the total true interest cost in dollars on the Bonds during the life of the issue under this bid, and the true interest rate determined thereby. We have received and reviewed the Preliminary Official Statement with respect to the Bonds (the "Preliminary Official Statement ") and as a condition to bidding on the Bonds, have determined that we can comply with the requirements of Rule 15c2 -12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. As of the date of award and as of the date of delivery of the Bonds, all members of our syndicate either participate in DTC or clear through or maintain a custodial relationship with an entity that participates in said depository. We hereby request that (not to exceed 100) printed copies of the Official Statement with respect to the Bonds be furnished to us in accordance with the terms of the Notice Inviting Proposals for the Purchase of Bonds. Respectfully submitted, (Account Manager) 0 City: State: MEMORANDUM OF INTEREST COST: Under the above bid, the total true interest cost on the Bonds during the life of the issue is $ is %. DOCSOC/1551916v3/200119 -0006 and the true interest rate determined thereby o o m a ti � C V � �P y o E � o 0 O C W O V O E � K0 0 o m 9 y 0 a o ,y C E m g c g N N � N E g ,Eb U Coro 0 .� O y � m o U „ o cay � U U O N .0 � O U U o 3 P �b E U d o p w � � ATTACHMENT G Stradling Yocca Carlson & Routh Draft of 4119112 PRELIMINARY OFFICIAL STATEMENT DATED 2012 NEW ISSUE — BOOK -ENTRY ONLY IMNI INi m S &P: (See "RATING" herein) hi the opinion of Stradling Yocca Carlson & Rauth, 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 on the 2012A 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 the 2012A Bonds is exempt from State of California personal income tax. See the caption "TAX MATTERS" with respect to tax consequences relating to the 2012A Bonds. Dated: Date of Issuance CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS SERIES 2012A Due: February 1, as set forth on the inside cover The City of Santa Monica Wastewater Refunding Revenue Bonds Series 2012A (the "2012A Bonds ") are being issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the 2012A Bonds will not receive securities representing their beneficial ownership in the 2012A Bonds purchased. Interest on the 2012A Bonds is payable on August 1,2012 and each February 1 and August 1 thereafter, until the maturity thereof. The principal of and interest on the 2012A Bonds are payable by the Trustee to Cede & Co. and such interest and principal payments are to be disbursed to the beneficial owners of the 2012A Bonds through their nominees. The 2012A Bonds are not subject to redemption prior to the stated maturities. The 2012A Bonds are being issued to provide funds: (i) to refund the currently outstanding City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series (the "1993 Bonds "); and (ii) to pay costs of issuance of the 2012A Bonds, all as more fully described herein. The 2012A Bonds are being issued pursuant to the Indenture of Trust, dated as of May 1, 2012, by and between the City of Santa Monica (the City") and U.S. Bank National Association, as trustee. The 2012A Bonds are limited obligations of the City payable solely from Net Revenues of the City's Wastewater System remaining after payment of Operation and Maintenance Costs and Senior Debt Service, and from amounts on deposit in certain funds and accounts created under the Indenture. The obligation of the City to pay principal of and interest on the 2012A Bonds is payable from Net Revenues subordinate to the obligation of the Agency to make Senior Debt Service payments. The Senior Debt Service consists of debt service payments on $11,295,000 aggregate principal amount of the City's outstanding Wastewater Enterprise Refunding Revenue Bonds (Hyperion Project) 2005 Series A (the "2005 Bonds ") issued pursuant to the Indenture dated as of November 1, 1991, as supplemented by a First Supplemental Indenture, dated as of December 1, 1993 and as further supplemented by a Second Supplemental Indenture of Trust dated as of October 1, 2005, each by and between the City and U.S. Bank National Association, as successor trustee (the "Senior Indenture "). The City may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2012A Bonds, subject to the terms and conditions of the Indenture, as more fully described herein. The City has covenanted not to issue any additional bonds payable from Net Revenues senior to the 2012A Bonds pursuant to the Senior Indenture. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH IT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE — See Inside Cover Page The 2012A Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the 2012A Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by its City Attorney, and for the Trustee by its Prelinunaty, subject to change. DOC SO C/ 1552116v7/200119 -0007 counsel. It is anticipated that the 2012A Bonds will be available for delivery through the facilities of The Depository Trust Company on or about , 2012. Dated: , 2012 DOCSOC/ I552116v7/200119 -0007 CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS SERIES 2012A MATURITY SCHEDULE* BASE CUSIFt Maturity Date (August 1) PrincipalAmouat Interest Rate Yield CUsIPt Preliminary, subject to change. t CUSIP® is a registered tradenmrk of the American Bankers Association. Copyright© 1999 -2012 American Bankers Association. All rights reserved. CUSIPe data herein is provided by CUSIP Global Services, managed by Standard & Poor's Financial Services LLC on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any fray as a substitute for CUSIP Global Services. CUSIP' numbers are provided for convenience of reference only. Neither the City nor the Undenrriter takes any responsibilio, for the accuracy of such numbers. DOCSOC/ 1552116x7/200119 -0007 No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2012A Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2012A 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 a representation of facts. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2012A BONDS AT A- LEVEL THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2012A BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND "FORWARD- LOOKING STATEMENTS." NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD - LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD - LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE 2012A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2012A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THE INDENTURE HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT The City of Santa Monica maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2012A Bonds. DOCSOC/ 1552116v7/200119-0007 CITY OF SANTA MONICA (County of Los Angeles, California) City Council Richard Bloom, Mayor Gleam Davis, Mayor Pro Tempore Robert T. Holbrook Pam O'Connor Kevin McKeown Terry O'Day Bobby Shriver City Manager Rod Gould City Attorney Marsha Jones Moutrie City Clerk Maria M. Stewart Director of Finance /City Treasurer Gigi Decavalles- Hughes Public Works Director Martin Water Resources Manager Gil Borboa 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 U.S. Bank National Association Los Angeles, California DOCSOC/1552116v7/200119 -0007 TABLE OF CONTENTS Page SUMMARYSTATEMENT ............................................................................................................. ..............................i INTRODUCTION.......................................................................................................................... ............................... 3 REFUNDINGPLAN ..................................................................................................................... ............................... 4 1993 Bonds ............................................................................................................................. ............................... 4 ESTIMATED SOURCES AND USES OF FUNDS ....................................................................... ..............................4 THE2012A BONDS ....................................................................................................................... ..............................5 GeneralProvisions .................................................................................................................. ............................... 5 Transfers and Exchanges Upon Termination of Book -Entry Only System .............................. ..............................5 NoRedemption of the 2012A Bonds ....................................................................................... ..............................6 Book -Entry Only System ......................................................................................................... ..............................6 DEBT SERVICE PAYMENT SCHEDULE ................................................................................... ..............................7 SECURITY FOR THE 2012A BONDS ......................................................................................... ............................... 7 Limited Obligations Payable From Net Revenues .................................................................. ............................... 7 Pledge and Assignment; Revenue Fund .................................................................................. ............................... 8 Allocationof Revenues ........................................................................................................... ............................... 9 RateCovenant ....................................................................................................................... ............................... 10 AdditionalCity Indebtedness ................................................................................................ ............................... 10 NoReserve Fund ................................................................................................................... ............................... 10 THE WASTEWATER SYSTEM ................................................................................................... .............................10 LocalSystem ......................................................................................................................... ............................... 10 HyperionSystem ................................................................................................................... ............................... 11 RegulatoryRequirements ........................................................................................................ ................:............12 REVENUES AND DEBT SERVICE COVERAGE ...................................................................... .............................13 Sewer Rates and Revenues ...................................................................................................... .............................13 Historical Sewer Rates and Charges ....................................................................................... .............................18 RateSetting Process ................................................................................................................ .............................18 Billingand Collection ............................................................................................................. .............................19 HistoricOperating Results ...................................................................................................... .............................19 Operation and Maintenance Expenses ................................................................................... ............................... 20 ProjectedOperating Results .................................................................................................. ............................... 21 Outstanding Bonded Indebtedness .......................................................................................... .............................22 RetirementSystem ................................................................................................................ ............................... 23 Pension Funding Information .................................................................................................. .............................24 OtherPost Employment Benefits ............................................................................................ .............................28 MedicalTrusts ......................................................................................................................... .............................30 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES .................. ............................... 30 ArticleXIIIB ......................................................................................................................... ............................... 30 Proposition218 ....................................................................................................................... .............................30 FutureInitiatives ................................................................................................................... ............................... 32 APPROVAL OF LEGAL PROCEEDINGS ................................................................................ ............................... 32 LITIGATION.............................................. ............................... TAX MATTERS ......................................... ............................... DOCSOC/ 1552116v7/200119 -0007 .................. ............................... 32 .................. ............................... 32 TABLE OF CONTENTS (continued) Page FINANCIALADVISOR. ............................................................................................................................................ 34 RATINGS..................................................................................................................................... ............................... 34 UNDERWRITING....................................................................................................................... ............................... 34 CONTINUING DISCLOSURE UNDERTAKING ....................................................................... .............................34 MISCELLANEOUS..................................................................................................................... ............................... 35 APPENDIX A EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ii DOCSOC/1552116v7/200119 -0007 ENDED JUNE 30, 2011 ......... .. ................................................................................................ A -1 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE ..................... ............................... B -1 APPENDIX C FORM OF OPINION OF BOND COUNSEL ........................................... ............................... C -1 APPENDIX D INFORMATION CONCERNING DTC .................................................... ............................... D -1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE .................... ............................... E -1 APPENDIX F THE CITY OF SANTA MONICA ..................... .. ..................................................................... F -1 ii DOCSOC/1552116v7/200119 -0007 SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement, and the offering of the 2012A Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The 2012A Bonds are being issued to provide funds: (i) to refund the currently outstanding 1993 Bonds; and (ii) to pay costs of issuance of the 2012A Bonds, all as more fully described herein. Security for the 2012A Bands. The 2012A Bonds are limited obligations of the City payable solely from Net Revenues of the City's Wastewater System remaining after payment of Operation and Maintenance Costs and Senior Debt Service, and from amounts on deposit in certain funds and accounts created under the Indenture. The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012A Bonds in the future as described herein. The City has covenanted not to issue any additional bonds payable from Net Revenues senior to the 2012A Bonds pursuant to the Senior Indenture. The obligation of the City to pay principal of and interest on the 2012A Bonds pursuant to the Indenture does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay principal of and interest on the 2012A Bonds is a special obligation of the City payable solely from Net Revenues, and does not constitute a debt of the City or of the State of California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. The Refunding Plan. A portion of the proceeds of the 2012A Bonds [together with other funds of the City] will be transferred to U.S. Bank National Association, as trustee with respect to the 1993 Bonds, to redeem the outstanding 1993 Bonds in the aggregate principal amount of $9,670,000 on , 2012. Rate Covenant. The Indenture will require the City, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges in connection with the Wastewater Services which are reasonably expected to be least sufficient to yield during each Fiscal Year Net Revenues equal to 120% of Debt Service and Senior Debt Service during such Fiscal Year, all as more particularly described herein. Additional Conn -acts and Bonds Test. The Indenture permits the City to execute any Contracts or issue any Bonds on a parity with the obligation to pay principal of and interest on the 2012A Bonds, provided that certain conditions are satisfied as described herein. No Additional Senior Bonds. Pursuant to the Indenture, the City has covenanted not to issue any additional bonds payable from Net Revenues senior to the 2012A Bonds pursuant to the Senior Indenture. No Reserve Fund. The City has not funded a debt service reserve fund for the 2012A Bonds. Redemption. The 2012A Bonds are subject to optional redemption and extraordinary redemption from Net Proceeds of insurance or condemnation as described herein. The City. The City 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 State Legislature. The City 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. Santa Monica encompasses an area slightly greater than eight square miles and as of January 1, 2010 had an estimated current population of 92,703. The Wastewater System. The "Wastewater System" is defined in the Indenture as the whole and each and every part of the municipal wastewater collection, treatment and disposal system of the City, including the City's interest in the Hyperion Plant (as defined herein) pursuant to the Hyperion Agreement (as defined herein), and all additions, betterments and extensions to said municipal wastewater system or any part thereof. The term "Hyperion D 0 CSOC/1552116v7/200 1 1 9 -0007 System" means the Hyperion Treatment Plant and appurtenant facilities located at 12000 Vista del Mar, Los Angeles, California, together with any wastewater collection, treatment and disposal facilities related to the Hyperion System, and in which facilities the City has an interest pursuant to the Hyperion Agreement, and any alteration, expansion, improvement, relocation, replacement or reconstruction thereof. The term "Hyperion Agreement" means the Amalgamated System Sewer Service Agreement, dated April 21, 1999, by and between the City of Los Angeles and the City governing the treatment of sewage at the Hyperion System, and as such agreement may be amended, modified or restated and includes any agreement between such parties governing the treatment of sewage at the Hyperion System that replaces or supersedes the existing Hyperion Agreement. The Hyperion Agreement provides, among other things; that the City may discharge sewage flows into the sewage system of the City of Los Angeles, and that the City of Los Angeles will convey such sewage to the Hyperion System for treatment and disposal. The term "Local System" is defined in the Indenture as all of the Wastewater System except the City's interest in the Hyperion Plant. The Local System is managed by the City's Department of Environmental and Public Works Management, Water Resources Division (the "Water Resources Division "). The operation of the Local System involves cleanings inspecting and repairing approximately 125miles of sanitary sewers, 20 miles of storm drains and 825 catch basins as well as a pumping plant. The Local System serves an eight square mile area. The Water Resources Division is also responsible for implementing and enforcing the City's Industrial Waste Control Program. This involves inspecting and sampling approximately 900 City businesses in order to ensure that discharges to the City's sewer and storm drains remain within the acceptable standards of the City, Los Angeles, and the state and federal governments. This Official Statement contains brief descriptions of, among other things, the 2012A Bonds, the Indenture, the City and the Wastewater System. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by references to such documents, and references to the 2012A Bonds are qualified in their entirety by reference to the form of 2012A Bonds included in the Indenture. For certain financial information with respect to the City and the Wastewater System see APPENDIX A "EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011." For a discussion of governmental, demographic, and economic information with respect to the City see APPENDIX G — "THE CITY OF SANTA MONICA." Copies of the Indenture, the Senior Indenture and additional information may be obtained upon request from the City of Santa Monica City Clerk, 1685 Main Street, Santa Monica, California 90401, (310) 458 -8411. DOCSOC/ 1552116v7/200119 -0007 $ CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS SERIES 2012A INTRODUCTION This Official Statement, including the cover page, the inside cover page and all appendices hereto, provides certain information concerning the sale and delivery of the City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A (the "2012A Bonds "). The 2012A Bonds are being issued pursuant to an Indenture of Trust, dated as of May 1, 2012 (the "Indenture "), by and between the City of Santa Monica (the "City") and U.S. Bank National Association, Los Angeles, California, as trustee (the "Trustee "). Descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B hereto entitled "DEFINITIONS AND SUMMARY OF THE INDENTURE." The 2012A Bonds are being issued to provide funds: (i) to refund City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series (the "1993 Bonds ") currently outstanding in the aggregate principal amount of $9,670,000; and (ii) to pay costs of issuance of the 2012A Bonds. See the caption "ESTIMATED SOURCES AND USES OF FUNDS" herein. The 2012A Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City's Wastewater System remaining after payment of Operation and Maintenance Costs, as such terms are defined in Appendix B hereto, and from amounts on deposit in certain funds and accounts created under the Indenture. The 2012A Bonds are payable from Net Revenues on a basis subordinate to Senior Debt Service (as defined in Appendix B hereto). The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012A Bonds in the future as described herein. The City has covenanted not to issue any additional bonds payable from Net Revenues senior to the 2012A Bonds pursuant to the Senior Indenture. The obligation of the City to pay principal of and interest on the 2012A Bonds from Net Revenues is subordinate to the obligation of the City to make payments under the Indenture dated as of November 1, 1991, as supplemented by a First Supplemental Indenture, dated as of December 1, 1993 and as further supplemented by a Second Supplemental Indenture of Trust dated as of October 1, 2005, by and between the City and U.S. Bank National Association, as successor trustee (the "Senior Indenture "), relating to the City's Wastewater Enterprise Refunding Revenue Bonds (Hyperion Project) 2005 Series A (the "2005 Bonds ") currently outstanding in the aggregate principal amount of $11,295,000. The summaries and references to the Indenture, the Senior Indenture and all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture and each such document, statute, report or instrument, copies of which are available from the City of Santa Monica City Clerk, 1685 Main Street, Santa Monica, California 90401, (310) 458 -8411, and will be available from the Trustee upon request and payment of duplication cost. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the City. The City regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2012A Bonds (each, an "Owner") may obtain a copy of such report, as available, from the Trustee or the City. ' Preliminary, subject to change. DOCSOC/1552116v7/200119 -0007 REFUNDING PLAN 1993 Bonds Pursuant to the Senior Indenture, the City has previously issued the 1993 Bonds. Currently, the 1993 Bonds are outstanding in the aggregate principal amount of $9,670,000. The City plans to apply a portion of the proceeds of the 2012A Bonds, together with other funds on hand, to redeem the 1993 Bonds on 2012. The 1993 Bonds to be redeemed are as follows: THE REFUNDED BONDS* (to be redeemed on [DATE] at 100) Maturity Principal (January 1) Amount CUSIP 2020 $4,620,000 802470BY9 2022 5,050,000 802470BZ6 $9,670,000 Under an Escrow Agreement, dated as of May 1, 2012 (the "Escrow Agreement "), by and between the City and U.S. Bank National Association, as escrow agent (the "Escrow Agent "), the City will deliver a portion of the proceeds of the 2012A Bonds to the Escrow Agent for deposit in the escrow fund established under the Escrow Agreement (the "Escrow Fund "). The Escrow Agent will hold the amounts deposited in the Escrow Fund uninvested as set forth in the Escrow Agreement and apply such moneys to pay the redemption price (equal to the aggregate principal amount of the 1993 Bonds to be redeemed plus accrued interest to the redemption date) on 2012. The amounts held by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the Refunded 1993 Bonds. Neither the funds deposited in the Escrow Fund nor the interest on the invested funds will be available for the payments of principal of and interest on the 2012A Bonds. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds: Sources: Principal Amount Plus /Less Original Issue Premium/Discount Transferred Moneys(1) Total Sources Uses: Escrow Fund Costs of Issuance Fund(2) Total Uses (1) Reflects moneys transferred from funds and accounts established in connection with the 1993 Bonds. (2) Includes Underwriter's discount and certain legal, financing and printing costs. Preliminary, subject to change. DOCSOC /1552116v7/200119 -0007 �:1�iIi3J3i ►]`I General Provisions The 2012A Bonds will be issued in the aggregate principal amount of $ The 2012A Bonds will be dated as of the date of initial issuance thereof (the "Issuance Date "), will bear interest from such date at the rates per annum set forth on the inside cover page hereof, payable on August 1, 2012 and each February I and August 1 thereafter (each, an "Interest Payment Date "), and will mature on the dates set forth on the inside cover page hereof. Interest on the 2012A Bonds will be computed on the basis of a 360 -day year of twelve thirty-day months. The 2012A Bonds will be issued only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). DTC will act as securities depository for the 2012A Bonds. Ownership interests in the 2012A Bonds may be purchased in book - entry form, in denominations of $5,000 or any integral multiple thereof. See the caption " Book -Entry Only System" below and Appendix D attached hereto. In the event that the book -entry only system described below is discontinued, the principal of and redemption premium (if any) on the 2012A Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in Los Angeles, California (the "Office of the Trustee "). Interest on the 2012A Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the "Registration Books ") as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the "Record Date "), such interest to be paid by check of the Trustee, sent by first class mail on the applicable Interest Payment Date to the Owner at such Owner's address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2012A Bonds may, at such Owner's option, be paid interest by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium, if any, on the 2012A Bonds will be payable in lawful money of the United States of America. Interest on any 2012A Bond will be payable from the Interest Payment Date preceding the date of issuance thereof, unless such date is after a Record Date and on or before the succeeding Interest Payment Date, in which case interest thereon will be payable from such Interest Payment Date, or unless such date is on or before August 15, 2012, in which case interest thereon will be payable from the Issuance Date. Transfers and Exchanges Upon Termination of Book -Entry Only System In the event that the book -entry system described above is abandoned, the 2012A Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2012A Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by such person's duly authorized attorney, upon surrender of such 2012A Bond for cancellation at the Office of the Trustee, accompanied by delivery of a duly executed instrument of transfer in a form approved by the Trustee. Upon the surrender of a 2012A Bond for transfer, the Trustee is to issue a new 2012A Bond or 2012A Bonds of the same maturity, for a like aggregate principal amount and of authorized denomination or denominations. The Trustee may charge a sum for each new 2012A Bond issued upon any transfer. The Trustee may require the payment by any 2012A Bond Owner requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. 2012A Bonds may be exchanged at the Office of the Trustee, for a like aggregate principal amount of 2012A Bonds of other authorized denominations of the same maturity. The Trustee may charge a sum for each new 2012A Bond issued upon any exchange except in the case of any exchange of temporary 2012A Bonds for definitive 2012A Bonds. The Trustee may require the payment by the Owner requesting such exchange of any tax or other Preliminary, subject to change. DOCSOC /l 552116v7/200119 -0007 governmental charge required to be paid with respect to such exchange. Following any exchange of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. No Redemption of the 2012A Bonds The 2012A Bonds are not subject to redemption prior to their stated maturities. Book -Entry Only System One fully- registered 2012A Bond of each maturity will be issued in the principal amount of the 2012A Bonds of such maturity. Such 2012A Bond will be registered in the name of Cede & Co. and will be deposited with DTC. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, the 2012A Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. The City cannot and does not give any assurances that DTC participants or others will distribute payments of principal of and interest on the 2012A Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix D hereto for additional information concerning DTC. