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SR-06-09-2015-8A
rouiplenm Agenda Item: 5A To: Mayor and City Council Public Financing Authority From: Gigi Decavalles- Hughes, Director of Finance Subject: Issuance of Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) Recommended Actions Staff recommends that the City Council: 1. Adopt the attached Resolution Authorizing Issuance of Series 2015 Bonds (Attachment G1), and approve the related documents required for the Issuance of Lease Revenue Refunding Bonds, Series 2015 (Attachments A, B, D, E, F and and H). Staff recommends that the Public Financing Authority: 1. Adopt the attached Resolution Authorizing Issuance of Series 2015 Bonds (Attachment G2), and approve the related documents required for the Issuance of Lease Revenue /Refunding Bonds, Series 2015 (Attachments A, B, C, D, E, F and H). Executive Summary Staff is requesting Council authorization for the issuance of Lease Revenue Refunding Bonds to take advantage of a reduction in interest rates since bonds were initially issued in 2004 to fund construction of the Civic Center Parking Structure. The net proceeds of the issuance of the proposed Lease Revenue Refunding Bonds, Series 2015 ( "Series 2015 Bonds ") will be used to refund (refinance) the Lease Revenue Bonds, Series 2004 and to pay the costs incurred in connection with the issuance of the bonds. Background In November of 2004, the Public Financing Authority ( "PFA ") issued its Series 2004 Lease Revenue Bonds in the amount of $38,930,000 to finance construction of the Civic Center Parking Structure. After making the payments due on the Series 2004 bonds on 1 July 1, 2015, $30,345,000 of the Series 2004 Bonds will remain outstanding with interest rates ranging from 3.85% to 5.00 %, with a final maturity date of July 1, 2033. Discussion The proposed issuance of the Series 2015 Bonds would finance the early redemption of the PFA's Series 2004 Bonds. Issuance of the Series 2015 Bonds permits the City to take advantage of lower current interest rates and thereby reduce future lease payments. Based on current tax - exempt interest rates, the reduction in interest cost, and the release of the Series 2004 Bonds debt service reserve fund, the refunding is expected to save approximately $500,000 each year in lease payments paid by the General Fund. The actual savings achieved through the proposed refunding plan, however, will depend on interest rates at the time the Series 2015 Bonds are sold. The Series 2004 Bonds may be redeemed on any date upon 15 days of notice. Issuance of the Series 2015 Bonds in July will permit the PFA to redeem the Series 2004 Bonds as soon as possible to begin saving on interest cost. The yields on the new Series 2015 Bonds are expected to range from 0.30% to 3.65% based on current tax - exempt interest rate levels. The proposed Series 2015 Bonds designated to refund the Series 2004 Bonds would have a final maturity date of July 1, 2033, to correspond with the July 1, 2033 final maturity date of the Series 2004 Bonds. The PFA's Series 2015 Bonds would be payable from base rental payments to be made by the City of Santa Monica to the PFA for rights to the use of the Civic Center Parking Structure, pursuant to a lease agreement by and between the City, as lessee, and the PFA, as lessor. Next Steps The Series 2015 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 effective borrowing cost. 2 The attached resolutions and documents permit the City and PFA to proceed with all steps necessary for the issuance of the Series 2015 Bonds and refunding of the Series 2004 Bonds. The resolutions approve the attached documents and authorize their execution and delivery by the specified City officials and staff. The resolutions also approve the preparation, execution, and delivery of a Final Official Statement as well as the execution and delivery of any additional documents, certificates, and the performance of such acts or related actions as may be necessary or desirable to effect the offering, sale, and issuance of the Series 2015 Bonds. The resolutions authorize the issuance of the Series 2015 Bonds with a maximum principal amount of $31,000,000 and with a final maturity date of July 1, 2033 and a maximum true interest cost of 4.00°/x. Financial Impacts & Budget Actions The PFA will issue up to $31,000,000 in tax - exempt Lease Revenue Refunding Bonds. At current interest rates, it is anticipated that the principal amount of the Bonds will be approximately $26,800,000. The estimated annual debt service on the Series 2015 Bonds, to be paid from base rental payments received from the City pursuant to the Lease Agreement, would be approximately $2.0 million through fiscal year 2032 -33 (when the Series 2015 Bonds mature). The City would make the annual base rental payments from the General Fund, as is currently the case with the Series 2004 Bonds. Revenue and appropriation accounts budget to record the sale of the Series 2015 Bonds and defeasance of the Series 2004 Bonds follow: Other Financing Sources (proceeds from the sale of the Series 2015 Bonds, net of any original issue discount): Other Financing Uses (redemption of Series 2004 Bonds): a Account 01990.601001 01990.602003 Amount $31,000,000 $31,000,000 Series 2015 Bond Issue Costs (costs of 01274.555980 $400,000 issuance, underwriter's discount and bond insurance): Civic Center Parking Structure lease 01274.579440 $2,100,000 payment (debt service on 2015 Series Bonds: Required budget changes will be included in the FY 2015 -17 Proposed Budget. Prepared By: David Carr, Assistant City Treasurer Approved: Gigi D cavalles -Huh s Director of Finance Forwarded to Council: Elaine Polachek Interim City Manager Attachments: A: Indenture B: Lease Agreement C: Ground Lease D: Continuing Disclosure Certificate and Preliminary Official Statement E: Notice of Intention to Sell Bonds F: Notice Inviting Bids G1: Resolution Authorizing Issuance of Series 2015 Bonds — Council Series G2: Resolution Authorizing Issuance of Series 2015 Bonds — Public Financing Authority Series H: Escrow Agreement El Attachment A Indenture I, �. by and among SANTA MONICA ' 1' and CITY OF SANTA MONICA and Relating to Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) OHSUSA:762039868.2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; EQUAL SECURITY ............................. ............................... 