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] DOC SOC/ I552116v7/200119 -0007 DEBT SERVICE PAYMENT SCHEDULE Set forth below is a schedule of principal of and interest on the 2012A Bonds and 2005 Bonds for the period ending August 1 in each of the years indicated: Source: City of Santa Monica. SECURITY FOR THE 2012A BONDS Limited Obligations Payable From Net Revenues Total The City is obligated to make payments of principal of and interest on the 2012A Bonds solely from Net Revenues of the Wastewater System. The term "Net Revenues" means, for any Fiscal Year of the City (currently, the City's Fiscal Year commences July 1 of each year) ( "Fiscal Year "), the Revenues for such Fiscal Year less the Operation and Maintenance Costs of the Water System for such Fiscal Year and the Senior Debt Service for such Fiscal Year. The obligation to make payments of principal of and interest on the 2012A Bonds is payable on a subordinate basis to the obligation of the City to make payments with respect to $11,295,000 aggregate principal amount of 2005 Bonds payable under the Senior Indenture. The Indenture defines "Net Revenues" as, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. When held by the Trustee in any funds or accounts established hereunder, Net Revenues shall include all interest or gain derived from the investment of amounts in any of such funds or accounts. "Revenues" is defined to mean all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Wastewater System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the City from the collection, treatment and discharge of wastewater or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Wastewater DOC SOC/ 1552116v7/200119 -0007 2012A Bonds Senior Debt 2012A Bonds 2012A Bonds Service August I Principal Interest 2005 Bonds 2012 $ $ $2,152,212.50 2013 2,150,650.00 2014 2,150,650.00 2015 2,148,175.00 2016 2,148,600.00 2017 2,152,200.00 2018 2,147,600.00 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 TOTAL $ $ $15,050,087.50 Source: City of Santa Monica. SECURITY FOR THE 2012A BONDS Limited Obligations Payable From Net Revenues Total The City is obligated to make payments of principal of and interest on the 2012A Bonds solely from Net Revenues of the Wastewater System. The term "Net Revenues" means, for any Fiscal Year of the City (currently, the City's Fiscal Year commences July 1 of each year) ( "Fiscal Year "), the Revenues for such Fiscal Year less the Operation and Maintenance Costs of the Water System for such Fiscal Year and the Senior Debt Service for such Fiscal Year. The obligation to make payments of principal of and interest on the 2012A Bonds is payable on a subordinate basis to the obligation of the City to make payments with respect to $11,295,000 aggregate principal amount of 2005 Bonds payable under the Senior Indenture. The Indenture defines "Net Revenues" as, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. When held by the Trustee in any funds or accounts established hereunder, Net Revenues shall include all interest or gain derived from the investment of amounts in any of such funds or accounts. "Revenues" is defined to mean all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Wastewater System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the City from the collection, treatment and discharge of wastewater or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Wastewater DOC SOC/ 1552116v7/200119 -0007 System, plus (2) the earnings on and income derived from the investment of the amounts described in clause (1) hereof and the general unrestricted funds of the Wastewater System, but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the City, and excluding any proceeds of taxes restricted by law to be used by the City to pay bonds hereafter issued. "Operation and Maintenance Costs" is defined to mean the reasonable and necessary costs of operating and maintaining the Wastewater System, calculated in accordance with Generally Accepted Accounting Principles, including (among other things) salaries and wages, fees for services, costs of materials, supplies and fuel, reasonable expenses of management, legal fees, accounting fees, repairs and other expenses necessary to maintain and preserve the Wastewater System in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, and the payment of pension charges and proportionate payments to such compensation and other insurance or outside reserve funds as the City may establish or require with respect to employees of the City, which costs shall include operation and maintenance costs attributable to the Hyperion Plant and payable by the City pursuant to the Hyperion Agreement, but excluding in all cases (i) depreciation and obsolescence charges or reserves therefor, (ii) amortization of intangibles or other bookkeeping entries of a similar nature, (iii) costs of capital additions, replacements, betterments, extensions or improvements to the Wastewater System (including such capital costs attributable to the Hyperion Plant and payable by the City pursuant to the Hyperion Agreement), which under Generally Accepted Accounting Principles are chargeable to a capital account or to a reserve for depreciation, and (iv) charges for the payment of principal and interest on any revenue bonds or other indebtedness heretofore or hereafter issued for Wastewater System purposes. See AppendixB- "DEFINITIONS AND SUMMARY OF INDENTURE" for a detailed discussion of the terms of the Indenture. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY 1S OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS UNDER THE INDENTURE IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Pledge and Assignment; Revenue Fund Subject to the prior pledge and lien in favor of the 2005 Bonds, all of the Revenues, all amounts held in the Revenue Fund (which is the City's Wastewater Enterprise Fund) described in subsection (b) below and any other amounts (including proceeds of the sale of the 2012A Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) are irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2012A Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues shall not be used for any other purpose while the 2012A Bonds remain Outstanding; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted in the Indenture. In order to carry out and effectuate the pledge and lien contained in the Indenture, the City agrees and covenants that all Revenues shall be received by the City in trust under the Indenture and shall be deposited when and as received in a special fund designated as the "Revenue Fund," which fund is continued under the Indenture and which fund the City agrees and covenants to maintain and to hold separate and apart from other funds so long as the 2012A Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund shall be used and applied by the City as provided in the Indenture. All moneys in the Revenue Fund shall be held in trust and shall be applied, used and withdrawn for the purposes set forth in the Indenture. The City shall, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall be used to make payments with respect to the Senior DOCSO C/1552116v7/200119 -0007 Debt Service and such other payments as required by the Senior Indenture, and thereafter be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority: (i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the City shall, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund the payments of interest and principal on the 2012A Bonds due and payable on such Interest Payment Date. The City shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. On or before each Interest Payment Date the City shall, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the Trustee for deposit in the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto. (iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the City reasonably expects such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (i) or (ii) above may be expended by the City at any time for any purpose permitted by law. Allocation of Revenues There is established with the Trustee the Payment Fund, which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2012A Bonds remain unpaid. Except as directed in the Indenture, all payments of interest and principal on the 2012A Bonds received by the Trustee pursuant to the Indenture shall be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required hereunder to be deposited in the Redemption Fund shall be promptly deposited tin the Indenture. All payments of interest and principal on the 2012A Bonds deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an Interest Account and a Principal Account within the Payment Fund. The Trustee shall transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Not later than the Business Day preceding each Interest Payment Date, the Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2012A Bonds then Outstanding. No deposit need be made into the Interest Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due and payable on such date on all 2012A Bonds then Outstanding. (b) Not later than the Business Day preceding each date on which the principal of the 2012A Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2012A Bonds coming due and payable on such date or subject to mandatory sinking fund redemption on such date. No deposit need be made into the Principal Account so long as there shall be in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2012A Bonds then Outstanding. 9 DOCSOC/ 1552116v7/200119 -0007 Rate Covenant The Indenture will require the City, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges in connection with the wastewater services and facilities furnished by the Wastewater System which are reasonably expected to be at least sufficient to yield during each Fiscal Year Net Revenues equal to 120% of the Debt Service and Senior Debt Service for such Fiscal Year. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of the Indenture. Additional City Indebtedness The City may at any time execute any Contracts or issue any Bonds payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2012A Bonds, provided that certain conditions are satisfied as provided below. (a) The Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the City (the "City Council') of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, produce a sum equal to at least 120% of the Debt Service and Senior Debt Service for such Fiscal Year: and (b) The Net Revenues for the most recent audited Fiscal Year preceding the date of the execution of such Contract or the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Wastewater Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, produce a sum equal to at least 120% of the Debt Service and Senior Debt Service for such Fiscal Year plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year assuming such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year. Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased more than 5% in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. Additionally, notwithstanding the foregoing, Bonds or Contracts may be issued to refund the outstanding 2005 Bonds if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased more than 5% over Senior Debt Service plus Debt Service in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. No Reserve Fund The City has not funded a debt service reserve fund in connection with the 2012A Bonds. THE WASTEWATER SYSTEM Local System The Local System comprises a collection and conveyance system which is owned by the City and is managed, operated and maintained by the Water Resources Division of the City, Department of Public Works. Management of the Local System involves physical facilities planning; financial planning and budgeting; development of operating systems and procedures; liaison with the City of Los Angeles and other agencies on 10 DOCSOC/ 1552116v7/200119 -0007 matters affecting the Wastewater System; and billing and collection activities. Operation of the Local System involves cleaning, inspecting and repairing approximately 125 miles of sanitary sewers, 20 miles of storm drains and 825 catch basins, as well as a pumping plant. The Local System serves an area of eight square miles. There are approximately [15,500] active sewer service accounts, and average wastewater flow from the Local System to the City of Los Angeles' Hyperion System in Fiscal Year 2011 was approximately 11.27 million gallons per day. In recent years, this flow rate has remained fairly stable. Although conservation measures have been successful in reducing water consumption, storm water diversions into the wastewater collection system have been implemented to improve environmental conditions in receiving waters, and to comply with regulatory requirements. Engineering design of Local System improvements is performed by the Civil Engineering Division of the City, utilizing either City engineering staff or external consulting engineers. Construction, of Local System improvements is performed by qualified contractors under the direction of the City Engineer. The City's Office of Sustainability and the Environment is responsible for developing and implementing water and energy conservation programs and wastewater flow reduction programs, as well as for administering the City's environmental ordinances. Both the Civil Engineering Division and the Office of Sustainability and the Environment work in close liaison with the Water Resources Division. The Water Resources Division is also responsible for implementing and enforcing the City's Water Pollution Prevention Program. This involves inspecting and sampling approximately 900 City businesses in order to ensure that discharges to the Local System and subsequently to the Hyperion Plant satisfy the regulatory requirements of the City of Santa Monica, the City of Los Angeles, and the State and federal governments. Hyperion System The Hyperion System. The City of Los Angeles Hyperion Wastewater System (the "Hyperion System ") provides wastewater collection, treatment and disposal services for an area of approximately 600 square miles. The Hyperion System consists of the Hyperion Plant two water reclamation plants, twenty eight pumping plants, and a series of local, collector and interceptor sewers terminating at the Hyperion Plant. The current capacity of the Hyperion Plant is 450 mgd. The plant provides full primary and secondary treatment for all influent utilizing the activated sludge process. The Amalgamated System Agreement. Since 1926, the City of Santa Monica and the City of Los Angeles have had various contractual agreements governing the transportation, treatment and disposal of sewage. In addition to providing service to the City of Los Angeles, the Hyperion System also serves Santa Monica and 28 other agencies ( "Subscribing Agencies ") pursuant to the Amalgamated System Sewer Service Agreement (dated April 21, 1999). Under the predecessor to the current Amalgamated System Agreement, the City and several of the Subscribing Agencies challenged the nature and scope of the capital improvements under construction at the Hyperion Plant, and the necessity for particular improvements. They also raised numerous issues as to the methodology employed, the accuracy, analysis, and actual calculation of the proportionate share of capital costs which each Subscribing Agency was required to pay to the City of Los Angeles. The predecessor Hyperion Agreement did not provide an adequate mechanism for allocating costs of upgrading, operating and maintaining the Hyperion System. The disputes between the Subscribing Agencies and the City of Los Angeles, based on these issues and additional claims that the Hyperion Agreement was not in compliance with applicable EPA and SWRCB requirements, resulted in a lawsuit (LASC case number BC 034185). Settlement of the litigation resulted in the execution of the current Hyperion Agreement. The current Amalgamated System Agreement includes the following terms: • The City of Los Angeles acknowledges that it is operating a regional wastewater system and is obligated to assess charges on a fair and equitable basis because Los Angeles has received state and federal grant funding; 11 DOCSOC/1552116v7/200119 -0007 • The City of Los Angeles and the Subscribing Agencies agree to base all treatment and disposal charges on actual discharge and to comply with federal and state requirements by measuring discharge in terms of flow and strength; • The City of Los Angeles and the Subscribing Agencies agree to base all conveyance charges on actual flow and distance; • The City of Los Angeles and the Subscribing Agencies agree that all wastewater dischargers will pay equivalent rates for all fees and charges related to the Hyperion System Agreement Relating to Industrial Discharge Pre - Treatment Requirements. A separate agreement exists between the City and the City of Los Angeles with respect to industrial discharge pre - treatment requirements. The City has implemented and has enforced an industrial waste control program since 1986 which meets the requirements of the City, the City of Los Angeles, and State and federal regulatory authorities. Regulatory Requirements Because the City discharges wastewater to the Hyperion System for treatment and disposal, the City's wastewater operations are subject to many of the same regulatory requirements as the City of Los Angeles. These requirements are contained in the Federal Water Pollution Control Act, as amended, (the "Clean Water Act "), and in the State of California Porter Cologne Water Quality Control Act of 1969, as amended. Both federal and State regulations are administered through the California State Water Resources Control Board ( "SWRCB "), and generally deal with the quality of effluent discharged from the wastewater treatment facilities, the disposal of sludge from the wastewater treatment plant, the discharge of pollutants into the groundwater and the nature of waste material (particularly industrial waste) discharged into the collection system. Within the SWRCB, there are nine regional water quality control boards that exercise rulemaking and regulatory activity by basin. Additional requirements were imposed on the City of Los Angeles and all other Subscribing Agencies, when the City of Los Angeles applied for and received federal Environmental Protection Agency ( "EPA ") grants under the Clean Water Act. There were grant related requirements regarding planning methodologies, design criteria, construction activities, and the operation, maintenance and financing of facilities. To comply with mandated effluent quality and disposal criteria, the City of Los Angeles must operate its wastewater treatment facilities according to requirements set forth in National Pollutant Discharge Elimination System ( NPDES) permits. Permit requirements are established in Order no. R4- 2010 -0200, NPDES No. CA109991, issued by the California Regional Water Quality Control Board Los Angeles Region and the U.S. Environmental Protection Agency Region IX, Waste Discharge Requirements and National Pollutant Discharge Elimination System Permit for the City of Los Angeles, Hyperion Treatment Plant Discharge to the Pacific Ocean. This permit is effective December 24, 2010 and expires December 23, 2015. To comply with regulations and grant requirements dealing with the discharge of waste materials into the sewer system; the City of Los Angeles and all Subscribing Agencies must administer and enforce industrial pre treatment standards on certain users of their collection systems. Since 1986, the City has had such a program, the provisions of which are contained in Chapter 5.2, Article V of the Santa Monica Municipal Code. The costs of this program are borne by industrial waste fees paid by industrial waste dischargers to the system. Another grant related regulatory requirement is that the City of Los Angeles and all Subscribing Agencies have approved user charge systems to recover annual operating, maintenance and replacement costs from users of the system in a proportionate manner, according to the customer's level of use. Delivery flow rate and strength of wastewater are considered in determining proportionate use. The City has such a system wherein user fee rates are reviewed periodically and established at a level sufficient to recover all costs associated with the operation of the system, including contractual costs of wastewater treatment and disposal by the City of Los Angeles. The City must periodically file reports with the SWRCB describing its wastewater revenue program. The City is in compliance with all applicable regulatory requirements related to its Local System. In addition, the City is not aware of any outstanding regulatory compliance issues with respect to the Hyperion System. 12 DOCSOC/1552116v7/200119 -0007 The City's share of capital costs for the Hyperion Plant are not treated as Operation and Maintenance Costs under the Indenture. Table 1 CITY OF SANTA MONICA SHARE OF HYPERION SYSTEM CAPITAL IMPROVEMENT PROGRAM Fiscal Year City's Share Total Projected Expenditures 2012 -13 $2,772,000 $62,077,000 2013 -14 3,495,200 73,473,000 2014 -15 4,048,000 78,851,000 2015 -16 4,463,200 62,995,000 2016 -17 2,772,000 62,077,000 Source: City of Santa Monica Local System. A summary of estimated future year expenditures for capital projects related to the Wastewater System, excluding the Hyperion System improvements described above, is presented below: Table 2 THE LOCAL SYSTEM CAPITAL IMPROVEMENT PROGRAM Fiscal Year Amount 2011 -12 $5,487,373 2012 -13 6,362,257 2013 -14 3,776,800 2014 -15 2,063,875 2015 -16 2,079,711 2016 -17 2,096,023 Source: City of Santa Monica The City's wastewater infrastructure is managed utilizing an asset management approach, a component of which addresses the capital improvement needs of the local system. The wastewater system was extensively rebuilt following the 1994 Northridge Earthquake. As such,. the City's wastewater capital improvement program as indicated in Table 2 above for non - Hyperion related projects is relatively modest, incorporating minor pipe upgrades and/or replacements with improvements in control systems such as hydraulic model development, billing system upgrades, and maintenance management software enhancements. The City expects to pay for these projects with sewer service charges and other available Wastewater System revenue. The City can provide no assurance that actual costs associated with capital improvements to the Hyperion System and the Local System will not be more than expected or that the City's share of capital improvements to the Hyperion System will not be more than described above. REVENUES AND DEBT SERVICE COVERAGE Sewer Rates and Revenues The City currently recovers the cost of operating, maintaining, repairing, replacing and expanding the Wastewater System through five user fees, plus interest earnings. The five users fees are: 13 DOCSOC/ 1552116v7/200119 -0007 • Sewer Service Charges • Industrial Waste Fees • Wastewater Capital Facility Fees • Hazardous Waste Fees • Miscellaneous Revenues All revenues derived from the five fees listed above, pursuant to the Santa Monica Municipal Code and subject to the limitations of California Government Code Section 66000 -66003 ( "AB 1600 ") as they relate to Sewer Connection Fees, are placed into the Revenue Fund and are expended only for sewer, storm drain, industrial waste or hazardous waste purposes. All interest earnings on moneys held in the Revenue Fund are retained in the Fund. The methodology for developing the fee schedules for the above outlined charges is governed in part by the Santa Monica Municipal Code and the SWRCB, acting on behalf of the EPA. The Municipal Code of the City requires that the income from the fees and charges assessed for sewer services equal the overall cost of operation, maintenance, debt coverage and capital improvements of the Wastewater System. Additionally, the SWRCB and the EPA require that the City's wastewater income structure be such that users of the system pay according to use of the system and the quality of wastewater discharged into the system. Following a noticed public hearing held in accordance with the requirements of Proposition 218, the City Council approved a five -year plan on July 8, 2008, to increase wastewater rates based on a commodity-only rate structure based on certain wastewater discharge factors based on property use and sewage strength. The City also currently offers qualified low income customers with a discount. Fiscal Year 2009 2010 2011 2012 2013 �') As approved on July 8, 2008. Source: City of Santa Monica. Table 3 HISTORICAL RATE INCREASES Maximum Projected Iucreasetfl 18.0% 18.0 15.0 9.0 4.0 Actual Increase 18.0% 18.0 15.0 9.0 4.0 (proposed) Water Conservation Measures. Since its inception in December 1989, the City's Baysaver Fixture Retrofit Program has retrofitted bathrooms with approximately 35,000 ultra low flow toilets and low flow sbowerheads. The program goal is to retrofit 50% of all residential bathrooms and 25% of all commercial toilets in the City. Achievement of these goals will reduce the City's water use and wastewater generation by approximately 1.9 million gallons per day and significantly reduce the City's wastewater and disposal costs by eliminating the need for the City to acquire additional capacity at the Hyperion Sewage Treatment Plant. Sewer Service Charge. The City's Sewer Service Charges as of July 1, 2011 are shown on the following tables: 14 DOCSOC/ 1552116v7/200119-0007 Table 4 BI- MONTHLY SEWER SERVICE CHARGE —ALL CUSTOMERS Sewage Strength Category Rate Per HCF Residential. Normal $4.35 Low Income 2.21 Non - Residential 85 General Commercial 3.96 Medium Low 4.12 Medium 4.76 Medium High 5.19 High 6.08 Churches 3.91 School/Institutional 3.91 Misc. Industrial 4.83 User Class Discharge Factor(O Single Family Residential 51% Duplex Residential 80 Triplex Residential 85 Fourplex Residential 90 Over Four Dwelling Units 95 Individually Metered 95 Non - Residential 89 Landscape Meter 0 Source: City of Santa Monica. The following table sets forth the volume of wastewater flow from the Local System to the Hyperion Plant. Table 5 CITY OF SANTA MONICA Total Wastewater Received Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10 Year Average Latest 3 Year Average Source: City of Santa Monica. 15 DOCSOC/ 1552116v7/200119 -0007 Average Flow In Year (Million Gallons /Day) 10.08 (Est.) 10.18 10.28 11.13 11.88 11.96 10.42 9.23 10.63 11.27 10.71 10.38 The following table sets forth the relative contribution to total wastewater service charges from each segment of its rate base for Fiscal Year 2010 and fiscal year 2011. Table 6 CITY OF SANTA MONICA Residential/Non- Residential System Revenue Allocation(l) Total Annual Revenues User Groups 200912010 2011 Residential $ 9,561,143 $ 10,969,523 Non - Residential( �) 4,381,437 5,207,265 Total 13.942.580 16.176.788 ") Reflects amount billed. (2) Includes commercial, institutional, churches and other non - residential uses. Source: City of Santa Monica., The ten largest customers of the Wastewater System, as measured by Sewer Service Charge billings for Fiscal Year, 2011, are responsible for approximately 5% of Sewer Service Charge revenue in Fiscal Year 2011. The following table shows Sewer Service Charge billings for the ten largest customers of the Wastewater System in Fiscal Year 2011. "' Customers ranked on basis of Sewer Service Charge revenue. Source: City of Santa Monica Water Resources Division. Industrial Waste Fees. Pursuant to Ordinance 1373 (City Council Series), the City assesses an Industrial Waste Fee on targeted businesses to ensure that they do not discharge more than a specified limit of industrial waste into the Wastewater System. The targeted businesses are separated into six categories based on type of wastewater discharge and number of inspections required each year. The fee consists of a bimonthly inspection/sampling fee and a permit application fee renewable every three years. The table below lists and defines each category. 16 DOCSOC/ 1552116v7/200119-0007 Table 7 , SEWER SERVICE CHARGE REVENUE PROVIDED BY TEN LARGEST CUSTOMERS(') FISCAL YEAR 2011 User Use Fiscal Year 2011 Billings St. John's Hospital Health Care $ 150,403.63 Loew's Hotel Hotel 137,471.54 Plaza at the Arboretum Apartments 86,471.12 CWGP Limited Partnership Hotel 85,764.17 Shutters on the Beach Hotel 69,244.39 SM -UCLA Hospital Health Care 60,539.60 Fairmont Miramar Hotel Hotel 59,732.51 Water Gardens Commercial/Office 59,095.84 SM Investments Hotel 58,475.03 Doubletree Hotel Hotel 55,788.66 Total $ 822,986.49 "' Customers ranked on basis of Sewer Service Charge revenue. Source: City of Santa Monica Water Resources Division. Industrial Waste Fees. Pursuant to Ordinance 1373 (City Council Series), the City assesses an Industrial Waste Fee on targeted businesses to ensure that they do not discharge more than a specified limit of industrial waste into the Wastewater System. The targeted businesses are separated into six categories based on type of wastewater discharge and number of inspections required each year. The fee consists of a bimonthly inspection/sampling fee and a permit application fee renewable every three years. The table below lists and defines each category. 16 DOCSOC/ 1552116v7/200119-0007 Annual Sampling Tri- Annual Permit Category Inspection Fee Fee 1 Small Restaurants, Gas Stations, Others $ 117 $ 78 2 Printers, Medium Restaurants, Others 430 478 3 Auto Repair, Large Restaurants 646 78 4 Large Photo Finishers. 939 78 5 Significant Users 1,406 78 6 Categorical (Specified major industry categories) 4,578 78 Source: City of Santa Monica Revenue from the Industrial Waste Fee was $280,485 for Fiscal Year 2010/2011. The five largest industrial waste customers identified below account for approximately 4 percent of all Industrial Waste Fee revenues. Capital Facility Fees. The City charges a Capital Facility Fee for connection to the Wastewater System. The fee for new residential construction or reconstruction is based on the number of dwelling units. For commercial development, the fee is based on square footage, the number of seats in a restaurant, or the number of units in a hotel. Use of these fees is subject to the provisions of AB 1600. In general, AB 1600 requires a city or county to establish a reasonable relationship between a development project or class of development project and the public improvement for which the developer fee is charged, and to segregate and account for the money separate from general revenues. Revenue from the Capital Facility Fee was $17,023 for Fiscal Year 2010 -11. The fees are as shown below: User Fees Single- family residence $2,239 Multi- family residence 1 bedroom $1,168 2 bedroom $1,557 3 bedroom $1,947 Hotel/Motel $1,265 per unit Commercial Building $779 per 1000 s.f. Laundromat $1,655 per machine Medical Building Project specific Restaurant/Bar Sit Down $229 per seat Carry Out $2,920 per 1000 s.f. Storage Building $195 per 1000 s.f. Industrial Building $779 per 1000 s.f. Source: City of Santa Monica, Water Resources Division. Miscellaneous Revenues. These include saddle fees, reimbursement from the City of Los Angeles for a portion of the operation and maintenance of the Moss Avenue Pump Station, sale of fixed assets, and other miscellaneous revenues. 17 DOCSOC/ 1552116v7 /200119 -0007 Historical Sewer Rates and Charges The following table shows historical levels of the City's Sewer Service Charges: Table 9 HISTORIC RATES Sewer Service Charge Per Average Bi- monthly Residential Fiscal Year Billing UnW'l Sewer Service Charget2/ 2008 $1.37 $22.36 2009 2.94 47.98 2010 3.47 56.63 2011 3.99 65.12 2012 4.35 70.99 "I Multiplied by appropriate percentage for each user group. (2) Fee for a single family dwelling assuming 3/4" meter and 32 HCF per bi- monthly period. Source: City of Santa Monica, Water Resources Division. The table below presents a comparison of the City's current average bi- monthly residential sewer bill with that of other communities in the county as of July 1, 2011. Table 10 COMPARISON OF AVERAGE BI- MONTHLY SEWER SERVICE CHARGES Sewer Service Utility Charge(f) City of Beverly Hills ........................ ............................... $ 87.38 City of Burbank ............................... ............................... 51.98 City of Santa Monica ....................... ............................... 70.99 City of Glendale ............................... ............................... 48.88 City of Culver City .......................... ............................... 122.71 "' [All bills are bi- monthly and based on 3/4" meter and water usage of 32 Hcf/billing period.] Source: City of Santa Monica Rate Setting Process The City is required by the Indenture, at all times while any 2012A Bonds remain outstanding, to establish, fix prescribe and collect rates, fees and charges in connection with the wastewater services and facilities furnished by the Wastewater System which will be sufficient to yield during each Fiscal Year, after making reasonable allowances for contingencies and error in the estimates, Net Revenues equal to at least 120% of the estimated Debt Service in such year. The Sewer Service Charge, Capital Facility Fee, Industrial Waste Fee, Hazardous Waste Fee and other miscellaneous fees and charges are authorized by ordinance. The amounts of such fees and charges are revised periodically by resolution of the City Council. The City Manager annually reviews the system of rates and charges as part of the budgetary process. In May of each year, the City Manager submits to City Council a proposed operating budget for the Fiscal Year commencing the following July 1. The operating budget includes proposed expenditures and expenses and the means of financing them. Public hearings are conducted by the City Council to obtain citizen comments. The budget is adopted, prior to June 30, through passage of appropriate resolutions. The final adopted budget is subject to mid year revisions to reflect any significant changes in expenditures or revenues due to State or federally mandated programs, emergencies, or other unforeseen occurrences. 18 DOCSOC/ 1552116v7 /200119 -0007 Billing and Collection Sewer Service Charge. Sewer Service Charges for residential and commercial users are billed bi- monthly for approximately 61 days of service. The Revenue Division of the Department of Finance prepares a bill covering charges for water, sewer, refuse, water conservation services and utility user's tax. A separate bill is sent for the Industrial Waste Fee. A billing summary is prepared by the Finance Department monthly, at which time accounts receivable are created and revenue is credited to the Revenue Fund. When the actual monies are received, the accounts receivable is reduced accordingly. Payments received are credited to the billed accounts in the following order: utility user's tax, refuse, sewer, water conservation, and water. Payments received are credited first to the accounts in arrears and then to the current amounts for each utility in the order stated above. If an account is not paid within 31 days, of date of billing, a second notice is sent. After 45 days from the date of billing, the accounts appear on a shut off list at which time an inspector is sent to the service address to either collect the amount due or discontinue wastewater service. On closed accounts, the customer receives a closing reminder notice 21 days after the closing bill was sent. If not paid the City will begin an internal collection process. Capital Facility Fees. The Capital Facility Fee is collected as part of the building permit and sewer connection permit application procedures. Permits are not granted until payment has been received. Under the provisions of AB 1600, Capital Facility Fees are used only for sewer expansion projects. Industrial Waste Fees. The Industrial Waste Fee consists of an inspection/sampling fee and a permit application fee due every three years. The inspection/sampling fee is billed bi- monthly and the permit application fee appears on the same bill at the appropriate renewal date. Industrial Waste Fee bills become delinquent if not paid within 30 days of the invoice date, at which time a delinquent notice is sent. Delinquent notices provide an addition 15 days for payments and notification that if payment is not received the bill will be turned over to the City Attorney for collection. Historic Operating Results The following table presents the historical operating results of the Wastewater System based on audited revenues and expenses of the Wastewater Fund for Fiscal Year 2007 through Fiscal Year 2011. 19 DOCSOC/ 1552116v7/200119 -0007 Table 11 WASTEWATER FUND HISTORIC REVENUES AND EXPENSES MAINTENANCE EXPENSES NET REVENUES SENIOR DEBT SERVICE SENIOR DEBT COVERAGE RATIO $ 3,787,586 $ 4,648,793 2,571,589 2,570,463 1.47 1.81 $ 7,673,015 $ 7,586,570 $ 9,569,374 2,571,812 2,571,812 2,572,738 2.98 2.95 3.72 Excludes Capital Facilities Fees. Includes transfers from Stormwater Fund to pay for costs associated with environmental monitoring and other programs accounted for in Operation and Maintenance Expenses. [Include reimbursements for environmental programs, stormwater management projects, operation and maintenance expenses for the City's Urban Runoff Recycling Facility (SMURRF) and grant moneys relating to the City's used oil disposal program.] 4) Excludes onetime claim of $4,001,166 paid to settle a legal claim in Fiscal Year 2009. Effective in Fiscal Year 2009, the Environmental Program Division was moved out of the Wastewater Fund to the General Fund resulting in a reduction of Transfers In and Operation and Maintenance Expenses. Source: City of Santa Monica. Operation and Maintenance Expenses Operation and maintenance expenses include those incurred for the Local System plus the City's proportionate share of operation and maintenance costs of the Hyperion Plant, as provided in the Hyperion Agreement. A projection of the City's share of operation and maintenance costs for the Hyperion Plant through Fiscal Year 2013 -14 is shown in the following table, along with a projection of total operation and maintenance expenses for the Hyperion Plant. 20 DOCSOC/15521]6v7/200119-0007 2007 2008 2009(5) 2010 2011 REVENUES - Charges for services0) $11,592,531 $12,300,732 $13,548,077 $14,843,973 $17,105,782 Transfers Inls1 3,200,312 3,888,064 1,228,351 1,284,111 1,275,507 Investment income 1,275,116 799,940 862,458 498,026 253,588 Otherl'1 333,253 371,116 339,144 410,199 479,629 Total Revenues $16,401,212 $17,359,852 $15,978,030 $17,036,309 $19,117,006 OPERATION AND MAINTENANCE EXPENSES: Personnel services $ 3,368,594 $ 3,602,989 $ 1,970,012 $ 1,841,029 $ 1,889,663 Administrative indirect 750,704 781,762 562,612 509,425 544,328 Contractual services 4,845,584 4,501,609 2,426,223 3,679,623 3,825,956 Repairs and maintenance 696,323 699,189 1,013,385 929,334 929,080 Materials and supplies 1,189,941 1,350,216 877,147 826,895 651,622 Utilities 32,815 35,672 14,729 10,777 14,631 Casualty, property and 289,900 243,000 168,800 221,800 236,600 liability costs Other(') 1,439,765 1,496,622 1,272,107 1,430,856 1,455,752 TOTAL OPERATION AND $12,613,626 $12;711,059 $ 8,305,015 $ 9,449,739 $ 9,547,632 MAINTENANCE EXPENSES NET REVENUES SENIOR DEBT SERVICE SENIOR DEBT COVERAGE RATIO $ 3,787,586 $ 4,648,793 2,571,589 2,570,463 1.47 1.81 $ 7,673,015 $ 7,586,570 $ 9,569,374 2,571,812 2,571,812 2,572,738 2.98 2.95 3.72 Excludes Capital Facilities Fees. Includes transfers from Stormwater Fund to pay for costs associated with environmental monitoring and other programs accounted for in Operation and Maintenance Expenses. [Include reimbursements for environmental programs, stormwater management projects, operation and maintenance expenses for the City's Urban Runoff Recycling Facility (SMURRF) and grant moneys relating to the City's used oil disposal program.] 4) Excludes onetime claim of $4,001,166 paid to settle a legal claim in Fiscal Year 2009. Effective in Fiscal Year 2009, the Environmental Program Division was moved out of the Wastewater Fund to the General Fund resulting in a reduction of Transfers In and Operation and Maintenance Expenses. Source: City of Santa Monica. Operation and Maintenance Expenses Operation and maintenance expenses include those incurred for the Local System plus the City's proportionate share of operation and maintenance costs of the Hyperion Plant, as provided in the Hyperion Agreement. A projection of the City's share of operation and maintenance costs for the Hyperion Plant through Fiscal Year 2013 -14 is shown in the following table, along with a projection of total operation and maintenance expenses for the Hyperion Plant. 20 DOCSOC/15521]6v7/200119-0007 Table 12 CITY OF SANTA MONICA'S SHARE OF HYPERION SYSTEM OPERATION AND MAINTENANCE COSTS Source: City of Santa Monica Water Resources Division. Projected Operating Results The table on the following page is a pro forma operations statement developed by the City. Future revenues are based on current rates and anticipated growth levels, reflecting current and proposed policies regarding building permit limitations and conservation measures. The indicated revenue increases are overall averages. Individual rates and charges will be increased at different rates to reflect the related cost of service. The following table also shows Net Revenues and debt service coverage on the outstanding 1993 Bonds (for Fiscal Year 2012) and the 2005 Bonds for the indicated years. 21 D OCSOC/ 1552116v7/200119 -0007 City's Share of Projected Total Projected Operation & Maintenance Operation & Fiscal Year Billings Maintenance Billings 2012 -13 $6,082,000 $219,335,000 2013 -14 6,295,100 227,136,000 2014 -15 6,661,300 240,968,000 2015 -16 6,975,400 252,615,000 Source: City of Santa Monica Water Resources Division. Projected Operating Results The table on the following page is a pro forma operations statement developed by the City. Future revenues are based on current rates and anticipated growth levels, reflecting current and proposed policies regarding building permit limitations and conservation measures. The indicated revenue increases are overall averages. Individual rates and charges will be increased at different rates to reflect the related cost of service. The following table also shows Net Revenues and debt service coverage on the outstanding 1993 Bonds (for Fiscal Year 2012) and the 2005 Bonds for the indicated years. 21 D OCSOC/ 1552116v7/200119 -0007 Table 13 WASTEWATER FUND PRO FORMA STATEMENT OF FINANCIAL OPERATIONS REVENUES AVAILABLE FOR OTHERPURPOSES �$ Z1.82 $ 7.255.671 $ 7.207.094 $ 7.256.344 $ 7.260.862 01 Excludes Capital Facilities Fees, ASSFC Pass Through and Misc Non - operating. Includes impact of 9.0% rate increase effective 7/1/11 and 4.0% rate increase effective 7/1/12. Rate increases beginning Fiscal Year 2013/14 will reflect annual CPI increase. 121 Includes transfers from Stormwater Fund to cover costs associated with environmental monitoring and other programs accounted for in Operating Expenses. Assumes 3% growth from Fiscal Year 2010 -11 actual. 131 Assumes 141 Operating expenses estimated based on adopted budget for Fiscal Year 2012 and proposed budget for Fiscal Year 2013. Personnel services and administrative indirect costs are assumed to increase by approximately 5% annually thereafter. Repairs and maintenance, Materials and supplies, Utilities and Casualty property and liability costs are assumed to increase by approximately 3.0% annually thereafter. ts1 Contractual services includes only the O &M portion of the City of Los Angeles charges associated with the Hyperion Treatment Plant. Costs are assumed at 90% of the City of Los Angeles forecast. Historically, these costs have consistently been less than such forecasts. Source: City of Santa Monica. Outstanding Bonded Indebtedness Upon issuance of the 2012A Bonds, and the refunding and defeasance of the 1993 Bonds, the only long- term debt of the Wastewater System will be the 2005 Bonds and the 2012A Bonds. 22 DOCSOC/1552116v7/200119 -0007 2012 2013 2014 2015 2016 REVENUES - Charges for services(l) $ 17,977,965 $ 19,274,577 $19,665,947 $20,226,570 $20,803,936 Transfers Inen 1,430,683 1,503,174 1,521,301 1,566,153 1,612,799 Investment income (3) 355,000 378,000 389,340 404,914 425,159 Other 201,000 201,000 100,100 100,100 100,100 TOTAL REVENUES $ 19,964,648 $ 21,356,751 $ 21,676,688 $ 22,297,737 $ 22,941,994 OPERATION AND MAINTENANCE EXPENSES (4) Personnel services $ 2,094,793 $ 2,207,265 $ 2,323,003 $ 2,443,909 $ 2,571,032 Administrative indirect 560,658 588,691 618,126 649,032 681,483 Contractual serviceso) 5,794,020 5,473,800 5,665,590 5,995,170 6,277,860 Repairs and maintenance 959,331 975,000 1,004,250 1,034,378 1,065,409 Materials and supplies 239,949 254,722 262,364 270,235 278,342 Utilities 17,500 17,500 18,025 18,566 19,123 Casualty, property and liability costs 323,788 441,560 454,807 468,451 482,505 Other 1,710,718 1.611,542 1,592,430 1,633,653 1,776.379 TOTAL OPERATION AND MAINTENANCE EXPENSES $ 11,700,757 $ 11,570,080 $ 11,938,594 $ 12,513,393 $ 13,152,132 NET REVENUES 8,263,891 9,786,671 9,738,094 9,784,344 9,789,862 DEBT SERVICE ON SENIOR SERIES 2005 BONDS $ 2,152,000 $ 2,151,000 $ 2,151,000 $ 2,148,000 $ 2,149,000 DEBT SERVICE ON SERIES 2012ABONDS 380,000 380,000 380000 380,000 380,000 TOTAL DEBT SERVICE 2,532,000 2,531,000 2,531,000 2,528,000 2,529,000 DEBT SERVICE COVERAGE 3.26 3.87 3.85 3.87 3.87 REVENUES AVAILABLE FOR OTHERPURPOSES �$ Z1.82 $ 7.255.671 $ 7.207.094 $ 7.256.344 $ 7.260.862 01 Excludes Capital Facilities Fees, ASSFC Pass Through and Misc Non - operating. Includes impact of 9.0% rate increase effective 7/1/11 and 4.0% rate increase effective 7/1/12. Rate increases beginning Fiscal Year 2013/14 will reflect annual CPI increase. 121 Includes transfers from Stormwater Fund to cover costs associated with environmental monitoring and other programs accounted for in Operating Expenses. Assumes 3% growth from Fiscal Year 2010 -11 actual. 131 Assumes 141 Operating expenses estimated based on adopted budget for Fiscal Year 2012 and proposed budget for Fiscal Year 2013. Personnel services and administrative indirect costs are assumed to increase by approximately 5% annually thereafter. Repairs and maintenance, Materials and supplies, Utilities and Casualty property and liability costs are assumed to increase by approximately 3.0% annually thereafter. ts1 Contractual services includes only the O &M portion of the City of Los Angeles charges associated with the Hyperion Treatment Plant. Costs are assumed at 90% of the City of Los Angeles forecast. Historically, these costs have consistently been less than such forecasts. Source: City of Santa Monica. Outstanding Bonded Indebtedness Upon issuance of the 2012A Bonds, and the refunding and defeasance of the 1993 Bonds, the only long- term debt of the Wastewater System will be the 2005 Bonds and the 2012A Bonds. 22 DOCSOC/1552116v7/200119 -0007 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 of which approximately $1,200,000 was attributable to the Wastewater System.. 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). There are no safety employees employed by the Wastewater System. 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% 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. 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 -I1. 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 Years 2011 -12 and 2012 -13, employer contribution rates are as follows: Miscellaneous Category Annual Rate Components 2011 -12 A. Normal cost rate 9.307% B. Unfunded liability rate 8.384 C. Total Required 17.691% 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. The Wastewater System's share of the Fiscal Year 2010 -11 PERS contribution was $264,000. 23 DOCSOC/1552116v7/200119 -0007 The three -year trend information for the Annual Pension Cost funding for the plan (unaudited) is set forth below. Fiscal Year ended June 30 2011 2010 2009 Annualpension eosP) (APQ $30,322,397 28,660,350 26,944,672 Percentage ofAPC Net pension contributed obligation 100% — 100 — 100 (1) Excludes required employee contributions paid by the City. 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 2011 covered PERS' Fiscal Year ended June 30, 2010). 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, 2010, that was delivered in October 2011, will affect the City's Fiscal Year 2012 -13 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 have changed significantly in recent years. 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. Y The long term 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. 24 DOCSOC/1552116v7/200119 -0007 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. • 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 net 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 the amortization of 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 Y Reach a level of 75% funded by June 30, 2043. Such contributions have been factored into the City's contribution rates set by PERS. 25 DOCSOC/1552116v7/200119 -0007 In March of 2012, the PERS Bond adopted a resolution lower the assumed investment return from 7.75 percent down to 7.50 %. The City estimates a I to 2 percent increase in contribution rates for the Miscellaneous Plan resulting from such change. As of June 30, 2010, the date of the latest actuarial valuation, the City's unfunded actuarial liability was $237,292,251. Based on the market value of assets, the unfunded liability as of June 30, 2010 was $423,371,941. 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 underfunded liability through additional 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 underfunded 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. 26 DOCSOC/ 1552l l 6v7/200119 -0007 The City's Pension Plan includes separate valuations for Miscellaneous Members, Fire Safety Members and Police Safety Members. The funded status of the Miscellaneous Plan for the actuarial valuations performed as of June 30, 2007 through 2010 are as follows: Miscellaneous Members (dollars in thousands) Valuation date Entry age normal Actuarial value Underfunded liability Annual covered UAAL as apercentage (June 30) accrued liability of assets (UAAL) Funded ratio payroll ofpayroll 2010 $ 649,678 $ 505,032«1 $ 144,646 77.7 % $ 119,583 121.0% 2009 608,461 470,981 137,480 77.4 116,219 118.3 2008 523,122 438,590 84,532 83.8 108,404 78.0 2007 465,718 393,225 72,493 84.4 101,760 71.2 (0 Market value of assets as of June 30, 2010 was $397,089,338, resulting in an unfunded liability based on the market value of assets of $252,589,154 27 DOC SOC/ 1552116v7/200 1 1 9 -0007 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 retired 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 at retirement 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 participate in one of the City's health plans at their own expense at the same rate as active employees after retirement. 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 $586,000 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 for police and fire 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. 28 DOCSOC/1552116v7/200119 -0007 The table below sets forth unfunded actuarial accrued liability of the City with respect to OPEB as of July 1 for years 2007 through 2011 (dollars in thousands). 29 DOC SOC/ 1552116v7/200 1 1 9 -0007 Interest Rate Salary Scale 5.00% 3.25% 5.00 3.25 Unfunded 3.25 5.00 3.25 Actuarial Valuation Actuarial Actuarial Accrued Annual UAAL as a Type of Date Value of Accrued Liability Funded Covered Percentage of Valuation (July 1) Assets Liability (UAAL) Ratio Payroll Payroll Update 2010 $ -- $ 20,173 $ 20,173 —% $161,290 12.51% Actual 2009 18,747 18,747 —% 156,214 12.00% Update 2008 17,721 17,721 —% 128,622 13.78% Actual 2007 16,518 16,518 —% 124,253 13.29% 29 DOC SOC/ 1552116v7/200 1 1 9 -0007 Interest Rate Salary Scale 5.00% 3.25% 5.00 3.25 5.00 3.25 5.00 3.25 Medical Trusts In addition to other post - employment benefits described above, the City has agreed, pursuant to bargaining unit agreements, to contribute monies to the medical trusts that provide post - employment medical benefits to trust members. The amount of benefits provided to employees under these plans is not a defined benefit and is limited solely to the amount contributed, related investment earnings, and forfeitures. During Fiscal Year 2010 -11 the City contributed $2,735,630 towards these medical trusts of which $ was contributed by the Wastewater System. The trusts 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. The City's financial commitment to the medical trusts does currently extend beyond the term of any of its applicable collective bargaining agreements. CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The "base year" for establishing such appropriation limit is the 1978/79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article X11113 generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments from retirement, unemployment, insurance and disability insurance funds. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost reasonably home by the entity in providing the service or regulation), and (ii) the investment of tax revenues. Article X1I1B includes a requirement that if an entity's 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. Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by a vote of electors of the issuing entity and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The City is of the opinion that its water charges do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The City will covenant in the Indenture that it will prescribe rates and charges sufficient to provide for payment of the principal of and interest on the 2012A Bonds in each year. Proposition 218 General. An initiative measure entitled the "Right to Vote on Taxes Act" (the "Initiative ") was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XHIC and Article XIIID to the California Constitution. According to the "Title and Summary' of the Initiative prepared by the California Attorney General, the Initiative limits "the authority of local governments to impose taxes and property- related assessments, fees and charges." 30 DOCSOC/ 1552116v7/200119 -0007 Article XIIID. Article XIIID defines the terms "fee" and "charge" to mean "any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property- related service." A "property- related service" is defined as "a public service having a direct relationship to property ownership." Article XIIID further provides that reliance by an agency on any parcel map (including an assessor's parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property- related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for wastewater service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local government's ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges, including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property- related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property- related fees or charges based on potential or future use of a service are not permitted. Based upon the California Second District Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the California Supreme Court, it was generally believed that Article XIIID did not apply to wastewater rates and charges, which had been held to be commodity charges related to consumption of the service, not property ownership. In a decision rendered in February, 2004, the California Supreme Court in Richmond et al. v. Shasta Community Services District (S105078) upheld a Third District Court of Appeal decision that water connection fees were not property- related fees or charges subject to Article XIIID while at the same time stating in dicta that fees for ongoing water service through an existing connection were property related fees and charges. In October 2004, the California Supreme Court granted review of the decision of the Fourth District Court of Appeal in Bighorn -Desert View Water Agency v. Beringson, 120 Cal. App. 4th 891 (2004), in which the appellate court had relied on Howard Jarvis Taxpayers Association v. City of Los Angeles and rejected the Supreme Court's dicta in Richmond et al. v. Shasta Community Services District. On March 23, 2005, the California Fifth District Court of Appeal held in Howard Jarvis Taxpayers Association v. City of Fresno, 127 Cal. App. 4th 914 (2005) that an "in lieu" fee which is payable to the City of Fresno's general fund from its water utility and which is included in the city's water rate structure was invalid. In reaching its decision, the court concluded that the city's water rates were "property related" fees, governed by the limitations of Article XIIID. The City of Fresno requested a review of this decision by the California Supreme Court, which denied review. On July 24, 2006 the Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil. The Court restated the dicta in Richmond et al. v. Shasta Community Services District that fees and charges for ongoing domestic water service through an existing connection were property related fees and charges under Article XIIID. Since 2006, the City has complied with the notice, hearing and protest procedures in Article XIII with respect to wastewater rate increases based on the decision in Howard Jarvis Taxpayers Association v. City of Los Angeles. Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms "local tax," "assessment," "fee" or "charge," so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the Supreme Court held in Bighorn- Desert View Water Agency v. Veril, 39 Cal.4th 205 (2006) that the provisions of Article XIIIC applied to rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting 31 DOCSOC/ I552116v7/200119 -0007 obligations. In any event, the City and its City Attorney do not believe that Article XIHC grants to the voters within the City the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual obligations of the City. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the 2012A Bonds. Remedies available to beneficial owners of the 2012A Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time - consuming to obtain. In addition to the specific limitations on remedies contained in the applicable documents themselves, the right and obligation with respect to the Indenture is subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified. The City believes that its current water rates and land based charges comply with the requirements of Proposition 218 and expects that any future water rates and land based charges will comply with Proposition 218's procedural and substantive requirements to the extent applicable thereto. Future Initiatives Articles XIIIC and MIID were adopted as a measure that qualified for the ballot pursuant to California's initiative process. From time to time other initiatives could be proposed and adopted affecting Wastewater System's revenues or the City's ability to increase such revenues. APPROVAL OF LEGAL The valid, legal and binding nature of the 2012A Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C, and such legal opinion will be attached to each 2012A Bond. Certain legal matters will be passed upon for the City by its City Attorney and for the Trustee by its counsel. In addition to the specific limitations on remedies contained in the applicable documents themselves, the right and obligation with respect to the Indenture is subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified. LITIGATION General. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City seeking to restrain or to enjoin the sale or issuance of the 2012A Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2012A Bonds, the Indenture, or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the 2012A Bonds or any action of the City contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax 32 DOCSOC/1552116v7/200119 -0007 preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the 2012A Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2012A 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 2012A Bond (the first price at which a substantial amount of the 2012A Bond of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2012A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2012A Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the 2012A Bond Owner will increase the 2012A Bond Owner's basis in the 2012A Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the 2012A 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 personal income tax. Bond Counsel's opinion as to the exclusion from gross income of interest on the 2012A 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 complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the issuance of the 2012A Bonds to assure that interest on the 2012A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2012A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012A Bonds. The City has covenanted to comply with all such requirements. The amount by which a 2012A Bond Owner's original basis for determining loss on sale or exchange in the applicable 2012A 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 2012A Bond Owner's basis in the applicable 2012A Bond (and the amount of tax - exempt interest received with respect to the 2012A Bonds), 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 2012A Bond Owner realizing a taxable gain when a 2012A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2012A Bond to the Owner. Purchasers of the 2012A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of tax exempt bond issues, including both random and targeted audits. It is possible that the 2012A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2012A Bonds might be affected as a result of such an audit of the 2012A Bonds (or by an audit of similar municipal obligations). 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 2012A Bonds to the extent that it adversely affects the exclusion from gross income of interest on the 2012A Bonds or their market value. It is possible that subsequent to the issuance of the 2012A 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 2012A Bonds or the market value of the 2012A Bonds. Recently, proposed legislative changes have been 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 2012A Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the 2012A Bonds. No assurance can be given that subsequent to the issuance of the 2012A Bonds such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the 2012A Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the 2012A Bonds. 4191 D OCSOC/1552116v7/200119 -0007 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 and the Tax Certificate relating to the 2012A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest for federal income tax purposes with respect to any 2012A Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that interest on the 2012A Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2012A Bonds and the accrual or receipt of interest on the 2012A 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 2012A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2012A Bonds. A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C "FORM OF OPINION OF BOND COUNSEL." FINANCIAL ADVISOR Public Resources Advisory Group, Inc., Los Angeles, California, served as financial advisor to the City with respect to the sale of the 2012A Bonds. Public Resources Advisory Group, Inc. will receive compensation contingent upon the sale and delivery of the 2012A Bonds. RATINGS The City expects Standard & Poor's Ratings Services ( "S &P ") will assign the 2012A Bonds the rating of There is no assurance that any credit rating given to the 2012A Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by Moody's or S &P, respectively, if, in the judgment of Moody's or S &P, as applicable, circumstances so warrant. Any downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2012A Bonds. Such rating reflects only the views of Moody's and S &P, respectively, and an explanation of the significance of such ratings may be obtained from Moody's and S &P. LIPM1 iVi9MWQr01 The 2012A Bonds were purchased at a competitive sale on , 2012 by as underwriter (the "Underwriter "), for an aggregate purchase price of $ (representing the aggregate principal amount of the 2012A Bonds, plus a net original issue premium of $ and less an Underwriter's discount of $ ). The Official Notice of Sale provides that the Underwriter will purchase all of the 2012A Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions in the Official Notice of Sale, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2012A Bonds to certain dealers (including dealers depositing the 2012A Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. CONTINUING DISCLOSURE UNDERTAKING The City has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and beneficial owners of the 2012A Bonds to provide certain financial information and operating data relating to the City and the Wastewater System by not later than the 270 days following the end of City's Fiscal Year (currently its Fiscal Year ends on June 30) (the "Annual Report"), commencing with the report for Fiscal Year ending June 30, 2012, and to 34 DOCSOC/1552116v7/200119 -0007 provide notices of the occurrence of certain enumerated events, if material. The Annual Report and the notices of material events will be filed by the City with EMMA. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E --- "FORM OF CONTINUING DISCLOSURE CERTIFICATE." These covenants have been made in order to assist the Underwriter in complying with Section (b)(5) of the Rule. The City has not failed to comply with the terms of its existing continuing disclosure agreements in the last five years in any material respect. MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2012A Bonds. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF SANTA MONICA M City Manager 35 D OCSOC/ 1552116v7/200119-0007 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE CITY OF SANTA MONICA FOR THE YEAR ENDED JUNE 30, 2011 A -1 DOCSOC/ 1552116v7/200119 -0007 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE B -1 DOCSOC/1 5 52116v7/20 0119-000 7 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the 2012A Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: ,2012 City Council of the City of Santa Monica Santa Monica, California 90401 Re: City of Santa Monica Wastewater Refunding Revenue Bonds 2012 Series A Members of the Board of Directors We have examined a certified copy of the record of the proceedings of the City of Santa Monica (the "City") relative to the issuance of the S Refunding Revenue Bonds, Series 2012A, dated the date hereof (the "2012A Bonds "), and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchaser of the 2012A Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The 2012A Bonds are being issued pursuant to an Indenture of Trust, dated as of May 1, 2012 (the "Indenture "), by and between the City and U.S. Bank National Association, as trustee (the "Trustee "). The 2012A Bonds mature on the date and in the amount referenced in the Indenture. The 2012A Bonds are dated their date of delivery and bear interest payable at maturity, at the rates per annum referenced in the Indenture. The 2012A Bonds are registered in the form set forth in the Indenture. Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. The proceedings of the City show lawful authority for the issuance and sale of the 2012A Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2012A Bonds and the Indenture are valid and binding obligations of the City enforceable against the City in accordance with their terms. 2. The obligation of the City to make the payments of principal of and interest on the 2012A Bonds from Net Revenues (as defined in the Indenture) is an enforceable obligation of the City and does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limit or restriction. 3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012A 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. It should be noted that, with respect to corporations, such interest 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 on the 2012A Bonds is exempt from State of California personal income tax. The opinions expressed herein as to the exclusion from gross income of interest on the 2012A Bonds are based upon certain representations of fact and certifications made by the City and are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be C -1 D OCSOC/ 1552116v7/200119 -0007 satisfied subsequent to the issuance of the 2012A Bonds to assure that such interest on the 2012A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2012A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012A Bonds. The City has covenanted to comply with all such requirements. 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. The Indenture 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. No opinion is expressed herein as to the effect on the exclusion from gross income of interest on the 2012A Bonds for federal income tax purposes with respect to any 2012A Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2012A Bonds. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2012A Bonds are subject to bankruptcy, 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 of California. 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. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2012A Bonds or other offering material relating to the 2012A Bonds and expressly disclaim any duty to advise the owners of the 2012A Bonds with respect to matters contained in the Official Statement. Respectfully submitted, C -2 DOCSOC/1552116v7/200119 -0007 .u� INFORMATION CONCERNING DTC The information in this section concerning DTC and DTC's book -entry only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2012A Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2012A Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2012A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company ( "DTC "), New York, NY, will act as securities depository for the 2012A Bonds. The 2012A Bonds will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered 2012A Bond will be issued for each annual maturity of the 2012A Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC is rated AA+ by Standard & Poor's. 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. Purchases of 2012A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2012A Bonds on DTC's records. The ownership interest of each actual purchaser of each 2012A Bonds ( "Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2012A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in 2012A Bonds, except in the event that use of the book -entry system for the 2012A Bonds is discontinued. To facilitate subsequent transfers, all 2012A Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2012A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2012A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 2012A Bonds are credited, which may or may not be the Beneficial Owners. D -1 DOCSOC/ 1552116v7/200119 -0007 The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2012A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2012A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2012A Bonds documents. For example, Beneficial Owners of 2012A Bonds may wish to ascertain that the nominee holding the 2012A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2012A Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect. to 2012A Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts 2012A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2012A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A 2012A Bond Owner shall give notice to elect to have its 2012A Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2012A Bond by causing the Direct Participant to transfer the Participant's interest in the 2012A Bonds, on DTC's records, to the Trustee. The requirement for physical delivery of 2012A Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2012A Bond are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered 2012A Bond to the Trustee's DTC account. DTC may discontinue providing its services as depository with respect to the 2012A Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry only transfers through DTC (or a successor securities depository). In that event, 2012A Bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK -ENTRY ONLY SYSTEM IS USED FOR THE 2012A BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2012A BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. ID&A DOCSOC/1552116v7/200119 -0007 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE E -1 DOCSOC/1552116v7/200119-0007 APPENDIX F THE CITY OF SANTA MONICA F -1 DOC SOC/ 1552116v7/200119 -0007 ATTACHMENT H ESCROW AGREEMENT RELATING TO THE REDEMPTION OF CITY OF SANTA MONICA Wastewater Refunding Revenue Bonds Series 2012A THIS ESCROW AGREEMENT, dated as of May 1, 2012, by and between the City of Santa Monica (the "City"), and U.S. Bank National Association, acting in its capacity as escrow agent (the "Escrow Agent ") pursuant to this Escrow Agreement (the "Agreement "); WITNESSETH: WHEREAS, pursuant to the provisions of an Indenture between the City and Bank of America National Trust and Savings Association (as "Trustee ") dated as of November 1, 1:991 as supplemented by a First Supplemental Indenture between the City and the Trustee dated as of December 1, 1993 (the "Refunded Bonds Indenture "), the City previously issued its $38,620,000 City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series, of which $9,670,000 aggregate principal amount are currently outstanding (the "Refunded Bonds "); WHEREAS, the City did, pursuant to a resolution adopted by the City Council of the City on May 8, 2012 (the "Resolution "), determine that it is in the City's best interest to issue its City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A (the "Bonds ") to provide proceeds to refund all of the outstanding Refunded Bonds; and WHEREAS, the City has determined that it is in its best interests and desirable for the Bonds to be issued and for a portion of the proceeds of the Bonds to be applied to the current refunding of the Refunded Bonds in accordance with the terms of this Agreement and the Refunded Bonds Indenture; and NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City and the Escrow Agent agree as follows: SECTION 1. Deposit of Moneys. (a) The City hereby deposits with the Escrow Agent $ (representing $ proceeds of the Bonds and $ from the City's Wastewater Fund), to be held in an irrevocable escrow by the Escrow Agent separate and apart from other funds of the City and the Escrow Agent in a fund hereby created and established and to be known as the "Escrow Fund" and to be applied solely as provided in this Agreement. Such moneys are to be held uninvested in cash. (b) Notwithstanding any provision in the legal documents pertaining to the Bonds, the City hereby directs the Escrow Agent to redeem the Refunded Bonds on 2012 at a redemption price equal to the principal amount to be redeemed, together with accrued interest to the date of redemption (the "Redemption Price "), without premium. SECTION 2. Use of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees to: DOCSOC/ 1556153v3/200119 -0007 (a) deposit such moneys in the Escrow Fund; and (b) make the payments required under Section 3(a) hereof at the times set forth in Section 3(a) hereof. SECTION 3. Payment of Refunded Bonds. (a) Payment. From the moneys on deposit in the Escrow Fund, the Escrow Agent shall apply the amounts on deposit in the Escrow Fund to pay on , 2012 the Redemption Price of the Refunded Bonds. (b) Unclaimed Moneys. Any moneys which remain unclaimed for two years after the date such moneys have become due and payable hereunder shall be repaid by the Escrow Agent to the City. Any moneys remaining in the Escrow Fund established hereunder after 2012 (aside from unclaimed monies of the Refunded Bonds) that are in excess of the amount needed to pay owners of the Refunded Bonds payments of principal and interest and redemption premium, if any, with respect to the Refunded Bonds or to pay any amounts owed to the Escrow Agent shall be immediately transferred by the Escrow Agent to the City. (c) Priority of Payments. The holders of the Refunded Bonds shall have a first lien on all moneys in the Escrow Fund until such moneys are used and applied as provided in this Agreement[, as verified by the Verification Report]. Any cash held in the Escrow Fund are irrevocably pledged only to the holders of the Refunded Bonds. (d) Termination of Obli ation. Upon deposit of the moneys set forth in Section 1 hereof with the Escrow Agent pursuant to the provisions of Section 1 hereof, all obligations of the City with respect to the Refunded Bonds shall cease and terminate, except only the obligation to make payments therefor from the moneys provided for hereunder. SECTION 4. Performance of Duties. The Escrow Agent agrees to perform the duties set forth herein. SECTION 5. Indemnity. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of its Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds deposited therein, and any payment, transfer or other application of moneys by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the City shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Agent's respective successors, assigns, agents and employees or the breach by the Escrow Agent of the terms of this Agreement. In no event shall the City or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each 2 DOCSOC/1556153v3/200119-0007 other as set forth in this section. The indemnities contained in this section shall survive the termination of this Agreement. SECTION 6. Responsibilities of the Escrow Agent. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys deposited therein, or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non - negligent act, non - negligent omission or non - negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statements of the City and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the moneys to be deposited in the Escrow Fund to accomplish the refunding and defeasance of the Refunded Bonds or to the validity of this Agreement as to the City and, except as otherwise provided herein, the Escrow Agent shall incur no liability with respect thereto. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. SECTION 7. Irrevocable Instructions as to Notice. The Escrow Agent hereby acknowledges that, upon the funding of the Escrow Fund as provided in this Agreement and the giving of notice as provided in the Instructions and Request to Trustee attached hereto as Schedule A (constituting all of the conditions precedent to the defeasance of the Refunded Bonds), the Refunded Bonds shall be paid in accordance with the terms of the Refunded Bonds Indenture and all obligations of the City with respect to the Refunded Bonds shall cease and terminate. SECTION 8. Amendments. This Agreement is made for the benefit of the City and the holders from time to time of the Refunded Bonds and it shall not be repealed, revoked, altered or amended without the written consent of all such holders, the Escrow Agent and the City; provided, however, but only after the receipt by the Escrow Agent of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Bonds and the Refunded Bonds will not be adversely affected for federal income tax purposes, that the City and the Escrow Agent may, without the consent of, or notice to, such holders, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the holders of the Refunded Bonds any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; and (iii) to include under this Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with respect to compliance with this Section 8, including the extent, if any, to which any change, modification, 3 DOCSOC/1556153v3 /200119 -0007 addition or elimination affects the rights of the holders of the Refunded Bonds or that any instrument executed hereunder complies with the conditions and provisions of this Section 8. In the event of any conflict with respect to the provisions of this Agreement, this Agreement shall prevail and be binding. SECTION 9. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either (i) the date upon which the Refunded Bonds have been paid in accordance with this Agreement or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 3(a) of this Agreement. SECTION 10. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Agent under this Agreement. SECTION 11. Resignation or Removal of Escrow Agent. (a) The Escrow Agent may resign by giving notice in writing to the City, a copy of which shall be sent to ETC. The Escrow Agent may be removed (1) by (i) filing with the City an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of the Refunded Bonds then remaining unpaid, (ii) sending notice at least 60 days prior to the effective date of said removal to ETC, and (iii) the delivery of a copy of the instruments filed with the City to the Escrow Agent or (2) by a court of competent jurisdiction for failure to act in accordance with the provisions of this Agreement upon application by the City or the holders of 5% in aggregate principal amount of the Refunded Bonds then remaining unpaid. (b) If the position of Escrow Agent becomes vacant due to resignation or removal of the Escrow Agent or any other reason, a successor Escrow Agent may be appointed by the City. The holders of a majority in principal amount of the Refunded Bonds then remaining unpaid may, by an instrument or instruments filed with the City, appoint a successor Escrow Agent who shall supersede any Escrow Agent theretofore appointed by the City. If no successor Escrow Agent is appointed by the City or the holders of such Refunded Bonds then remaining unpaid, within 45 days after any such resignation or removal, the holder of any such Refunded Bond or any retiring Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent. The responsibilities of the Escrow Agent under this Escrow Agreement will not be discharged until a new Escrow Agent is appointed and until the cash held under this Escrow Agreement are transferred to the new Escrow Agent. SECTION 12. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the City or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 13. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. 4 DOCSOC/ 1556153 v3/200119 -0007 SECTION 14. Governing Law. This Agreement shall be construed under the laws of the State of California. SECTION 15. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Escrow Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Agreement, and no interest shall accrue for the period after such nominal date. SECTION 16. Assignment. This Agreement shall not be assigned by the Escrow Agent or any successor thereto without the prior written consent of the City. SECTION 17. Standard & Poor's and Moody's. The City agrees to provide Standard & Poor's, a Division of the McGraw -Hill Companies, 55 Water Street, New York, New York 10041 and Moody's Investors Service, 99 Church Street, New York, New York 10007 prior notice of each amendment entered into pursuant to Section 8 hereof and a copy of such proposed amendment, and to forward a copy (as soon as possible) of (i) each amendment hereto entered into pursuant to Section 8 hereof, and (ii) any action relating to severability or contemplated by Section 12 hereof. SECTION 18. Reorganization of Escrow Agent. Notwithstanding anything to the contrary contained in this Agreement, any company into which the Escrow Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which the Escrow Agent is a party, or any company to which the Escrow Agent may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Agent without execution or filing of any paper or any paper or further act, if such company is eligible to serve as Escrow Agent. 5 DOCSOC/ 1556153v3/200119 -0007 IN WITNESS WHEREOF, the patties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. CITY OF SANTA MONICA C Director of Finance U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent M Authorized Signatory S -1 DOCSOC/ 1556153v3/200119 -0007 SCHEDULE A IRREVOCABLE INSTRUCTIONS AND REQUEST TO TRUSTEE Bank of America National Trust and Savings Association Los Angeles, California CITY OF SANTA MONICA Wastewater Refunding Revenue Bonds Series 2012A Ladies and Gentlemen: , 2012 As Trustee with respect to the Refunded Bonds as defined in that certain Escrow Agreement, dated as of May 1, 2012, between the City of Santa Monica and U.S. Bank National Association (the "Escrow Agreement'), you are hereby notified of the election of the City of Santa Monica: to redeem on 2012 the outstanding principal of the Refunded Bonds at a price of the principal amount thereof to be so redeemed, together with accrued interest to the date of redemption, and without premium. You are hereby irrevocably instructed to provide, as provided in the an Indenture, dated as of November 1, 1991, as supplemented by a First Supplemental Indenture between the City and the Trustee dated as of December 1, 1993 both between the City of Santa Monica and Bank of America National Trust and Savings Association, notice of redemption of such principal amounts of said Refunded Bonds as are scheduled to be redeemed prior to maturity. Such notice shall be in the form annexed hereto as Exhibit X. You are also hereby instructed to file a notice of defeasance of the Refunded Bonds with the Nationally Recognized Municipal Securities Information Repositories ("NRMSIR ") that are listed by the U.S. Securities and Exchange Commission upon receipt of money as set forth in Section 1 of the Escrow Agreement. NRMSIR is located at www.sec.gov /info /municipal /nrmsir. A -1 DOCSOC/ 1556153 v3/200119 -0007 You are hereby further instructed to provide, as soon as practicable, notice to the holders of such Refunded Bonds (in the form annexed hereto as Exhibit Y) that the deposit of moneys has been made with you as such Escrow Agent. CITY OF SANTA MONICA C Receipt acknowledged and consented to: Director of Finance BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Trustee am Authorized Signatory A -2 DOCSOC/ 1556153v3/200119 -0007 NOTICE OF REDEMPTION OF CITY OF SANTA MONICA Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series Notice is hereby given to the holders of the outstanding $ City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series maturing on January 1, 2020 and January 1, 2022 (the "Refunded Bonds "), that such Refunded Bonds have been called for redemption prior to maturity on , 2012 in accordance with their terms at a redemption price equal to the principal amount thereof, without premium, together with accrued interest evidenced thereby to 2012. After , 2012 interest on such Refunded Bonds shall cease to accrue and be payable. Owners of the Refunded Bonds will receive payment of the redemption price and any accrued interest to which they are entitled upon presentation and surrender thereof at the principal corporate trust office of U.S. Bank National Association, Los Angeles, California. The foregoing Notice is hereby conditioned upon the receipt of funds by the Escrow Agent on or before , 2012. Such Notice may be rescinded in the event such funds are not timely received. Dated this day of 2012. CITY OF SANTA MONICA U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent A -X -1 DOCSOC /1556153 v3 /200119 -0007 EXHIBIT Y NOTICE OF DEFEASANCE CITY OF SANTA MONICA Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series Notice is hereby given to the holders of the outstanding bonds maturing on January 1, 2020 and January 1, 2022 designated City of Santa Monica, Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series (the "Refunded Bonds ") (i) that there has been deposited with U.S. Bank National Association, as Escrow Agent, moneys as permitted by the Escrow Agreement, dated as of May 1, 2012, between City of Santa Monica and U.S. Bank National Association, as Escrow Agent, (the "Agreement'), which shall be sufficient and available (a) to pay on 2012 the Refunded Bonds maturing on January 1, 2020 and January 1, 2022 at a redemption price (expressed as a percentage of the principal amount of the Refunded Bonds to be prepaid) equal to 100 %, together with accrued interest to the date of redemption; (ii) that the Escrow Agent has been irrevocably instructed to redeem on 2012 such Refunded Bonds; and (iii) that the Refunded Bonds are deemed to be paid in accordance with Section 3 of the Agreement. Dated this day _ of, 2012. CITY OF SANTA MONICA U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent A -Y -1 DOCSOC/1556153v3/200119 -0007 NVOYNT46M11 ► NOTICE INVITING PROPOSALS FOR PURCHASE OF BONDS $10,000,000' CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS, SERIES 2012A NOTICE IS HEREBY GIVEN that electronic (as explained below) unconditioned proposals will be received to and including the hour of 9:00 a.m., Pacific Standard Time, on May 15, 2012, via the Parity Electronic Bid Submission System ( "PARITY ") of Ipreo LLC at www.newissuehome.i- deal.com, in the manner described below, for the purchase of all, but not less than all, of $10,000,000{ principal amount of City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A (the `Bonds "). No bid will be received after the time for receiving bids specified above. To the extent any instructions or directions set forth in PARITY conflict with this Notice Inviting Proposals for the Purchase of Bonds (the "Notice Inviting Proposals "), the terms of this Notice Inviting Proposals shall control. For further information about PARITY, potential bidders may contact Ipreo LLC at 1359 Broadway, 2nd floor, New York, NY 10018, 877 -588 -5030, or the financial advisor to the City: Public Resources Advisory Group, 310 - 477 -8487, e -mail: lehoi @pragla.eom (the "Financial Advisor "). The Notice Inviting Proposals and Preliminary Official Statement will be posted to www.munios.com. In the event that the sale has not been awarded by the designated time, bids will be received at a subsequent time and date to be determined by the City and publicized via Bloomberg News Service, The Bond Buyer or Thomson Municipal Market Monitor (www.TM3.com). ALL BIDS ARE SUBMITTED AT THE RISK OF THE BIDDER. I. Terms of the Bonds: The City has made available a Preliminary Official Statement relating to the Bonds, a copy of which has been posted to www.munios.com. The Preliminary Official Statement, including the cover page and all appendices thereto, provides certain information concerning the sale and delivery of the Bonds. Each bidder must have obtained and reviewed the Preliminary Official Statement prior to bidding for the Bonds. This Official Notice hiviting Proposals contains certain information for quick reference only, is not a summary of the issue and governs only the terms of the sale of, bidding for and closing procedures with respect to the Bonds. Bidders must read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. II. Issue: The Bonds will be dated the date of delivery, will be in the denomination of $5,000 each, or integral multiples thereof, and will bear interest from the date of the Bonds to the maturity of each of the Bonds at the rate or rates such that the interest rate shall not exceed 12% per annum, with interest payable on February 1, 2013 and semiannually on February 1 and August I of each year during the term of each of the Bonds. The Bonds mature on February 1 in each of the years 2013 to 2022 inclusive, as follows: Preliminary, subject to change. B -1 DocsoG1557712v2/200119 -0007 YEAR PRINCIPAL AMOUNT 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 III. Adjustment of Principal Amounts: The principal amounts of each maturity of Bonds set forth above reflect certain assumptions of the City of Santa Monica (the "City ") and the Financial Advisor with respect to the likely interest rates of the winning bid or bids. Following the determination of the successful bidder or bidders, the City reserves the right to increase or decrease the principal amount of each maturity of the Bonds, in $5,000 increments of principal amounts, in an amount not to exceed a ten percent (10 %) change in principal amount per maturity. Such adjustment shall be made within 26 hours of the bid opening and in the sole discretion of the City. In the event of any such adjustment, no rebidding or recalculation of the bids submitted will be required or permitted and the successful bid or bids may not be withdrawn, and the successful bidder will not be permitted to change its bid price or the interest rate(s) in its bid for the Bonds. The City shall not be responsible for the effect of any such adjustment on the compensation to the successful bidder and will use its reasonable best efforts to maintain a proportionate level of compensation to the successful bidder. Bidders are advised to consider such a possible change in principal amount when determining their production on each maturity of the Bonds. IV. Interest Rates: All bids for the purchase of the Bonds must state the rate or rates of interest to be paid and no bid at a price less than 105% or greater than 115% of the par value of the Bonds will be considered. All Bonds of the same maturity must bear the same rate of interest and no Bond may bear more than one rate of interest. The maximum interest rate bid may not exceed six percent (6 %) per annum, and the true interest cost shall not exceed three percent (3 %) per annum. Bidders may specify any number of different rates to be borne on the Bonds; all interest rates must be in multiples of 1/8 or 1/20 of one percent; a zero rate of interest may not be specified. Interest will be computed from the expected dated date of 2012 (or such later date as specified by the City if the sale is postponed), to each stated maturity date at the interest rate applicable to such maturity as specified in the bid, payable semi - annually on each February 1 and August 1, beginning February 1, 2013 on the DOCSOC/ 1557712v2/200119 -0007 basis of a 360 -day year consisting of twelve 30 -day months. Any premium must be paid as part of the purchase price, and no bid will be accepted which contemplates the waiver of any interest or other concession by the bidder as a substitute for payment in full of the purchase price. V. Redemption: The Bonds are not subject to redemption prior to their stated maturity VI. Registration of Bonds as to Principal and Interest and Place of Payment The Bonds, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). DTC will act as securities depository of the Bonds. Individual purchases will be made in book -entry form only, in the denominations of $5,000 and integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal and interest are payable in lawful money of the United States of America and will be paid to DTC which in turn will remit such amounts to the beneficial owners of the Bonds through DTC's Participants, as described in the Preliminary Official Statement. VII. Authority: The Bonds will be issued pursuant to the Constitution and laws of the State of California and section 400 of the Charter of the City and Chapter 2.36 of the Municipal Code of the City and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including, but not limited to, Section 53583 thereof. VIII. Security: The Bonds are limited obligations of the City payable solely from Net Revenues of the City's Wastewater System remaining after payment of Operation and Maintenance Costs and Senior Debt Service, and from amounts on deposit in certain funds and accounts created under the Indenture. Pursuant to the Indenture, the City may issue or execute additional bonds and contracts payable from Net Revenues on a parity with the Bonds. The City has covenanted not to issue any additional bonds or contracts payable from Net Revenues on a basis senior to the Bonds. IX. Form of Bid: All bids must be submitted electronically via PARITY pursuant to the procedures described below, shall be deemed to constitute a Bid for Purchase of the Bonds and shall be deemed to incorporate by reference all of the terms and conditions of this Notice Inviting Proposals. The submission of a bid electronically via PARITY shall constitute and be deemed the bidder's signature on the Bid for Purchase of the Bonds. X. Procedures Regarding Electronic Bidding: All bids must be submitted electronically via PARITY in accordance with this Notice Inviting Proposals. Bids shall be received until 9 A.M., Pacific Standard Time, on May 15, 2012, but no bid will be received after such time unless the City has postponed the sale as provided for herein. To the extent any instructions or directions set forth in PARITY conflict with this Notice Inviting Proposals, the terms of this Notice Inviting Proposals shall control. For further information about 3 DOCSOC/ 1557712v2/200119 -0007 PARITY, potential bidders may contact the City's Financial Advisor or PARITY at (212) 806 -8304. Each bidder submitting a bid for the Bonds via PARITY agrees that: 1. The City will regard the electronic transmission of the bid through PARITY (including information about the purchase price of the Bonds, the interest rate or rates to be borne by the various maturities of the Bonds, the initial public offering price of each maturity and any other information included in such transmission) as though the same information were submitted on a Bid for Purchase of the Bonds form, provided by the City and executed by a duly authorized signatory of the bidder. A manually signed Bid for Purchase of the Bonds is not required. However, the terms of the Bid for Purchase of the Bonds and the Notice Inviting Proposals and the information that is electronically transmitted through PARITY shall form a contract and the successful bidder shall be bound by the terms of such contract. 2. PARITY is not an agent of the City, and the City shall have no liability whatsoever based on any bidder's use of PARITY, including but not limited to any failure by PARITY to correctly or timely transmit information provided by the City or information provided by the bidder. 3. Once the bids are communicated electronically via PARITY to the City as described above, each bid will constitute a Bid for Purchase of the Bonds and shall be deemed to be an irrevocable offer to purchase the Bonds on the terms provided in this Notice Inviting Proposals. For purposes of submitting all Bids for Purchase of the Bonds the time as maintained on PARITY shall constitute the official time. 4. Each bidder shall be solely responsible to make necessary arrangements to access PARITY for purposes of submitting its bid in a timely manner and in compliance with this Notice Inviting Proposals. Neither the City nor Ipreo shall have any duty or obligation to undertake such registration to bid for any prospective bidder or to provide or assure such access to any qualified prospective bidder, and neither the City nor Ipreo shall be responsible for a bidder's failure to register to bid or for proper operation of, or have any liability for any delays or interruptions of or any damages caused by, PARITY. The City is using PARITY as a communication mechanism, and not as the City's agent, to conduct the electronic bidding for the Bonds. By using PARITY, each bidder agrees to hold the City harmless for any harm or damages caused to such bidder in connection with its use of PARITY for bidding on the Bonds. No bid received after the deadline for receipt of bids shall be considered. In any case, each bid must be in accordance with the terms and conditions set forth in this Notice Inviting Proposals. XI. Estimate of True Interest Cost: Bidders are requested (but not required) to supply an estimate of the total true interest cost to the City on the basis of their respective bids, which shall be considered as informative only and not binding on either the bidder or the City. DOCSOC/ 1557712v2/200119 -0007 XII. No Good Faith Deposit Required to Bid A good faith deposit will not be required in connection with the submission of any bid for the Bonds. The winning bidder will be required to submit a Bid Award Deposit (see " —Bid Award Deposit" below). XIII. Bid Award Deposit: Not later than a.m. Pacific Standard Time, on May _, 2012, the winning bidder is required to submit a Bid Award Deposit to the City equal to 1 % of the par value of the Bonds which the bidder has been awarded. The Bid Award Deposit must be made in good funds by wire transfer of the required amount to: Name of Bank: Bank of America Name of Account: City of Santa Monica Routing Number: 0260 - 0959 -3 Account Number: 14316 -81257 Ref: (must show contact name with City and the company sending the wire) or to such other account as instructed by the City in writing. In the event a bidder's Bid Award Deposit is not received by the designated time, the underlying bid may be disqualified at the option of the City. No interest will be paid by the City on the amount of the Bid Award Deposit. The proceeds of the Bid Award Deposit of the winning bidder will be applied to the purchase price of the Bonds, or in the vent of the failure of a winning bidder to pay for the Bonds in compliance with the terms of the bid, at the option of the City, its Bid Award Deposit may be retained as liquidated damages, as partial payment of actual damages or as security for any other remedy available to the City. XIV. CUSIP Numbers and Other Fees: CUSIP numbers will be applied for and will be printed on the Bonds and the cost of printing thereof and service bureau assignment will be purchaser's responsibility. Any delay, error or omission with respect thereto will not constitute cause for the purchaser to refuse to accept delivery of and pay for the Bonds. The successful bidder shall also be required to pay all fees required by The Depository Trust Company, Municipal Securities Rulemaking Board, and any other similar entity imposing a fee in connection with the issuance of the Bonds (see, "California Debt Advisory and Investment Commission" below). XV. Legal Opinion: The Bonds are sold with the understanding that the purchaser will be furnished with the approving opinion of Bond Counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation. A copy of the opinion will be attached to the Bonds. Said attorneys have been retained by the City as Bond Counsel and in such capacity are to render their opinion only upon the legality of the Bonds under California law and on the exemption of the interest income on such Bonds from federal and State of California income taxes. Fees of Bond Counsel will be paid by the City from Bond proceeds. DOCSOC/ 1557712v2/200119 -0007 XVI. Tax- Exempt Status: In the opinion of Bond Counsel, under existing laws, interest on the Bonds is exempt from all present State of California personal income taxes, and assuming compliance with certain covenants made by the City, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purpose, provided that such interest may be included in the calculation for certain taxes, including the corporate alternative minimum tax and the corporate environmental tax. Should changes in the law cause Bond Counsel's opinion to change prior to delivery of the Bonds to the purchaser, the purchaser will be relieved of its responsibility to take delivery of and pay for the Bonds, and in that event its Deposit will be returned. XVIL Certification of Reoffering Price: As soon as practicable, but not later than five days following the date of acceptance of the bid for the Bonds, the successful bidder must submit to the City a certificate specifying for each maturity the reoffering price at which at least 10% of the Bonds of such maturity were sold (or were offered in a bona fide public offering and as of the date of award of the Bonds to the successful bidder reasonably expected to be sold) to the public. Such certificate shall be in form and substance satisfactory to Bond Counsel and shall include such additional information as may be requested by Bond Counsel. XVIII. Award: The Bonds will be awarded to the responsible bidder submitting the best responsive bid, considering the interest rate or rates specified. The best bid will be the bid that represents the lowest true interest cost ( "TIC ") to the City for the Bonds. The TIC is the discount rate that, when compounded semiannually and used to discount all debt service payments on the Bonds back to the dated date of the Bonds, results in an amount equal to the price bid for the Bonds. In the event that two or more bidders offer bids for the Bonds at the same lowest TIC, the City will determine by lottery which bidder will be awarded the Bonds. The determination of the bid representing the lowest TIC will be made without regard to any adjustments made or contemplated to be made after the award by the Director of Finance, as described herein under "Adjustment of Principal Amounts," even if such adjustments have the effect of raising the TIC of the successful bid to a level higher than the bid containing the next lowest TIC prior to adjustment. XIX. Delivery: Delivery of the Bonds will be made to the purchaser through DTC upon payment in federal funds payable to or for the account of the City pursuant to instructions provided by the successful bidder and approved by the City. The Closing will take place at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California, 92660, or at the purchaser's request and expense, at any other place mutually agreeable to both the City and the purchaser. XX. Prompt Award: The City Manager or the Director of Finance will take action awarding the Bonds or rejecting all bids not later than twenty -six (26) hours after the expiration of the time herein prescribed for the 6 DOCSOC/1557712v2/200119 -0007 receipt of proposals, unless such time of award is waived by the successful bidder. Notice of the award will be given promptly to the successful bidder. XXI. No Insurance: THE SUCCESSFUL BIDDER SHALL NOT PURCHASE MUNICIPAL BOND INSURANCE IN CONNECTION WITH THE BONDS. XXII. California Debt Advisory and Investment Commission: The successful bidder will be required, pursuant to state of California law, to pay any fees to the California Debt and Investment Advisory Commission ( "CDIAC "). CDIAC will invoice the successful bidder after the closing of the Bonds. XXI L No Litigation and Non - Arbitrage: The City will deliver a certificate stating that no litigation is pending affecting the issuance and sale of the Bonds. The City will also deliver an arbitrage certificate covering its reasonable expectations concerning the Bonds and the use of proceeds thereof. XXIV. Official Statement: The City has made available a Preliminary Official Statement relating to the Bonds, a copy of which has been posted to www.i- dealprospectus.com. Such Preliminary Official Statement, together with any supplements thereto, shall be in form "deemed final" by the City for the purposes of SEC Rule 15c2- 12(b)(1), but is subject to revision, amendment and completion in a final official statement. The City shall deliver, at closing, a certificate, executed by appropriate officers of the City acting in their official capacities, to the effect that the facts contained in the Official Statement relating to the Bonds are true and correct in all material respects, and that the Official Statement does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. The City will provide up to 100 copies of the final Official Statement for the Bonds to the successful bidder for the Bonds, without charge, within seven business days after the award of the bid. The successful bidder must notify the City through the Financial Advisor, in writing, within three business days of the award if the bidder requires additional copies of the final Official Statement, which additional copies will be provided at the bidder's cost. By making a bid for the Bonds, the successful bidder agrees (1) to disseminate to all members of the underwriting syndicate copies of the final Official Statement, including any supplements prepared by the City, (2) to promptly file a copy of the final Official Statement, including any supplements prepared by the City, with a Nationally Recognized Municipal Securities Information Repository, and (3) to take any and all other actions necessary to comply with applicable SEC rules and MSRB rules governing the offering, sale and delivery of its Bonds to ultimate purchasers. XXV. Continuing Disclosure: In order to assist bidders in complying with Rule 15c2- 12(b)(5) promulgated under the Securities Exchange Act of 1934, the City will undertake in a Continuing Disclosure Certificate to 7 DOCSOC/ 1557712v2/200119 -0007 provide certain annual financial information and Notice of the occurrence of certain events, if material. A description of this undertaking and a form of the Continuing Disclosure Certificate is included in the Preliminary Official Statement. XXVL Ratings: Fitch Ratings, Moody's Investors Service and Standard & Poor's have assigned to the Bonds the ratings shown on the cover page of the Preliminary Official Statement or, if not so indicated, will be available upon request from the Financial Advisor. Such rating reflects only the views of such organization and explanation of the significance of such rating may be obtained from them as follows: Fitch Ratings, One State Street Plaza, New York, NY 10004, (212- 908 - 0500), Standard & Poor's, 55 Water Street, New York, New York 10041, (212) 438 -2000, and Moody's Investors Service, 7 World Trade Center, New York, New York 10007, (212) 553 -0300. There is no assurance that the ratings will continue for any given period of time or that on or both will not be revised downward or withdrawn entirely by either of the rating agencies, if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. XXVII. Additional Information: Copies of the Resolutions, this Official Notice Inviting Bids, the Bid Form and Preliminary Official Statement will be furnished to any potential bidder upon request made to the City Financial Advisor at: Public Resources Advisory Group, 11500 West Olympic Blvd, Suite 502, Los Angeles, California 90064, (310) 477 -8487 or lehoi @pragla.com. XXVIII. Right To Modify Or Amend: The City reserves the right to modify or amend this Official Notice Inviting Bids including, but not limited to the right to adjust and change the aggregate principal amount of the Bonds being offered. Such notifications or amendments shall be made not later than 2:00 p.m. PDT on the business day immediately preceding the day of the bid opening and communicated through Thomson Municipal News and by facsimile transmission to any qualified bidder timely requesting such notice. XXIX. Right To Reject Bids Or Waive Irregularities: The City reserves the right, in its discretion, to reject any and all bids and, to the extent permitted by law, to waive any irregularity or informality in any bid. DOCSOC/ 1557712v2/200119-0007 XXX. Right to Cancel, Postpone, or Reschedule Sale: The City reserves the right to cancel, postpone or reschedule the sale of the Bonds upon notice given through the Bloomberg News Service, Thompson Municipal Market Monitor (www.tm3.com) or The Bond Buyer not less than eighteen (18) hours prior to the time bids are to be received. If the sale is postponed, bids will be received at the place set forth above, at the date and time as the City shall determine. Notice of the new sale date and time, if any, will be given through Bloomberg News Service, Thompson Municipal Market Monitor (www.tm3.com) or The Bond Buyer no later than eighteen (18) hours prior to the new time bids are to be received. As an accommodation to bidders, telephone or fax notice of the postponement of the sale date and of the new sale date will be given to any bidder requesting such notice from the Financial Advisor. Failure of any bidders to receive such notice shall not affect the legality of the sale. Dated: May 9, 2012 CITY OF SANTA MONICA DOCSOC/ 1557712v2 /200119 -0007 City Manager ATTACHMENT BID FOR THE PURCHASE OF CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS, SERIES 2012A May 15, 2012 City of Santa Monica Santa Monica, California On behalf of a group which we have formed consisting of and pursuant to the Notice Inviting Proposals for Purchase of Bonds hereinafter mentioned, we offer to purchase all of the Dollars ($ ) principal amount of the Bonds designated as "City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A" maturing on February 1 in the years and amounts and bearing interest at the rate or rates set forth in the following schedule: PRINCIPAL INTEREST YEAR AMOUNT* RATE and to pay therefor the aggregate sum of $ (representing the $ principal amount of the Bonds, plus interest accrued on such Bonds to the date of delivery thereof.) We hereby elect to combine the maturities of Bonds maturing on the following dates: Redemption Dates through Maturity 1, Preliminary, subject to change. See "III. Adjustment of Principal Amounts" in the Notice Inviting Proposals for Purchase of Bonds. DOCSOC/ 1557712v2/20 0 1 1 9 -0007 This bid is made subject to all the terms and conditions of the Notice Inviting Proposals for Purchase of Bonds heretofore published, all of which terms and conditions are made a part hereof as fully as though set forth in full in this bid. As specified in the Notice Inviting Proposals for Purchase of Current Interest Bonds, this bid is subject to acceptance not later than 26 hours after the expiration of the time for the receipt of bids, and the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation approving the validity of the Bonds will be furnished us (if we are the successful bidder) at the time of the delivery of the Bonds at the expense of the City. There is submitted herewith a memorandum (which shall not constitute a part of this bid) stating the total true interest cost in dollars on the Bonds during the life of the issue under this bid, and the true interest rate determined thereby. We have received and reviewed the Preliminary Official Statement with respect to the Bonds (the "Preliminary Official Statement ") and as a condition to bidding on the Bonds, have determined that we can comply with the requirements of Rule 15c2 -12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. As of the date of award and as of the date of delivery of the Bonds, all members of our syndicate either participate in DTC or clear through or maintain a custodial relationship with an entity that participates in said depository. We hereby request that (not to exceed 100) printed copies of the Official Statement with respect to the Bonds be furnished to us in accordance with the terms of the Notice Inviting Proposals for the Purchase of Bonds. MEMORANDUM OF INTEREST COST: Bonds during the life of the issue is $ is %. DOCSOC/ 1557712v2/200119 -0007 Respectfully submitted, (Account Manager) City:, Under the above bid, the total true interest cost on the and the true interest rate determined thereby ATTACHMENT Stradling Yocca Carlson & Rauth Draft of 4119112 INDENTURE OF TRUST Dated as of May 1, 2012 By and between U.S. BANK NATIONAL ASSOCIATION, as Trustee and the CITY OF SANTA MONICA Relating to CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS, SERIES 2012A DOCSOC/ 1551424v4/200119 -0007 Section 1.01. Section 1.02. Section 1.03. Section 2.01. Section 2.02. Section 2.03. Section 2.04. Section 2.05. Section 2.06. Section 2.07. Section 2.08. TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Definitions................................................................................ ..............................3 Content of Certificates and Opinions ....................................... .............................12 Interpretation............................................................................ .............................13 ARTICLE II TEE 2012A BONDS Authorization of 2012A Bonds ................................................ .............................13 Terms of the 2012A Bonds ...................................................... .............................13 Transfer of 2012A Bonds ......................................................... .............................14 Exchange of 2012A Bonds ...................................................... .............................14 RegistrationBooks ................................................................... .............................14 Form and Execution of 2012A Bonds ..................................... .............................15 2012A Bonds Mutilated, Lost, Destroyed or Stolen ................ .............................15 BookEntry System .................................................................. .............................16 ARTICLE III ISSUANCE OF 2012A BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2012A Bonds .................................................. .............................18 Section 3.02. Application of Proceeds of the 2012A Bonds and Certain Other Moneys ...........18 Section 3.03. Establishment and Application of Costs of Issuance Fund ...... .............................18 Section 3.04. Validity of 2012A Bonds ......................................................... .............................19 ARTICLE IV REDEMPTION OF 2012A BONDS Section 4.01. No Redemption ........................................................................ .............................19 ARTICLE V REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund. Section 5.02. Allocation of Revenues .......................... Section 5.03 Section 5.04 Section 5.05 Section 5.06 Section 5.07 Section 5.08 [Reserved.] ... ............................... Application of Interest Account.. Application of Principal Account [Reserved] .... ............................... Investments .. ............................... Rebate Fund . ............................... DOCSOC/ 1551424v4/20 0119-0007 TABLE OF CONTENTS (continued) W,., Section 5.09. Application of Funds and Accounts When No 2012A Bonds are Outstanding .... 24 ARTICLE VI PARTICULAR COVENANTS Section6.01. Punctual Payment .................................................................... .............................24 Section 7.02. Section 6.02. Extension of Payment of 2012A Bonds ................................... .............................24 Application of Revenues and Other Funds After Default .............. Section 6.03. Against Encumbrances ............................................................. .............................24 Section 7.05. Section 6.04. Power to Issue 2012A Bonds and Make Pledge and Assignment ........................24 Suit by Owners ................................................ ............................... Section 6.05. Accounting Records and Financial Statements ........................ .............................24 Section 7.08. Section 6.06. Tax Covenants ......................................................................... .............................25 No Waiver of Default ...................................... ............................... Section6.07. Waiver of Laws ........................................................................ .............................26 Section 6.08. Further Assurances .................................................................. .............................26 Section6.09. Budgets .................................................................................... .............................26 Section 6.10. Observance of Laws and Regulations ...................................... .............................26 Section 6.11. Compliance with Contracts ...................................................... .............................26 Section 6.12. Prosecution and Defense of Suits ............................................ .............................26 Section 6.13. Continuing Disclosure ............................................................. .............................27 Section 6.14. Additional Contracts and Bonds .............................................. .............................27 Section 6.15. Against Sale or Other Disposition of Property ........................ .............................28 Section 6.16. Against Competitive Facilities ................................................. .............................28 Section 6.17. Maintenance and Operation of the Local System .................... .............................28 Section 6.18. Payment of Claims ................................................................... .............................28 Section6.19. Insurance .................................................................................. .............................29 Section 6.20. Payment of Taxes and Compliance with Governmental Regulations ................... 29 Section 6.21. Amount of Rates and Charges ................................................. .............................29 Section 6.22. Collection of Rates and Charges .............................................. .............................30 Section 6.23. Eminent Domain Proceeds ....................................................... .............................30 Section 6.24. Hyperion Agreement ................:............................................... .............................30 Section 6.25. Enforcement of Contracts ........................................................ .............................30 Section 6.26. No Additional Senior Obligations ........................................... .............................30 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF 2012A BOND OWNERS Section 7.01. Events of Default ............................................ ............................... Section 7.02. Remedies Upon Event of Default ................... ............................... Section 7.03. Application of Revenues and Other Funds After Default .............. Section 7.04. Trustee to Represent 2012A Bond Owners .... ............................... Section 7.05. 2012A Bond Owners' Direction of Proceedings ........................... Section 7.06. Suit by Owners ................................................ ............................... Section 7.07. Absolute Obligation of the City ...................... ............................... Section 7.08. Remedies Not Exclusive ................................. ............................... Section 7.09. No Waiver of Default ...................................... ............................... ii DOCSOC/ 1551424v4/200119-0007 TABLE OF CONTENTS (continued) Page ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee .......................... .............................35 Section 8.02. Merger or Consolidation .......................................................... .............................36 Section 8.03. Liability of Trustee .................................................................. .............................36 Section 8.04. Right to Rely on Documents .................................................... .............................38 Section 8.05. Preservation and Inspection of Documents .............................. .............................39 Section 8.06. Compensation and Indemnification ......................................... .............................39 ARTICLE IX MODIFICATION OR AMENDMENT OF TIE INDENTURE Section 9.01. Amendments Permitted ............................................................ .............................39 Section 9.02. Effect of Supplemental Indenture ............................................ .............................41 Section 9.03. Endorsement of 2012A Bonds; Preparation of New 2012A Bonds ......................41 Section 9.04. Amendment of Particular 2012A Bonds .................................. .............................41 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ............................................................. .............................41 Section 10.02. Discharge of Liability on 2012A Bonds .................................. .............................42 Section 10.03. Deposit of Money or Securities with Trustee .......................... .............................42 Section 10.04. Payment of 2012A Bonds After Discharge of Indenture ......... .............................43 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of City Limited to Revenues ..................................... .............................43 Section 11.02. Successor Is Deemed Included in All References to Predecessor ........................43 Section 11.03. Limitation of Rights to Parties and 2012A Bond Owners ....... .............................43 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ................... .............................44 Section 11.05. Destruction of 2012A Bonds ................................................... .............................44 Section 11.06. Severability of Invalid Provisions ............................................ .............................44 Section11.07. Notices ..................................................................................... .............................44 Section 11.08. Evidence of Rights of 2012A Bond Owners ............................ .............................44 Section 11.09. Disqualified 2012A Bonds ....................................................... .............................45 Section 11.10. Money Held for Particular 2012A Bonds ................................ .............................45 Section 11.11. Funds and Accounts ................................................................. .............................45 Section 11.12. Waiver of Personal Liability .................................................... .............................45 Section 11.13. Execution in Several Counterparts ........................................... .............................46 Section 11.14. CUSIP Numbers ...................................................................... .............................46 Section 11.15. Choice of Law .......................................................................... .............................46 DOCSOC/1551424v4/200119 -0007 TABLE OF CONTENTS (continued) Page Section 11.16. Paired Obligation Provider Guidelines Signatures............................................................................................. ............................... S -1 Exhibit A Form of 2012A Bond .............................................................. ............................A -1 iv DOCSOC/ 1551424v4/200119 -0007 INDENTURE OF TRUST THIS INDENTURE OF TRUST, made and entered into and dated as of May 1, 2012 (the "Indenture "), by and between CITY OF SANTA MONICA, a chartered city and municipal corporation duly organized and existing under the laws of the State of California (the "City "), and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as trustee hereunder (the "Trustee "); WITNESSETH: WHEREAS, the City has determined that it is in the best interest of the public to refund the outstanding City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project) 1993 Refunding Series (the "1993 Bonds "); and WHEREAS, the City is authorized by Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including, but not limited to, Section 53583, and by Chapter 2.36 of the Municipal Code of the City enacted pursuant to the Charter of the City to issue bonds for the purpose of refunding any evidences of indebtedness of the City; and WHEREAS, in order to provide for the authentication and delivery of refunding revenue bonds (the "2012A Bonds "), to establish and declare the terms and conditions upon which such 2012A Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and premium, if any, thereon, the City has authorized the execution and delivery of the Indenture; and WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the 2012A Bonds, when executed by the City, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the City, and to constitute the 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 have been in all respects duly authorized; NOW, THEREFORE, THE INDENTURE WITNESSETH: GRANTING CLAUSES The City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the mutual covenants herein contained and of the purchase and acceptance of the 2012A Bonds by the owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, in order to secure the payment of the principal of and the interest and premium (if any), on all 2012A Bonds at any time issued and Outstanding under the Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, does hereby assign and pledge unto, and grant a security interest in, the following (the "Trust Estate ") to the Trustee, and its successors in trust and assigns forever, for the securing of the performance of the obligations of the City to the 2012A Bond Owners hereinafter set forth: 1 DOCSOC/1551424v4/200119 -0007 GRANTING CLAUSE FIRST All right, title and interest of the City in and to the Revenues (as defined herein), including, but without limiting the generality of the foregoing, the present and continuing right to make claim for, collect, receive and receipt for any Revenues payable to or receivable by the City under the Constitution of the State, the Charter of the City, the Government Code of the State of California and the Indenture and any other applicable laws of the State or otherwise, to bring actions and proceedings thereunder for the enforcement thereof, and to do any and all things which the City is or may become entitled to do thereunder, subject to the terms hereof. GRANTING CLAUSE SECOND All moneys and securities held in funds and accounts of the Indenture, except amounts held in the Rebate Fund, and all other rights of every name and nature from time to time herein or hereafter by delivery or by writing of any kind pledged, assigned or transferred as and for additional security hereunder to the Trustee by the City or by anyone on its behalf, or with its written consent, and to hold and apply the same, subject to the terms hereof. TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever for the benefit of the Owners and such pledge shall constitute a lien on and security interest in such Trust Estate; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future owners of the 2012A Bonds issued under and secured by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the 2012A Bonds over any of the other 2012A Bonds; PROVIDED, HOWEVER, that if the City, its successors or assigns shall well and truly pay, or cause to be paid, the principal of and interest on the 2012A Bonds due or to become due thereon, at the times and in the manner provided in the 2012A Bonds according to the true intent and meaning thereof, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of the Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as herein provided, the Indenture and the rights hereby granted shall cease, terminate and be void; otherwise the Indenture shall remain in full force and effect. THE INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all 2012A Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all sold property, rights and interests, including, without limitation, the Revenues, hereby assigned and pledged, are to be dealt with and disposed of, under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the City has agreed and covenanted and does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the 2012A Bonds, as follows: 2 DO CSOC/ 1551424v4/200119 -0007 ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.01 shall, for all purposes of the Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Accountant's Report. The term "Accountant's Report" means a report signed by an Independent Certified Public Accountant. Authorized Representative. The term "Authorized Representative" means, with respect to the City, its Mayor, Mayor Pro Tempore, City Clerk, City Manager, Director of Finance or any other person designated as an Authorized Representative of the City by a Certificate of the City signed by its Mayor, Mayor Pro Tempore, City Clerk, City Manager or Director of Finance and filed with the Trustee. Bond Counsel. The term "Bond Counsel" means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code. Bonds. The term "Bonds" means all revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from Net Revenues on a parity with the 2012A Bonds and which are secured by a pledge of and lien on Revenues as described in Section 5.01 hereof. Bond Year. The term "Bond Year" means the period beginning on the date of issuance of the 2012A Bonds and ending on February 1, 2013, and each successive one year or, during the last period prior to maturity, shorter period thereafter until there are no Outstanding 2012A Bonds. Business Day. The term "Business Day" means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed. Certificate, Direction, Request, and Requisition. The terms "Certificate," "Direction," "Request," and "Requisition" of the City mean a written certificate, direction, request or requisition signed in the name of the City by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, 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. If and to the extent required by Section 1.02, each such instrument shall include the statements provided for in Section 1.02. City. The term "City" means the City of Santa Monica, a municipal corporation and chartered city duly organized and existing under and by virtue of the laws of the State. Closing Date. The term "Closing Date" means the date on which the 2012A Bonds are delivered to the original purchaser thereof. DOCSOC/1551424v4/200119 -0007 Code. The term "Code" means the Internal Revenue Code of 1986, as amended. Continuing Disclosure Certificate. The term "Continuing Disclosure Certificate" means the Continuing Disclosure Certificate, dated the Closing Date, by the City, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms. Contracts. The term "Contracts" means all contracts of the City previously or hereafter authorized and executed by the City, the payments under which are payable from Net Revenues on a parity with the 2O12A Bonds and which are secured by a pledge and lien on Revenues as described in Section 5.01 hereof, and excluding contracts entered into for operation and maintenance of the Wastewater System. Costs of Issuance. The term "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City and related to the authorization, issuance, sale and delivery of the 2012A Bonds, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and charges for preparation, execution and safekeeping of the 2012A Bonds and any other cost, charge or fee in connection with the original issuance of the 2012A Bonds. Costs of Issuance Fund. The term "Costs of Issuance Fund" means the fund by that name established pursuant to Section 3.03. Debt Service. The term "Debt Service" means, for any period of calculation, the sum of (1) the interest payable during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111 -5, 23 Star. 115 (2009), enacted February 17, 2009)), or any future similar program), (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period, (3) those portions of the principal amount of all outstanding term Bonds required to be redeemed or paid in such period, and (4) those portions of the Contracts required to be made during such period, (except to the extent the interest evidenced and represented thereby is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111 -5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; 4 DOCSOC/ 1551424v4/200119 -0007 provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contracts plus 1 %; and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further that if any series or issue of such Bonds or Contracts have twenty -five percent (25 %) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service shall be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty -five (25) years from the date of calculation; and provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; and provided further that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by the City with respect to such Paired Obligations but only if the applicable Paired Obligations satisfies the requirement set forth in Section 11.16 hereof, and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. Depository; DTC. The term "Depository" or "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the 2012A Bonds. Escrow Agent. The term "Escrow Agent" means U.S. Bank National Association, as escrow agent pursuant to the terms of the Escrow Agreement, or its successor thereunder. Escrow Agreement. The term "Escrow Agreement" means the Escrow Agreement, dated as of May 1, 2012, by and between the City and the Escrow Agent, as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Event of Default. The term "Event of Default" means any of the events specified in Section 7.01. 5 DOCSOC/1551424v4/200119 -0007 Federal Securities. The term "Federal Securities" means any direct, noncallable 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), or noncallable obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. Fiscal Year. The term "Fiscal Year" means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period hereafter selected and designated as the official fiscal year period of the City. Generally Accepted Accounting Principles. "Generally Accepted Accounting Principles" means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor and the Governmental Accounting Standards Board or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Financial Accounting Standards Board or its successor. Hyperion Agreement. The tern "Hyperion Agreement' means the Amalgamated System Sewer Service Agreement dated April 21, 1999, by and between The City of Los Angeles and the City governing the treatment of sewage at the Hyperion System, and as such agreement may be amended, modified or restated and shall include any agreement between such parties governing the treatment of sewage at the Hyperion System that replaces or supersedes the existing Hyperion Agreement. Hyperion System. The term "Hyperion System" means the Hyperion Treatment Plant and appurtenant facilities located at 12000 Vista del Mar, Los Angeles, California, together with any wastewater collection, treatment and disposal facilities related to the Hyperion System, and in which facilities the City has an interest pursuant to the Hyperion Agreement, and any alteration, expansion, improvement, relocation, replacement or reconstruction thereof. Indenture. The term "Indenture" means the Indenture of Trust, dated as of May 1, 2012, by and between the City and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture. Independent Certified Public Accountant. The term "Independent Certified Public Accountant' means any firm of certified public accountants appointed by the City, each of whom is independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants. Independent Financial Consultant. The term "Independent Financial Consultant' means a financial consultant or firm of such consultants appointed by the City, which may, for purposes of the certification described in the definition of "Paired Obligations" be an interest rate swap adviser, and who, or each of whom: (1) is in fact independent and not under domination of the City; (2) does not have any substantial interest, direct or indirect, with the City; and (3) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports thereto. Information Services. The term "Information Services" means the Municipal Securities Rulemaking Board; or, in accordance with then - current guidelines of the Securities and Exchange 6 DOCSO C/ 1551424v4/200119 -0007 Commission, such other services providing information with respect to called bonds as the City may specify in a certificate to the Trustee and as the Trustee may select. Initial Rating Requirement. The term "Initial Rating Requirement" means the rating requirement described in Section 11.16(a). Interest Account. The term "Interest Account" means the account by that name in the Payment Fund established pursuant to Section 5.02. Interest Payment Date. The term "Interest Payment Date" means August 1, 2012 and each February 1 and August 1 thereafter. Investment Agreement. The term "Investment Agreement" means an investment agreement by a provider, supported by appropriate opinions of counsel, provided that, without limiting the foregoing, any such Investment Agreement shall: (i) be from a provider rated by S &P or Moody's at "A -" or "A3 ", respectively, or above; (ii) require the City to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to the provider by S &P or Moody's falls to "BBB +" or "Baal ", respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the 2012A Bonds, together with such amendments as may be approved by the City and the Trustee from time to time. Letter of Representations. The term "Letter of Representations" means the letter of the City and the Trustee delivered to and accepted by the Depository on or prior to delivery of the 2012A Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the City and the Trustee delivered to and accepted by the Depository. Local S, s e . The term "Local System" means all the Wastewater System except the City's interest in the Hyperion System. Minimum Rating Requirement. The term "Minimum Rating Requirement" means the rating requirement described in Section 11.16(b). Moody's. The term " Moody's" means Moody's Investors Service, Inc. or any successor thereto. Net Proceeds. The tern "Net Proceeds" means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds. Net Revenues. The term "Net Revenues" means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. When held by the Trustee in any funds or accounts established hereunder, Net Revenues shall include all interest or gain derived from the investment of amounts in any of such funds or accounts. 1993 Bonds. The term "1993 Bonds" means the City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project) 1993 Refunding Series. 7 DOCSOC/ 1551424v4/200119 -0007 Nominee. The term "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.08 hereof. Office. The term "Office" means with respect to the Trustee, the principal corporate trust office of the Trustee in Los Angeles, California, or such other or additional offices as may be specified in writing by the Trustee to the City, except that with respect to presentation of 2012A Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Operation and Maintenance Costs. The term "Operation and Maintenance Costs" means the reasonable and necessary costs of operating and maintaining the Wastewater System, calculated in accordance with Generally Accepted Accounting Principles, including (among other things) salaries and wages, fees for services, costs of materials, supplies and fuel, reasonable expenses of management, legal fees, accounting fees, repairs and other expenses necessary to maintain and preserve the Wastewater System in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, and the payment of pension charges and proportionate payments to such compensation and other insurance or outside reserve funds as the City may establish or require with respect to employees of the City, which costs shall include operation and maintenance costs attributable to the Hyperion System and payable by the City pursuant to the Hyperion Agreement, but excluding in all cases (i) depreciation and obsolescence charges or reserves therefor, (ii) amortization of intangibles or other bookkeeping entries of a similar nature, (iii) costs of capital additions, replacements, betterments, extensions or improvements to the Wastewater System (including such capital costs attributable to the Hyperion System and payable by the City pursuant to the Hyperion Agreement), which under Generally Accepted Accounting Principles are chargeable to a capital account or to a reserve for depreciation, and (iv) charges for the payment of principal and interest on any revenue bonds or other indebtedness heretofore or hereafter issued for Enterprise purposes. Opinion of Counsel. The term "Opinion of Counsel" means a written opinion of counsel (including but not limited to counsel to the City) selected by the City. If and to the extent required by the provisions of Section 1.02, each Opinion of Counsel shall include the statements provided for in Section 1.02. Outstanding. The term "Outstanding," when used as of any particular time with reference to 2012A Bonds, means (subject to the provisions of Section 11.09) all 2012A Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (i) 2012A Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2012A Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including 2012A Bonds (or portions thereof) described in Section 11.09; and (iii) 2012A Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2012A Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. Owner; 2012A Bond Owner. The term "Owner" or "2012A Bond Owner," whenever used herein with respect to a 2012A Bond, means the person in whose name the ownership of such 2012A Bond is registered on the Registration Books. Paired Obligation Provider. The term "Paired Obligation Provider" means a party to a Paired Obligation other than the City. 8 DOCSOC/ 1551424v4/200119 -0007 Paired Obligations. The tern "Paired Obligations" means any Bond or Contract (or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the City for the term of such Bond or Contract, as certified by an Independent Financial Consultant in writing, and which comply with the provisions of Section 11.16 hereof. Participants. The term "Participants" means those broker- dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository. Payment Fund. The term "Payment Fund" means the fund by that name established pursuant to Section 5.02. Permitted Investments. The term "Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein. The Trustee is entitled to rely upon the written investment direction of the City as a representation that such investment constitutes a legal investment under the laws of the State. (a) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (2) below); (2) direct 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, including REFCORP Interest STRIPS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America; and (b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including the Export - Import Bank; Farmers Home Administration; General Services Administration; U.S. Maritime Administration; Government National Mortgage Association (GNMA); U.S. Department of Housing & Urban Development (PHA's); and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated at least "AA-" or "Aa3" by the applicable Rating Agency issued by Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker's acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of "A -1" or "A -1 +" by S &P and "P -1" by Moody's and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase in the single highest classification, "A- W' by S &P and "P -1" by Moody's and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated "AAm ", "AAAm" or "AAAm -G" or better by S &P, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services; (6) pre- refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or DOCSOC/ l 551424v4/200119 -0007 local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S &P and Moody's; (7) any Investment Agreement; and (8) the Local Agency Investment Fund. Principal Account. The term "Principal Account" means the account by that name in the Payment Fund established pursuant to Section 5.02. Rating. The term "Rating" means any currently effective rating on the 2012A Bonds issued by a Rating Agency. Rating Agencies. The term "Rating Agencies" means [S &P and Moody's]. Rebate Fund. The term "Rebate Fund" means the fund by that name established pursuant to Section 5.07. Record Date. The term "Record Date" means, with respect to any Interest Payment Date, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day. Registration Books. The term "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2012A Bonds pursuant to Section 2.06. Responsible Officer of the Trustee. The term "Responsible Officer of the Trustee" means any officer within the corporate trust division (or any successor group or department of the Trustee) including any Mayor Pro Tempore, assistant Mayor Pro Tempore, assistant City Clerk or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, with responsibility for the administration of the Indenture. Revenue Fund. The term "Revenue Fund" means the fund by that name continued pursuant to Section 5.01(b). Revenues. The term "Revenues" means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Wastewater System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the City from the collection, treatment and discharge of wastewater or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Wastewater System, plus (2) the earnings on and income derived from the investment of the amounts described in clause (1) hereof and the general unrestricted funds of the Wastewater System, but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the City, and excluding any proceeds of taxes restricted by law to be used by the City to pay bonds hereafter issued. 10 DOCSOC/ 1551424v4/200119 -0007 S &P. The term "S &P" means Standard & Poor's Corporation, a Division of the McGraw -Hill Companies, Inc., or any successor thereto. Securities Depositories. The term "Securities Depositories" means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and /or such other securities depositories as the City may designate in a Written Request of the City deliver to the Trustee. Senior Debt Service. The term "Senior Debt Service" means Debt Service as such term is defined in the Senior Indenture. Senior Indenture. The term "Senior Indenture" means the Indenture dated as of November 1, 1993 and as further supplemented by a Second Supplemental Indenture of Trust dated as of October 1, 2005, by and between the City and U.S. Bank National Association, as successor trustee. State. The term "State" means the State of California. Supplemental Indenture. The term "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the City and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. Tax Certificate. The term "Tax Certificate" means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2012A Bonds issued by the City on the date of issuance of the 2012A Bonds, including any and all exhibits attached thereto. Trustee. The term "Trustee" means U.S. Bank National Association, a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee hereunder as provided in Section 8.01. 2005 Bonds. The term "2005 Bonds" means the City of Santa Monica Wastewater Enterprise Refunding Bonds (Hyperion Project) 2005 Series A. Valuation Date. "Valuation Date" means the fifth Business Day preceding the date of redemption. Value. The term "Value," which shall be determined as of the end of each month, means that the value of any investments shall be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus accrued interest. 11 DOCSO C/ 1551424v4/200119 -0007 (c) As to any investment not specified above: market value, or, if the market value is not ascertainable by the City or the Trustee, at cost. Wastewater Service. The term "Wastewater Service" means the wastewater collection, treatment and disposal service made available or provided by the Wastewater System. Wastewater System. The term "Wastewater System" means the whole and each and every part of the wastewater system of the City, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such wastewater system or any part thereof hereafter acquired or constructed, including the City's interest in the Hyperion System pursuant to the Hyperion Agreement. Written Consent of the City, Written Order of the City, Written Request of the City, Written Requisition of City. The terms "Written Consent of the City," "Written Order of the City," "Written Request of the City," and "Written Requisition of the City" mean, respectively, a written consent, order, request or requisition signed by or on behalf of the City by the Mayor or City Manager or its Director of Finance or by the City Clerk or by any two persons (whether or not members of the Board of Directors) who are specifically authorized by resolution of the City to sign or execute such a document on its behalf. Section 1.02. Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for in Section 11.05 hereof, with respect to compliance with any provision hereof shall include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the City may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a certificate or opinion of or representation by an officer of the City, unless such counsel or Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person's certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively. 12 DOC SOC/ 1551424v4/200119 -0007 Section 1.03. hrterpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of the Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to the Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE lI THE 2012A BONDS Section 2.01. Authorization of 2012A Bonds. The City hereby authorizes the issuance hereunder from time to time of the 2012A Bonds, which shall constitute special obligations of the City, for the purpose of refunding the 2010A Certificates and a portion of the outstanding 1993 Bonds. The 2012A Bonds are hereby designated the "City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A" in the aggregate principal amount of $ . The Indenture constitutes a continuing agreement with the Owners from time to time of the 2012A Bonds to secure the full payment of the principal of and interest and premium (if any) on all the 2012A Bonds, subject to the covenants, provisions and conditions herein contained. Section 2.02. Terms of the 2012A Bonds. The 2012A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. (a) The 2012A Bonds shall mature on February 1 in each of the years and in the amounts set forth below and shall bear interest on each Interest Payment Date at the rates set forth below: Maturity Date (February 1) Principal Amount 13 DOCSOC/ 1551424v4/200119 -0007 Interest Rate Interest on the 2012A Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner's option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date. Principal of and premium (if any) on any 2012A Bond shall be paid by check of the Trustee upon presentation and surrender thereof at maturity, at the Office of the Trustee. Both the principal of and interest on the 2012A Bonds shall be payable in lawful money of the United States of America. Each 2012A Bond shall be dated the date of initial delivery, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before January 15, 2012, in which event it shall bear interest from the date of initial delivery; provided, however, that if, as of the date of authentication of any 2012A Bond, interest thereon is in default, such 2012A Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the 2012A Bonds shall be calculated on the basis of a 360 day year composed of twelve 30 day months. Section 2.03. Transfer of 2012A Bonds. Any 2012A Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2012A Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any 2012A Bond or 2012A Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new 2012A Bond or 2012A Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee shall require the 2012A Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. Section 2.04. Exchange of 2012A Bonds. 2012A Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee shall require the 2012A Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. 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 2012A Bonds, which shall upon reasonable notice and at reasonable times be open to inspection during regular business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be 14 DOCSOC/ 1551424v4/200119 -0007 registered or transferred, on such records, the ownership of the 2012A Bonds as hereinbefore provided. The person in whose name any 2012A Bond shall be registered shall be deemed the Owner thereof for all purposes hereof, and payment of or on account of the interest on and principal by such 2012A Bonds shall be made only to or upon the order in writing of such registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon such 2012A Bond to the extent of the sum or sums so paid. Section 2.06. Form and Execution of 2012A Bonds. The 2012A Bonds shall be in substantially the form set forth in Exhibit A hereto. The 2012A Bonds shall be executed in the name and on behalf of the City with the manual or facsimile signature of its Mayor. The 2012A Bonds may carry a seal, and such seal may be in the form of a facsimile of the City's seal and may be reproduced, imprinted or impressed on the 2012A Bonds. The 2012A Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the 2012A Bonds shall cease to be such officer or officers of the City before the 2012A Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City, such 2012A Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any 2012A Bonds may be signed and attested on behalf of the City by such persons as at the actual date of execution of such 2012A Bonds shall be the proper officers of the City although at the nominal date of such 2012A Bonds any such person shall not have been such officer of the City. Only such of the 2012A Bonds as shall bear thereon a certificate of authentication substantially in the form 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 the Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the 2012A Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture. Section 2.07. 2012A Bonds Mutilated, Lost, Destroyed or Stolen. If any 2012A Bond shall become mutilated, the City, at the expense of the Owner of said 2012A Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2012A Bond of like tenor, series and authorized denomination in exchange and substitution for the 2012A Bonds so mutilated, but only upon surrender to the Trustee of the 2012A Bond so mutilated. Every mutilated 2012A Bond so surrendered to the Trustee shall be canceled by it and upon the Written Request of the City delivered to, or upon the order of, the City. If any 2012A Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the City, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2012A Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2012A Bond so lost, destroyed or stolen (or if any such 2012A Bond shall have matured or shall be about to mature, instead of issuing a substitute 2012A Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2012A Bond issued under this Section and of the expenses which may be incurred by the City and the Trustee in the premises. Any 2012A Bond issued under the provisions of this Section in lieu of any 2012A Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the 2012A Bond so alleged to be lost, 15 DOCSOC/1551424v4/200119-0007 destroyed, or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other 2012A Bonds secured by the Indenture. Notwithstanding any other provision of this Section, in lieu of delivering a new 2012A Bond for a 2012A Bond which has been mutilated, lost, destroyed or stolen and which has matured, the Trustee may make payment of such 2012A Bond upon receipt of indemnity satisfactory to the Trustee. Section 2.08. Book Entry System. (a) Election of Book Entry System. Prior to the issuance of the 2012A Bonds, the City may provide that such 2012A Bonds shall be initially issued as book entry 2012A Bonds. If the City shall elect to deliver any 2012A Bonds in book entry form, then the City shall cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2012A Bonds in an authorized denomination corresponding to that total principal amount of the 2012A Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2012A Bond shall be registered in the 2012A Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2012A Bonds, or any portion thereof may not thereafter be transferred except as provided in Section 2.08(e). With respect to book entry 2012A Bonds, the City and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2012A Bonds. Without limiting the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2012A Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2012A Bond Registration Books, of any notice with respect to book entry 2012A Bonds; or (iii) the payment by the Depository or any Participant or any other person, of any amount of principal of or interest on book entry 2012A Bonds. The City and the Trustee may treat and consider the person in whose name each book entry 2012A Bond is registered in the 2012A Bond Registration Books as the absolute Owner of such book entry 2012A Bond for the purpose of payment of principal of and interest on such 2012A Bond, for the purpose of giving notices with respect to such 2012A Bond, for the purpose of registering transfers with respect to such 2012A Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the 2012A Bonds only to or upon the order of the respective Owner, as shown in the 2012A Bond Registration Books, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of and interest on the 2012A Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2012A Bond Registration Books, shall receive a 2012A Bond evidencing the obligation to make payments of principal of and interest on the 2012A Bonds. Upon delivery by the Depository to the City and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in the Indenture shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book entry 2012A Bonds for the Depository's book entry system, the City and the Trustee shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2012A Bonds other than the Owners, as shown on the 2012A Bond Registration Books. By executing a Letter of Representations, the 16 DOCSOC/ 1551424v4/200119 -0007 Trustee shall agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the City and the Trustee shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2012A Bonds for the Depository's book entry program. (c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2012A Bonds; or (ii) the City determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2012A Bonds or the City, then the City will discontinue the book entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate, fully registered 2012A Bond for each of the maturity dates of such book entry 2012A Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e) hereof. If the City fails to identify, another qualified securities depository to replace the Depository, then the 2012A Bonds shall no longer be restricted to being registered in such 2012A Bond Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such 2012A Bonds shall designate, in accordance with the provisions of Sections 2.03 and 2.04 hereof. (d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2012A Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of and interest on such 2012A Bond and all notices with respect to such 2012A Bond shall be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (e) Transfer of 2012A Bonds to Substitute Depository. (i) The 2012A Bonds shall be initially issued as provided in Section 2.01 hereof. Registered ownership of such 2012A Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.08(e) ( "Substitute Depository"); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. 17 DOCSOC/ 1 551424x4/200119 -0007 (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2012A Bonds by the Trustee, together with a Written Request of the City to the Trustee designating the Substitute Depository, a single new 2012A Bond, which the City shall prepare or cause to be prepared, shall be issued for each maturity of 2012A Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the City. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2012A Bonds by the Trustee, together with a Written Request of the City to the Trustee, new 2012A Bonds, which the City shall prepare or cause to be prepared, shall be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the City, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be required to deliver such new 2012A Bonds within a period of less than sixty (60) days from the date of receipt of such Written Request from the City. (iii) In the case of a partial redemption or an advance refunding of any 2012A Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such 2012A Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository's failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2012A Bonds shall be controlling. (iv) The City and the Trustee shall be entitled to treat the person in whose name any 2012A Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2012A Bonds. Neither the City nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other parry, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2012A Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2012A Bonds. ARTICLE III ISSUANCE OF 2012A BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2012A Bonds. At any time after the execution of the Indenture, the City may execute and the Trustee shall authenticate and, upon Written Request of the City, deliver the 2012A Bonds in the aggregate principal amount of $ Section 3.02. Application of Proceeds of the 2012A Bonds and Certain Other Moneys. The proceeds received from the sale of the 2012A Bonds and certain other moneys, other than the amount of $ , which shall be transferred directly to the Escrow Agent for deposit in the escrow fund created pursuant to the Escrow Agreement, shall be deposited with the Trustee, who shall deposit the sum of $ into the Costs of Issuance Fund. The Trustee may establish a fund or account in its records to record and facilitate such deposits and transfer. Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the "Costs of Issuance Fund." The 18 DOCSOC/ 1551424v4/200119 -0007 moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance upon submission of Requisitions of the City stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred, that such payment is proper charge against said fund and that payment for such charge has not previously been made. On the six month anniversary of the issuance of the 2012A Bonds, or upon the earlier Written Request of the City, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Interest Account and the Costs of Issuance Fund shall be closed. Investment earnings on amounts on deposit in the Costs of Issuance Fund shall be applied in accordance with Section 5.07 hereof. Section 3.04. Validity of 2012A Bonds. The validity of the authorization and issuance of the 2012A Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the City or the Trustee with respect to any other agreement. The recital contained in the 2012A Bonds that the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of the validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION OF 2012A BONDS Section 4.01. No Redemption. The 2012A Bonds are not subject to redemption prior to their respective stated maturities. ARTICLE V REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund. (a) Subject to the prior pledge and lien in favor of the 2005 Bonds now or hereafter in existence, all of the Revenues, all amounts held in the Revenue Fund described in subsection. (b) below and any other amounts (including proceeds of the sale of the 2012A Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) are hereby irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2012A Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues shall not be used for any other purpose while the 2012A Bonds remain Outstanding; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted herein. (b) Subject to the prior pledge and lien in favor of the 2005 Bonds now or hereafter in existence, said pledge, together with the pledge created by all other Contracts and Bonds, shall constitute a first lien on and security interest on Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted herein, the Revenue Fund and other funds and accounts created hereunder for the payment of the principal of and interest, and the premium, if any, on the 2012A Bonds and all Contracts and Debt Service on Bonds in accordance with the terms hereof, and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and shall be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice hereof. 19 DOCSOC/ 1551424v4/200119 -0007 (c) In order to carry out and effectuate the pledge and lien contained herein, the City agrees and covenants that all Revenues shall be received by the City in trust hereunder and shall be deposited when and as received in a special fund designated as the "Revenue Fund," which fund is hereby continued and which fund the City agrees and covenants to maintain and to hold separate and apart from other funds so long as the 2012A Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund shall be used and applied by the City as provided herein. All moneys in the Revenue Fund shall be .held in trust and shall be applied, used and withdrawn for the purposes set forth in this Section. The City shall, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall be used to make payments with respect to the Senior Debt Service and such other payments as required by the Senior Indenture, and thereafter be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority: (i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the City shall, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund the payments of interest and principal on the 2012A Bonds due and payable on such Interest Payment Date. The City shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. On or before each Interest Payment Date the City shall, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the Trustee for deposit in the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto; provided, however, that the City may provide for the Reserve Requirement with respect to the Reserve Fund by means other than cash and Permitted Investments pursuant to Section 5.03. (iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the City reasonably expects such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (b)(i) or (b)(ii) may be expended by the City at any time for any purpose permitted by law. (iv) Investments. All moneys held by the City in the Revenue Fund shall be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such fund, except as otherwise provided herein. Section 5.02. Allocation of Revenues. There is hereby established with the Trustee the Payment Fund which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2012A Bonds remain unpaid. Except as directed herein, all payments of interest and principal on the 2012A Bonds received by the 20 D OCSOC/ 1551424v4/200119-0007 Trustee pursuant to Section 5.01(b) shall be promptly deposited by the Trustee upon receipt thereof into the Payment Fund. All payments of interest and principal on the 2012A Bonds deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an Interest Account and a Principal Account within the Payment Fund. The Trustee shall transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Not later than the Business Day preceding each Interest Payment Date, the Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in. the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2012A Bonds then Outstanding. No deposit need be made into the Interest Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due and payable on such date on all 2012A Bonds then Outstanding. (b) Not later than the Business Day preceding each date on which the principal of the 2012A Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2012A Bonds coming due and payable on such date. No deposit need be made into the Principal Account so long as there shall be in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2012A Bonds then Outstanding. Section 5.03. [Reserved.] Section 5.04. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2012A Bonds as it shall become due and payable (including accrued interest on any 2012A Bonds purchased or accelerated prior to maturity pursuant to the Indenture). Section 5.05. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the 2012A Bonds at maturity, purchase or acceleration. Section 5.06. [Reserved] Section 5.07. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments. Such investments shall be directed by the City pursuant to a Written Request of the City filed with the Trustee at least two (2) Business Days in advance of the making of such investments (which directions shall be promptly confirmed to the Trustee in writing). In the absence of any such directions from the City, the Trustee shall invest any such moneys in Permitted Investments described in clause (b)(5) of the definition thereof, provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a written direction from the City specifying a specific money market fund and, if no such written direction from the City is so received, the Trustee shall hold such moneys 21 DO CSOC/1551424v4/200119 -0007 uninvested. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments hereunder, the Trustee may commingle funds (other than the Rebate Fund) held by it hereunder upon the Written Request of the City. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to this Section 5.07. The City acknowledges that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The City shall invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate. For investment purposes, the Trustee may commingle the funds and accounts established hereunder, but shall account for each separately. In making any valuations of investments hereunder, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the Trustee accounting system. Section 5.08. Rebate Fund. (a) Establishment. The Trustee shall establish a fund for the 2012A Bonds designated the "Rebate Fund." Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012A Bonds will not be adversely affected, the City shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2012A Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the City delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012A Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee: (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the City; and (ii) shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate; and (iii) may rely conclusively on the City's calculations and determinations and certifications relating to rebate matters; and (iv) shall have no responsibility to independently make any calculations or determinations or to review the City's calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the City shall calculate or cause to be calculated the 22 DOCSOC/ 1551424v4/200119 -0007 amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148 -3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "I V2% Penalty ") has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148 -1(b) of the Treasury Regulations (the "Rebatable Arbitrage "). The City shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the City in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Payment Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the City, to the United States Treasury, out of amounts in the Rebate Account: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2012A Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148 -3 of the Treasury Regulations. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038 -T (prepared by the City), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2012A Bonds and the payments described in subsection (a) above being made may be withdrawn by the City and utilized in any manner by the City. (e) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the 2012A Bonds. 23 DOCSOC/1551424v4/200119 -0007 Section 5.09. Application of Funds and Accounts When No 2012A Bonds are Outstanding. On the date on which all 2012A Bonds shall be retired hereunder or provision made therefor pursuant to Article X and after payment of all amounts due the Trustee hereunder, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture shall be withdrawn by the Trustee and paid to the City for use by the City at any time for any purpose permitted by law. ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment. The City shall punctually pay or cause to be paid the principal and interest to become due in respect of all of the 2012A Bonds, in strict conformity with the terms of the 2012A Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture. Section 6.02. Extension of Payment of 2012A Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the 2012A Bonds or the time of payment of any claims for interest by the purchase of such 2012A Bonds or by any other arrangement, and in case the maturity of any of the 2012A Bonds or the time of payment of any such claims for interest shall be extended, such 2012A Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full for the principal of all of the 2012A Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding 2012A Bonds, and such issuance shall not be deemed to constitute an extension of maturity of 2012A Bonds. Section 6.03. Against Encumbrances. The City will not make any pledge of or place any lien on Revenues or the moneys in the Revenue Fund except as provided herein. The City may at any time, or from time to time, execute Contracts or issue Bonds as permitted herein. The City may also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of lien on Revenues on any moneys in the Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein. Section 6.04. Power to Issue 2012A Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the 2012A Bonds and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2012A Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the 2012A Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Section 6.05. Accounting Records and Financial Statements. (a) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which 24 DOCSOC/1551424v4/200119 -0007 complete and accurate entries shall be made of all transactions made by it relating to the proceeds of 2012A Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of record and account shall be available for inspection by the City upon reasonable prior notice during business hours and under reasonable circumstances. (b) The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Wastewater System, which records shall be available for inspection by the Trustee (which shall have no duty to inspect such records) at reasonable hours and under reasonable conditions. (c) The City will prepare and file with the Trustee annually within two hundred seventy (270) days of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2012) financial statements of the City for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant's Report thereon. The Trustee shall have no duty to review such financial statements. Section 6.06. Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2012A Bonds will not be adversely affected for federal income tax purposes, the City covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2012A Bonds and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The City will take no action or refrain from taking any action or make any use of the proceeds of the 2O12A Bonds or of any other moneys or property which would cause the 2012A Bonds to be "private activity bonds" within the meaning of Section 141 of the Code; (b) Arbitrage. The City will make no use of the proceeds of the 2012A Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2012A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code; (c) Federal Guarantee. The City will make no use of the proceeds of the 2012A Bonds or take or omit to take any action that would cause the 2012A Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2O12A Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The City will make no use of the proceeds of the 2012A Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2012A Bonds to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(8) of the Code to maintain the exclusion from gross income of interest on the 2O12A Bonds for federal income tax purposes; and 25 DOCS OC/ 1551424v4/200119 -0007 (f) Miscellaneous. The City will take no action or refrain fiom taking any action inconsistent with its expectations stated in the Tax Certificate executed by the City in connection with the issuance of the 2012A Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the City from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2012A Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation. Section 6.07. Waiver of Laws. The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Indenture or in the 2012A Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law. Section 6.08. Further Assurances. The City will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2012A Bonds of the rights and benefits provided in the Indenture. Section 6.09. Budgets. On or prior to the fifteenth day of each Fiscal Year, the City shall certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2012A Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2012A Bonds due rider the Indenture, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2012A Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the City. Section 6.10. Observance of Laws and Regulations. To the extent necessary to assure its performance hereunder, the City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on the City by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Section 6.11. Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay principal of or interest on the 2012A Bonds; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Wastewater System, to the extent that the City is a party thereto. Section 6.12. Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee or any 2012A Bond Owner, from time to time take such action as may be necessary or DOCSOC/1551424v4/200119 -0007 proper to remedy or cure any defect in or cloud upon the title to the Wastewater System or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its employees, officers and directors), the Trustee and every 2012A Bond Owner harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The City shall defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2012A Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2012A Bonds or involving the rights of the Trustee or any 2012A Bond Owner under the Indenture; provided that the Trustee or any 2012A Bond Owner at such party's election may appear in and defend any such suit, action or proceeding. The City shall indemnify and hold harmless the Trustee and the 2012A Bond Owners against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the 2012A Bond Owners against any attorneys' fees or other expenses which any of them may incur in connection with any litigation (including pre - litigation activities) to which any of them may become a party by reason of ownership of 2012A Bonds. The City shall promptly reimburse any 2012A Bond Owner in the full amount of any attorneys' fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party's rights under the Indenture or the 2012A Bonds, provided that such litigation shall be concluded favorably to such party's contentions therein. Section 6.13. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Certificate to be executed and delivered by the City in connection with the issuance of the 2012A Bonds. Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section. For purposes of this Section, "Beneficial Owner" means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2012A Bonds (including persons holding 2012A Bonds through nominees, depositories or other intermediaries). Section 6.14. Additional Contracts and Bonds. The City may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided: (a) The Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the Board of Directors of the City of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, shall have produced a sum equal to at least one hundred twenty percent (120 %) of the Debt Service and Senior Debt Service for such Fiscal Year; and (b) The Net Revenues for the most recent audited Fiscal Year preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the City of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give 27 DOCSOC/1551424v4/200119 -0007 effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Wastewater Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, shall have produced a sum equal to at least one hundred twenty percent (120 %) of the Debt Service and Senior Debt Service for such Fiscal Year plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year assuming such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year. Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased more than 5% in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. Additionally, notwithstanding the foregoing, Bonds or Contracts may be issued to refund the outstanding 2005 Bonds if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased more than 5% over Senior Debt Services plus Debt Service in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. Section 6.15. Against Sale or Other Disposition of Property. The City will not enter into any agreement or lease which impairs the operation of the Wastewater System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2012A Bonds, or which would otherwise impair the operation of the Wastewater System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Wastewater System, or any material or equipment which has become worn out, may be sold if such sale will not impair the ability of the City to pay the principal of and interest on the 2012A Bonds and if the proceeds of such sale are deposited in the Revenue Fund. Nothing herein shall restrict the ability of the City to sell any portion of the Wastewater System if such portion is immediately repurchased by the City and if such arrangement cannot by its terms result in the purchaser of such portion of the Wastewater System exercising any remedy which would deprive the City of or otherwise interfere with its right to own and operate such portion of the Wastewater System. Section 6.16. Against Competitive Facilities. To the extent that it can so legally obligate itself, the City covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, City or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the City any wastewater system competitive with the Wastewater System. Section 6.17. Maintenance and Operation of the Local S sue. The City will maintain and preserve the Local System in good repair and working order at all times and will operate the Local System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable. Section 6.18. Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the W DOCSOC/1551424v4/200119 -0007 principal of or interest on the 2012A Bonds or to the Owners prior or superior to the lien under the Indenture. Section 6.19. Insurance. (a) The City will procure and maintain or cause to be procured and maintained insurance on the Wastewater System with responsible insurers in such amounts and against such risks (including damage to or destruction of the Wastewater System) as are usually covered in connection with facilities similar to the Wastewater System so long as, such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Wastewater System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Wastewater System. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Wastewater System shall be fiee and clear of all claims and liens. (b) The City will procure and maintain such other insurance as it shall deem advisable or necessary to protect its interests and the interests of the 2012A Bond Owners, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with municipal wastewater systems similar to the Wastewater System. (c) Any insurance required to be maintained by paragraph (a) above and, if the City determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may be maintained under a self - insurance program so long as such self - insurance is maintained in the amounts and manner usually maintained in connection with wastewater systems similar to the Wastewater System and is, in the opinion of an accredited actuary, actuarially sound. (d) The City agrees that, so long as the 2012A Bonds are Outstanding, it will not elect pursuant to Sections 6.06 or 6.12(a)(1) of the Senior Indenture to redeem 2005 Bonds from proceeds of any insurance or condemnation award. Section 6.20. Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Wastewater System, or any part thereof or upon the Revenues when the same shall become due. The City will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Wastewater System, or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. Section 6.21. Amount of Rates and Charges. To the fullest extent permitted by law, the City shall fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Wastewater Service which are reasonably expected to be at least sufficient to yield during each Fiscal Year Net Revenues equal to one hundred twenty percent (120 %) of the Debt Service and Senior Debt Service for such Fiscal Year. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates 29 DOCSOC/1551424v4/200119-0007 and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this Section. Section 6.22. Collection of Rates and Charges. The City will have in effect at all times by- laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Wastewater Service and providing for the billing thereof and for a due date and a delinquency date for each bill. Section 6.23. Eminent Domain Proceeds. If all or any part of the Wastewater System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied in accordance with the Senior Indenture, so long as the 2005 Bonds remain outstanding thereunder, and any remaining Net Proceeds shall be applied as follows: If: (1) the City files with the Trustee a certificate showing: (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the Wastewater System proposed to be acquired and constructed by the City from such Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations hereunder will not be substantially impaired (which determination shall be final and conclusive), then the City shall promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds shall be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the City for such purpose shall be deposited in the Revenue Fund. Section 6.24. Hyperion Agreement. The City will faithfully observe and perform all of its covenants, and the conditions and requirements applicable to it, under the Hyperion Agreement and will not suffer or permit any default to occur thereunder. The City will take such action as is reasonably necessary to ensure that The City of Los Angeles observes and performs all of its covenants, and the conditions and requirements applicable to it, under the Hyperion Agreement, if and to the extent that the non - performance or non - observance thereof would materially adversely affect the Owners. The City shall not enter into or consent or agree to any amendment, modification, restatement, replacement or superseding of the Hyperion Agreement unless and until the City Council of the City finds and determines that such amendment, modification, restatement, replacement or superseding will not materially impair the security for the 2012A Bonds. Section 6.25. Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the City to pay principal of and interest on the 2012A Bonds. Section 6.26. No Additional Senior Obligation . The City hereby covenants and agrees that it shall not issue or incur any additional obligations pursuant to the Master Agreement payable from Revenues on a basis senior to the pledge and lien created hereunder. 30 DOCSOC/1551424v4/200119 -0007 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF 2012A BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default hereunder: (a) Default by the City in the due and punctual payment of the principal of any 2012A Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same shall become due and payable, whether at maturity as therein expressed, by acceleration, or otherwise. (b) Default by the City in the due and punctual payment of any installment of interest on any 2012A Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same shall become due and payable. (c) Default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2012A Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the City by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2012A Bonds Outstanding, a majority in principal amount of such Bond outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the notice can be corrected, but not within such sixty (60) day period and corrective action is instituted by the City within such sixty (60) day period and diligently pursued in good faith until the default is corrected such default shall not be an Event of Default hereunder. (d) The City shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property. (e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms. Section 7.02. Remedies Upon Event of Default. If any Event of Default specified in Section 7.01(d) or (e) shall occur and be continuing, the Trustee shall, and for any other Event of Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in aggregate principal amount of the 2012A Bonds at the time Outstanding, shall, in each case, upon notice in writing to the City, declare the principal of all of the 2012A Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the 2012A Bonds contained to the contrary notwithstanding. 31 DOCSOC/ 1551424v4/200119-000 7 Nothing contained herein shall permit or require the Trustee to accelerate payments due under the Indenture if the City is not in default of its obligation hereunder. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the City shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2012A Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2012A Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, or shall deposit with the applicable trustee with respect to any Contract a sum sufficient to pay all the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or shall deposit with the applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2012A Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case the Trustee shall on behalf of the Owners of all of the 2012A Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. Section 7.03. Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues held or thereafter received by the Trustee and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) shall be applied in the following order: (i) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2012A Bonds, Contract or Bonds and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; (ii) To the payment of Operation and Maintenance Costs; (iii) To the payment of the 2005 Bonds in accordance with the terms of the Master Indenture; (iv) To the payment of the principal of and interest then due on the 2012A Bonds (upon presentation of the 2012A Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority: 32 DOCSOC /I 551424v4/200119 -0007 First: To the payment to the persons entitled thereto of all installments of interest then due on the 2012A Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any 2012A Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which shall have become due, whether at maturity or by acceleration, with interest on the overdue principal at the rate of eight percent (8 %) per annum, and, if the amount available shall not be sufficient to pay in full all the 2012A Bonds, all amounts due under such Contract or all the Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and Third: If there shall exist any remainder after the foregoing payments, such remainder shall be paid to the City. Section 7.04. Trustee to Represent 2012A Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the 2012A Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2012A Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2012A Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2012A Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2012A Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2012A Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2012A Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2012A Bonds, subject to the provisions of the Indenture. Section 7.05. 2012A Bond Owners' Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such 33 DOCSOC/ 1551424v4/200119 -0007 direction which in the opinion of the Trustee would be unjustly prejudicial to 2012A Bond Owners not parties to such direction. Section 7.06. Suit by Owners. No Owner of any 2012'A Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture with respect to such 2012A Bonds, unless: (a) such Owners shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than fifty percent (50 %) in aggregate principal amount of the 2012A Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of 2012A Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 2012A Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2012A Bonds, or to enforce any right under the 2012A Bonds, the Indenture, or applicable law with respect to the 2012A Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding 2012A Bonds, subject to the provisions of the Indenture. Section 7.07. Absolute Obligation of the Citv. Nothing in this Section 7.07 or in any other provision of the Indenture or in the 2012A Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the 2012A Bonds to the respective Owners of the 2012A Bonds at their respective dates of maturity as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2012A Bonds. Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the 2012A Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.09. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2012A Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein. 34 DO C S OC/ 15514240/20 0119 -0001 ARTICLE VIII THE TRUSTEE Section 8.01. Duties. Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture and no implied covenants or duties shall be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the 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. (b) The City may remove the Trustee at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2012A Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall promptly appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the City and by giving the 2012A Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2012A Bond Owner (on behalf of himself and all other 2012A Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the City shall execute and deliver any and all instruments as may be reasonably required for more 35 DO C S O C/ 15 51424v4/20 0 1 1 9 -000 7 fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the City shall mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the 2012A Bonds and to the 2012A Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the City. (e) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least Seventy Five Million Dollars ($75,000,000), and subject to supervision or examination for federal or state authority. If such bank, banking 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 purpose of this subsection the combined capital and surplus of such trust company, banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, banking association or bank shall be eligible under subsection (e) of Section 8.01, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03. Liability of Trustee. (a) The recitals of facts herein and in the 2012A Bonds shall be taken as statements of the City, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2012A Bonds, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the 2012A Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the 2012A Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2012A Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2012A Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the 2012A Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. 36 D OCSOC/1 5 51424v4/200119-0007 (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for herein) in aggregate principal amount of the 2012A Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. (d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. (e) The Trustee shall not be deemed to have knowledge of any Default or Event of Default hereunder or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until a Responsible Officer of the Trustee shall have actual knowledge of such event or the Trustee shall have been notified in writing, in accordance with Section 11.07, of such event by the City or the Owners of not less than fifty percent (50 %) of the 2012A Bonds then Outstanding. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the City of any of the terms, conditions, covenants or agreements herein of any of the documents executed in connection with the 2012A Bonds, or as to the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee shall not be responsible for the validity, effectiveness or priority of any collateral given to or held by it. (f) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be. construed to impose a duty to exercise such power, right or remedy. (h) Whether or not herein expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII. (i) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2012A Bonds. 0) The immunities extended to the Trustee also extend to its directors, officers, employees and agents. (k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. 37 DOCSOC/ 1551424v4/200119 -0007 (1) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ( "unavoidable delay ") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Wastewater System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (m) The Trustee agrees to accept and act upon instructions or directions pursuant to the 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 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 City agrees 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. (n) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. (o) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it hereby at the request, order or direction of any of the Owners pursuant to the provisions hereof unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (p) The permissive right of the Trustee to do things enumerated herein shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. (q) The Trustee shall have no responsibility or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the 2012A Bonds. Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the DOCSOC/ 1551424v4/200119 -0007 opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the 2012A Bonds appearing in the Trustee's Registration Books as the absolute owners of the 2012A Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by the Indenture 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 Certificate, Request or Requisition of the City, and such Certificate, Request or Requisition shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture shall be retained in their respective possession and shall be subject at all reasonable times to the inspection of the City and any 2012A Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. Section 8.06. Compensation and Indemnification. The City shall pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture. The City shall indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or bad faith on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of this trust, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder. The rights of the Trustee and the obligations of the City under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge of the 2012A Bonds and the Indenture. ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted. (a) The Indenture and the rights and obligations of the City and of the Owners of the 2012A Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the City and the Trustee may enter into when the written consent of the Owners of a majority in aggregate principal amount of all 2012A Bonds then Outstanding, exclusive of 2012A Bonds disqualified as provided in Section 11.09 hereof, 39 DOCSOC/ 1551424v4/200119 -0007 shall have been filed with the Trustee. No such modification or amendment shall: (1) extend the fixed maturity of any 2012A Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each 2012A Bond so affected; or (2) reduce the aforesaid percentage of 2012A Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted herein, or deprive the Owners of the 2012A Bonds of the lien created by the Indenture on such Revenues and other assets except as permitted herein, without the consent of the Owners of all of the 2012A Bonds then Outstanding. It shall not be necessary for the consent of the 2012A Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2012A 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. (b) The Indenture and the rights and obligations of the City, the Trustee and the Owners of the 2012A Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any 2012A Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Outstanding 2012A Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2012A Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereunder in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2012A Bonds to remain excludable from gross income under the Code. (c) The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (a) or (b) of this Section which materially adversely affects the Trustee's own rights, duties or immunities under the Indenture or otherwise. ,m DOCSOC/ 1551424v4/200119 -0007 (d) Prior to the Trustee entering into any Supplemental Indenture hereunder, there shall be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2012A Bonds from federal income taxation and from state income taxation. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of 2012A Bonds Outstanding shall thereafter be determined, exercised and enforced thereunder 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 the Indenture for any and all purposes. Section 9.03. Endorsement of 2012A Bonds; Preparation of New 2012A Bonds. 2012A Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2012A Bonds Outstanding at the time of such execution and presentation of his or her 2012A Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such 2012A Bonds. If the Supplemental Indenture shall so provide, new 2012A Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2012A Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any 2012A Bond Owner, for 2012A Bonds then Outstanding, upon surrender for cancellation of such 2012A Bonds, in equal aggregate principal amount of the same maturity. Section 9.04. Amendment of Particular 2012A Bonds. The provisions of this Article shall not prevent any 2012A Bond Owner from accepting any amendment as to the particular 2012A Bonds held by him. ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. The 2012A Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City: (a) by paying or causing to be paid the principal of and interest on the 2012A Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all 2012A Bonds then Outstanding; or 41 DOCSO C/1 5 51424v4/200119-0007 (c) by delivering to the Trustee, for cancellation by it, all of the 2012A Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City, then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding that any 2012A Bonds shall not have been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment of 2012A Bonds not theretofore surrendered for such payment to the City. Section 10.02. Discharge of Liability on 2012A Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay any Outstanding 2012A Bonds (whether upon or prior to the maturity of such 2012A Bonds), then all liability of the City in respect of such 2012A Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of Section 10.04. The City may at any time surrender to the Trustee for cancellation by it any 2012A Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such 2012A Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 10.03. Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay any 2012A Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such 2012A Bonds and all unpaid interest thereon to maturity; or (b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity on the 2012A Bonds to be paid, as such principal and interest become due; provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the City) to apply such money to the payment of such principal and interest with respect to such 2012A Bonds; and (ii) the City shall have delivered to the Trustee an opinion of Bond Counsel addressed to the City and the Trustee to the effect that such 2012A Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant's or Independent Financial Consultant's opinion referred to above). 42 DOCSOC/ 1 551424v4/200119-0007 Section 10.04. Payment of 2012A Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2012A Bonds and remaining unclaimed for two (2) years after the principal of all of the 2012A Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the 2012A Bonds became due and payable, shall be repaid to the City free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of Owners of 2012A Bonds which have not yet been paid, 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 City as aforesaid, the Trustee shall at the written direction of the City (at the cost of the City) first mail to the Owners of 2012A Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2012A Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS Section 11.01. Liability of City Limited to Revenues. Notwithstanding anything in the Indenture or the 2012A Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the City shall not be required to advance any moneys derived from any source other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the 2012A Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but shall not be required to, advance for any of the purposes hereof any funds of the City which may be made available to it for such purposes. The obligation of the City to make pay interest and principal on the 2012A Bonds is a special obligation of the City payable solely from the Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof (other than the City) in contravention of any constitutional or statutory debt limitation or restriction. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights to Parties and 2012A Bond Owners. Nothing in the Indenture or in the 2012A Bonds expressed or implied is intended or shall be construed to give to any person other than the City, the Trustee and the Owners of the 2012A Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the City, the Trustee and the Owners of the 2012A Bonds. 43 DO CSOC/ 1551424v4/200119-0007 Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of 2012A Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any 2012A Bonds, the Trustee shall destroy such 2012A Bonds as may be allowed by law, and deliver a certificate of such destruction to the City. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2012A Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the 2012A Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable. Section 11.07. Notices. Any notice to or demand upon the City or the Trustee shall be deemed to have been sufficiently given or served for all purposes by being sent by facsimile or email or by being deposited, first class mail, postage prepaid, in a post office letter box, addressed, as the case may be, to the City at City of Santa Monica, City Hall, 1685 Main Street, Santa Monica, California 90401, Attention: City Manager (or such other address as may have been filed in writing by the City with the Trustee), or to the Trustee at U.S. Bank National Association, 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Corporate Trust Services, Reference: City of Santa Monica, Series 2012A. Notwithstanding the foregoing provisions of this Section 11.07, the Trustee shall not be deemed to have received, and shall not be liable for failing to act upon the contents of, any notice unless and until the Trustee actually receives such notice. Section 11.08. Evidence of Rights of 2012A Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2012A Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 2012A Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2012A Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the City if made in the manner provided in this Section. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, D OCSOC/ 1551424v4/200119 -0007 or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2012A Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2012A Bond shall bind every future Owner of the same 2012A Bond and the Owner of every 2012A Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon. Section 11.09. Disqualified 2012A Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2012A Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2012A Bonds which are known by the Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2012A Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2012A Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2012A 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 2012A Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2012A Bonds. 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. Upon request, the City shall certify to the Trustee those 2012A Bonds that are disqualified pursuant to this Section 11.09 and the Trustee may conclusively rely on such certificate. Section 11.10. Money Held for Particular 2012A Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2012A Bonds (or portions of 2012A Bonds in the case of registered 2012A Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2012A Bonds entitled thereto, subject, however, to the provisions of Section 10.04 hereof but without any liability for interest thereon. Section 11.11. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05(a) and for the protection of the security of the 2012A Bonds and the rights of every Owner thereof. Section 11.12. Waiver of Personal Liabilitv. No member, officer, agent, employee, consultant or attorney of the City shall be individually or personally liable for the payment of the principal of or premium or interest on the 2012A Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture. 45 DOCSOC/1551424v4/200119 -0007 Section 11.13. Execution in Several Counterparts. The Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the City and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. Section 11.14. CUSIP Numbers. Neither the Trustee nor the City shall be liable for any defect or inaccuracy in the CUSIP number that appears on any 2012A Bond. Section 11.15. Choice of Law. THE INDENTURE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. Section 11.16. Paired Obligation Provider Guidelines. For purposes of Sections 6.14 and 6.21, Paired Obligations shall comply with the following conditions: (a) A Paired Obligation Provider shall initially have a long -term rating of A- or better by S &P and A3 or better by Moody's. (b) So long as the long -term rating of the Paired Obligation Provider is not reduced below Baal by S &P or BBB by Moody's, the interest rate of such Paired Obligation shall be deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of Sections 6.14 and 6.21 and in determining the Reserve Requirement. In the event that a Paired Obligation Provider does not maintain the Minimum Rating Requirement and the City does not replace such Paired Obligation Provider with another Paired Obligation Provider which maintains the Initial Rating Requirement within ten (10) Business Days of notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement: (1) interest with respect to such Paired Obligations shall be computed for purposes of Sections 6.14 and 6.21 and for purposes of determining the Reserve Requirement without regard to payments to be received from the Paired Obligation Provider. :. DOCSOC/ 1551424v4/200119 -0007 IN WITNESS WHEREOF, the City has caused the Indenture to be signed in its name by its Mayor, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused the Indenture to be signed in its corporate name by its officers thereunto duly authorized, all as of the day and year first above written. CITY OF SANTA MONICA By: Its: Mayor U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer S -1 DOCSOC/ 1551424v4/200119 -0007 EXHIBIT A FORM OF 2012A BOND UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE BOND REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANYPERSONIS WRONGFUL INASMUCHAS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. $ UNITED STATES OF AMERICA STATE OF CALIFORNIA CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BOND, SERIES 2012A INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSIP % February 1, 20 2012 REGISTERED OWNER CEDE & CO. PRINCIPAL AMOUNT: DOLLARS The CITY OF SANTA MONICA, a chartered city and municipal corporation duly organized and existing under the laws of the State of California (the "City "), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the "Registered Owner "), on the Maturity Date specified above, the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless: (i) this Bond is authenticated after the fifteenth day of the calendar month preceding an interest payment date, whether or not such day is a business day, and on or before the following interest payment date, in which event it shall bear interest from such interest payment date; or (ii) this Bond is authenticated on or before July 15, 2012, in which event it shall bear interest from the Original Issue Date identified above; provided, however, that if as of the date of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond), at the Interest Rate per annum specified above, payable on August 1, 2012 and each February 1 and August I thereafter, calculated on the basis of a 360 day year composed of twelve 30 day months. Principal hereof is payable by check of the Trustee upon presentation and surrender hereof at the Office (as defined in the hereinafter described Indenture) of U.S. Bank National Association, as trustee (the "Trustee "). Interest hereon is payable by check of the Trustee sent by first class mail on the applicable interest A -1 D OCSOC/ 1551424v4/200119 -0007 payment date to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each interest payment date (except that in the case of a registered owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such registered owner's option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such registered owner prior to the fifteenth (15th) day of the month preceding such interest payment date). This Bond is not a debt of the State of California, or any of its political subdivisions (other than the City), and neither the State, nor any of its political subdivisions (other than the City), is liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the City other than the Net Revenues (as such term is defined in the Indenture of Trust, dated as of May 1, 2012 (the "Indenture "), by and between the City and the Trustee) and other honeys pledged therefor under the Indenture. The obligation of the City to make payments in accordance with the Indenture is a limited obligation of the City as set forth in the Indenture and the City shall have no liability or obligation in colmection herewith except with respect to such payments to be made pursuant to the Indenture. The Bonds do not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limitation or restriction. This Bond is one of a duly authorized issue of bonds of the City designated as the "City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A" (the "Bonds "), of an aggregate principal amount of Million Thousand Dollars ($�, all of like tenor and date (except for such variation, if any, as may be required to designate varying series, numbers or interest rates) and all issued pursuant to the provisions of Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including, but not limited to, Section 53583, and Chapter 2.36 of the Municipal Code of the City enacted pursuant to the Charter of the City, and pursuant to the Indenture and the resolution authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the City) and all supplements thereto for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Net Revenues, and the rights thereunder of the Owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the City hereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds have been issued by the City to refund certain obligations of the City, as more fully described in the Indenture. This Bond and the interest hereon and all other Bonds and the interest thereon (to the extent set forth in the Indenture) are special obligations of the City, secured by a pledge and lien on the Revenues and any other amounts on deposit in certain funds and accounts created under the Indenture, and payable from the Net Revenues. As and to the extent set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on the Bonds. The Indenture and the rights and obligations of the City and the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, exclusive of A -2 DOCSO C/ 1551424v4/200119 -0007 Bonds disqualified as set forth in the Indenture, in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall: (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, 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 affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the Bonds of the lien created by the Indenture on such Revenues and other assets, except as expressly provided in the Indenture, without the consent of the Owners of all of the Bonds then Outstanding. The Indenture and the rights and obligations of the City, of the Trustee and the Owners of the Bonds may also be modified or amended for certain purposes described more fully in the Indenture at any time in the manner, to the extent and upon the terms provided in the Indenture by a supplemental indenture, which the City and the Trustee may enter into without the consent of any Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such supplemental indenture will not materially adversely affect the interests of the Owners of the Outstanding Bonds. If an Event of Default, as defined in the Indenture, shall occur, the principal of all of the Bonds and the interest accrued thereon may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture. This Bond is transferable by the Registered Owner hereof, in person or by his or her duly authorized attorney in writing, at said office of the Trustee but only in the manner subject to the limitations and upon payment of the taxes and charges provided in the Indenture and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new Bond or Bonds of the same series, of authorized denomination or denominations, for the same aggregate principal amount of the same maturity will be issued to the transferee in exchange therefor. Bonds may be exchanged at said office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same series and same maturity, but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture. The City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Trustee shall not be affected by any notice to the contrary. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Indenture and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. A -3 DOCSOC/ 1551424v4/200119 -0007 This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the City has caused this Bond to be executed in its name and on its behalf with the manual or facsimile signature of its Mayor as of this day of 2012. CITY OF SANTA MONICA By: Its: Mayor [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION TO APPEAR ON BONDS] This is one of the Bonds described in the within - mentioned Indenture. Dated: , 2012 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Signatory A -4 DOC SO C/15514241,4/200119 -0007 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within registered 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: Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. A -5 DOC SOC/ I551424v4/200119 -0007 ATTACHMENT K CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate ") is executed and delivered by the City of Santa Monica (the "City ") in connection with the execution and delivery of $ Refunding Revenue Bonds, Series 2012A (the "Bonds "). The Bonds are being issued pursuant to an Indenture of Trust, dated as of May 1, 2012 (the "Indenture of Trust "), by and between the City and U.S. Bank National Association, as trustee (the "Trustee "). The City covenants and agrees as follows: 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. 2. Definitions. In addition to the definitions set forth in the Indenture of Trust, 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. The term "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term "Beneficial Owner" means 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. EMMA. The term "EMMA" means the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http: / /emma.msrb.org/. Fiscal Year. The term "Fiscal Year" means the one -year period ending on the last day of June of each year. Holder. The term "Holder" means a registered owner of the Bonds. Listed Events. The term "Listed Events" means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term "Official Statement" means the Official Statement of the City dated 2012 delivered in connection with the issuance of the Bonds. Participating Underwriter. The term "Participating Underwriter" means the original Underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term "Rule" means Rule 15c2 -12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 3. Provision of Annual Reports. DOCSOC/I552987v2/2001 19 -0007 (a) The City shall provide not later than 270 days following the end of its Fiscal Year (commencing with Fiscal Year 2012) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross - reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send to EMMA a notice in substantially the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Principal amount of the Bonds outstanding. (c) 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, the Annual Report shall contain the following: 1. Wastewater System revenues and expenses and debt service coverage provided by Revenues for the 2005 Bonds, the 2012A Bonds and any Additional Bonds for the previous fiscal year in the form of Table 11 in the Official Statement. 2. Information concerning any revision in the adopted rates and charges which are generally imposed by the City upon customers of the Wastewater System as described in the section of the Official Statement entitled "REVENUES AND DEBT SERVICE COVERAGE — Wastewater Rates and Revenues." 3. A description of any Additional Bonds incurred during the prior fiscal year which is payable from Net Revenues on a parity with the Bonds (including the 2012A Bonds and any then - outstanding Additional Bonds). 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 EMMA or the Securities and Exchange Commission; provided that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further that the City shall clearly identify each such document so included by reference. 2 DOCSOCn 5 52987v2/200119 -0007 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be, given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB); tender offers; defeasances; ratings 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 Bonds, if material: 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 rights of Bond holders; DOCSOC/1 5 52987v2/200119-0007 the Bonds; 3. optional, unscheduled or contingent Bond redemptions; 4. release, substitution or sale of property securing repayment of 5. non payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, 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 Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event.. 6. Customarily Prepared and Public Information. Upon request, the City shall provide to any person financial information and operating data regarding the City which is customarily prepared by the City and is publicly available. 7. Termination of Obligation. The City's obligations 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). 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Bonds may take such actions as may be necessary and appropriate, DOCSOat 552987v2/200119-0007 including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture of Trust, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. No Holder or Beneficial Owner of the Bonds 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. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: , 2012 THE CITY OF SANTA MONICA By: Its: City Manager 5 DOCSOCn 552987v2r200119 -0007 ATTACHMENT L NOTICE OF INTENTION TO SELL $13,000,000` CITY OF SANTA MONICA GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (LIBRARY IMPROVEMENT PROJECT) and $10,000,000` CITY OF SANTA MONICA WASTEWATER REFUNDING REVENUE BONDS, SERIES 2012A NOTICE IS HEREBY GIVEN that the City of Santa Monica (the "City"), in Los Angeles County, California, intends to offer for public sale on May 15, 2012, at the hour of 8:00 a.m. (Pacific) via PARITY, $13,000,000` principal amount of general obligation bonds of the City designated "City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project)" (the "GO Bonds ") and, at the hour of 9:00 a.m. (Pacific) via PARITY, $10,000,000' "City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A" (the "Wastewater Bonds "). Within 26 hours of each offer for public sale, the City Manager or Director of Finance of the City will consider the bids received and, if acceptable bids are received, award the sale of the GO Bonds and the Wastewater Bonds, respectively, on the basis of the lowest true interest cost. In the event that the sale has not been awarded by the designated times, bids will be received at subsequent times and dates to be determined by the City and publicized via Bloomberg News Service or TM3. NOTICE IS HEREBY FURTHER GIVEN that the GO Bonds will be offered for public sale subject to the terms and conditions of the Notice Inviting Proposals for the GO Bonds. The Notice Inviting Proposal for the GO Bonds and Preliminary Official Statement for the GO Bonds will be posted to www.munios.com. NOTICE IS HEREBY FURTHER GIVEN that the Wastewater Bonds will be offered for public sale subject to the terms and conditions of the Notice Inviting Proposals for the Wastewater Bonds. The Notice Inviting Proposal for the Wastewater Bonds and Preliminary Official Statement for the Wastewater Bonds will be posted to www.munios.com. Dated: April 30, 2012 . Preliminary, subject to change. DOCSOC/ 1551918v3 /200119 -0006 Reference Resolution Nos. 10674 (CCS) and 10675 (CCS).