3 Section 1.01. Definitions .............................................................. ..............................3 Section 1.02. Equal Security ....................................................... ............................... 8 ARTICLE II THE BONDS .................................................................... ............................... 9 Section 2.01. Authorization of Bonds ......................................... ............................... 9 Section 2.02. Terms of Bonds ..................................................... ............................... 9 Section 2.03. Execution of Bonds ............................................... .............................10 Section 2.04. Authentication of Bonds ....................................... .............................10 Section 2.05. Registration Books .............................................. ............................... 10 Section 2.06. Transfer and Exchange of Bonds .......................... .............................10 Section 2.07. Book -Entry System ............................................. ............................... I 1 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ......... .............................13 Section 2.09. Temporary Bonds ................................................ ............................... 13 ARTICLE III DELIVERY OF BONDS; APPLICATION OF AMOUNTS ........................ 15 Section 3.01. Issuance of Bonds ............................................... ............................... 15 Section 3.02. Issuance of Bonds; Application of Proceeds ........ .............................15 Section 3.03. Costs of Issuance Fund ......................................... .............................15 ARTICLE IV REDEMPTION OF BONDS ............................................ .............................16 Section 4.01. Extraordinary Redemption .................................. ............................... 16 Section 4.02. Optional Redemption .......................................... ............................... 16 Section 4.03. Mandatory Sinking Fund Redemption .................. .............................16 Section 4.04. Notice of Redemption ........................................... .............................17 Section 4.05. Selection of Bonds for Redemption ...................... .............................18 Section 4.06. Partial Redemption of Bonds .............................. ............................... 18 Section 4.07. Effect of Notice of Redemption .......................... ............................... 18 ARTICLE V PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS .................... 20 Section 5.01. Pledge and Assignment ....................................... ............................... 20 Section5.02. Payment Fund ..................................................... ............................... 20 Section 5.03. Redemption Fund ................................................ ............................... 21 Section 5.04. Rebate Fund ........................................................ ............................... 21 Section 5.05. Investments ......................................................... ............................... 21 OHSUSA:762039868.2 i TABLE OF CONTENTS (continued) Page ARTICLE VI NET PROCEEDS AND TITLE INSURANCE; COVENANTS .................. 23 Section 6.01. Application of Net Proceeds ............................... ............................... 23 Section 6.02. Title Insurance .................................................... ............................... 24 Section 6.03. Punctual Payment ................................................ ............................... 24 Section 6.04. Compliance with Indenture ................................. ............................... 24 Section 6.05. Compliance with Ground Lease and Lease Agreement ..................... 24 Section 6.06. Observance of Laws and Regulations ................. ............................... 25 Section 6.07. Other Liens .......................................................... ............................... 25 Section 6.08. Prosecution and Defense of Suits ....................... ............................... 25 Section 6.09. Recordation ......................................................... ............................... 25 Section 6.10. Tax Covenants .................................................... ............................... 25 Section 6.11. Continuing Disclosure ........................................ ............................... 26 Section 6.12. Further Assurances .............................................. ............................... 26 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES ................. ............................... 27 Section 7.01. Events of Default ................................................ ............................... 27 Section 7.02. Action on Default ................................................ ............................... 27 Section 7.03. Other Remedies of the Trustee ........................... ............................... 28 Section 7.04. Remedies Not Exclusive ..................................... ............................... 28 Section 7.05. Application of Amounts After Default ............... ............................... 28 Section 7.06. Power of Trustee to Enforce ............................... ............................... 29 Section 7.07. Owners' Direction of Proceedings ...................... ............................... 29 Section 7.08. Limitation on Owners' Right to Sue ................... ............................... 29 Section 7.09. Termination of Proceedings ................................ ............................... 29 Section 7.10. No Waiver of Default .......................................... ............................... 30 ARTICLE VIII THE TRUSTEE .............................................................. ............................... 31 Section 8.01. Duties and Liabilities of Trustee ......................... ............................... 31 Section 8.02. Qualifications; Removal and Resignation; Successors ...................... 31 Section 8.03. Liability of Trustee ............................................. ............................... 32 Section 8.04. Right to Rely on Documents and Opinions ........ ............................... 34 Section 8.05. Accounting Records and Financial Statements ... ............................... 34 Section 8.06. Preservation and Inspection of Documents ......... ............................... 34 Section 8.07. Compensation and Indemnification of the Trustee ............................ 34 OI-ISUSA:762039868.2 ii TABLE OF CONTENTS (continued) Page ARTICLE IX SUPPLEMENTAL INDENTURES ............................... ............................... 36 Section 9.01. Supplemental Indentures ..................................... ............................... 36 Section 9.02. Effect of Supplemental Indenture ....................... ............................... 37 Section 9.03. Endorsement of Bonds; Preparation of New Bonds .......................... 37 Section 9.04. Amendment of Particular Bonds ......................... ............................... 37 ARTICLE X DEFEASANCE ............................................................... ............................... 38 Section 10.01. Discharge of Indenture ........................................ ............................... 38 Section 10.02. Bonds Deemed To Have Been Paid .................... ............................... 38 Section 10.03. Unclaimed Moneys ............................................. ............................... 39 ARTICLE XI MISCELLANEOUS ....................................................... ............................... 41 Section 11.01. Successor Deemed Included in all References to Predecessor .......... 41 Section 11.02. Limitation of Rights ............................................ ............................... 41 Section 11.03. Destruction of Bonds .......................................... ............................... 41 Section 11.04. Severability of Invalid Provisions ....................... ............................... 41 Section11.05. Notices ................................................................ ............................... 41 Section 11.06. Evidence of Rights of Owners ............................ ............................... 42 Section 11.07. Disqualified Bonds .............................................. ............................... 42 Section 11.08. Money Held for Particular Bonds ....................... ............................... 43 Section 11.09. Funds and Accounts ............................................ ............................... 43 Section 11.10. Business Days ..................................................... ............................... 43 Section 11.11. Waiver of Personal Liability ............................... ............................... 43 Section 11.12. Interpretation ......................................................... .............................43 Section 11.13. Conclusive Evidence of Regularity .................... ............................... 44 Section 11.14. Partial Invalidity .................................................... .............................44 Section 11.15. Governing Laws .................................................... .............................44 Section 11.16. Execution in Counterparts ................................... ............................... 44 EXHIBIT A PERMITTED INVESTMENTS ................................... ............................... A -1 EXHIBIT B FORM OF BOND ......................................................... ............................... B -1 OHSUSA:762039868.2 iii INDENTURE THIS INDENTURE (this "Indenture "), dated as of 1, 2015, is by and among the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the "Authority "), the CITY OF SANTA MONICA, a municipal corporation and charter city organized and existing under the laws of the State of California (the "City "), and MUFG UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, as Trustee (the "Trustee "). 1ATA.11'80 DWI Do 8IsA WHEREAS, in order to finance the construction, installation, reimbursement and acquisition of certain capital improvements constituting a public parking garage and related improvements (the "Project'), the City and the Authority entered into a Lease Agreement, dated as of December 1, 2004 (the "Prior Lease Agreement'); WHEREAS, in order to provide the funds necessary to finance the Project, the Authority issued its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) (the "Prior Bonds "), payable from the base rental payments to be made by the City pursuant to the Prior Lease Agreement; WHEREAS, the City desires to refinance the Project by exercising its option to prepay the base rental payments to be made by the City pursuant to the Prior Lease Agreement, thereby causing the Prior Bonds to be defeased and redeemed; WHEREAS, in order to refinance the Project, the City is leasing certain real property, and the improvements thereto (the "Property "), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the "Lease Agreement'); WHEREAS, in order to provide the funds necessary to refinance the Project and redeem the Prior Bonds, the Authority and the City desire to provide for the issuance of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds "), in the aggregate principal amount of $ , payable from the base rental payments to be made by the City pursuant to the Lease Agreement; WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, each of the Authority and the City has authorized the execution and delivery of this Indenture; WHEREAS, the Authority and the City have determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid and binding special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture has been in all respects duly authorized; and OHSUSA:762039868.2 WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Indenture do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Indenture. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, and premium, if any, and interest on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the Authority and the City do hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: OHSUSA:762039868.2 ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Lease Agreement. "Act" means the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code. "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 of the Lease Agreement. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the scheduled principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year. "Authority" means the Santa Monica Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. "Authorized Authority Representative" means the Chairperson, the Executive Director or the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee. "Authorized City Representative" means the Mayor of the City, the City Manager of the City, the Director of Finance /Treasurer of the City, the Assistant City Treasurer of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. "Authorized Denominations" means, with respect to the Bonds, $5,000 and integral multiples thereof. "Base Rental Payments" means all amounts payable to the Authority by the City as Base Rental Payments pursuant to Section 3.02 of the Lease Agreement. "Beneficial Owners" means those Persons for which the Participants have caused the Depository to hold Book -Entry Bonds. "Bond Year" means each twelve -month period beginning on July 2 in each year and extending to the next succeeding July 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on July 1, 2016. "Bonds" means the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project), issued hereunder. OHSUSA:762039868.2 3 "Book -Entry Bonds" means the Bonds registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of Section 2.07. "Business Day" means a day which is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. "Cede d& Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to Book -Entry Bonds. "City" means the City of Santa Monica, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. "Closing Date" means the date upon which the Bonds are delivered to the Original Purchaser, being 2015. "Code" means the Internal Revenue Code of 1986. "Continuing Disclosure Certificate" means the Continuing Disclosure Certificate, dated as of , 2015, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Costs of Issuance" means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with this Indenture, the Lease Agreement, the Ground Lease, the Bonds and any preliminary official statement and fmal official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. "Costs of Issuance Fund" means the fund by that name established pursuant to Section 3.03 hereof. Defeasance Securities" means (a) non - callable direct obligations of the United States of America ( "United States Treasury Obligations "), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. "Depository" means DTC, and its successors as securities depository for any Book -Entry Bonds, including any such successor appointed pursuant to Section 2.07 hereof. ORSUSA:762039868.2 4 "DTC" means The Depository Trust Company, a limited - purpose trust company organized under the laws of the State of New York. "Escrow Agreement" means the Escrow Agreement, dated as of 1, 2015, by and between the Authority and the Escrow Bank, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Escrow Bank" means MUFG Union Bank, N.A., as escrow bank under the Escrow Agreement, and any successor thereto. "Event of Default" means any event or circumstance specified in Section 7.01 hereof. "Ground Lease" means the Ground Lease, dated as of 1, 2015, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement. "Indenture" means this Indenture, dated as of 1, 2015, by and among the Authority, the City and MUFG Union Bank, N.A., as Trustee, as originally executed and as it may from time to time be amended or supplemented by any Supplemental Indenture. "Interest Account" means the account by that name within the Payment Fund established pursuant to Section 5.02 hereof. "Interest Payment Dates" means January 1 and July 1 of each year, commencing January 1, 2016. "Lease Agreement" means the Lease Agreement, dated as of 1, 2015, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Lease Default Event" means an event of default pursuant to and as described in Section 8.01 of the Lease Agreement. "Lease Revenues" means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee's pursuit of remedies under the Lease Agreement upon a Lease Default Event. "Letter of Representations" means the Letter of Representations from the Authority to the Depository, in which the Authority makes certain representations with respect to issues of its securities for deposit by the Depository. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. OHSUSA:762039868.2 5 "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.07 hereof. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City in writing. "Opinion of Counsel" means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. "Original Purchaser" means the original purchaser of the Bonds from the Authority. "Outstanding" means, when used as of any particular time with reference to Bonds, subject to the provisions of Section 11.07 hereof, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.01 hereof, and (c) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee pursuant to Section 2.08 hereof. "Owner" means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the book - entry system of maintaining records with respect to Book -Entry Bonds. "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Certificate. "Payment Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Permitted Investments" is defined in Exhibit A attached hereto. "Person" means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Principal Account" means the account by that name within the Payment Fund established pursuant to Section 5.02 hereof. "Principal Payment Date" means a date on which the principal of the Bonds becomes due and payable, either as a result of the maturity thereof or by mandatory sinking fund redemption. "Prior Bonds" means the Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project), issued pursuant to the Prior Indenture. ORSUSA:762039868.2 6 "Prior Indenture" means the Indenture, dated as of December 1, 2004, by and among the Authority, the City and Union Bank of California, N.A., as Trustee. hereof. "Rebate Fund" means the fund by that name established pursuant to Section 5.04 "Rebate Requirement" has the meaning ascribed thereto in the Tax Certificate. "Record Date" means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established pursuant to Section 5.03 hereof. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05 hereof. "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the period from the Closing Date through June 30, 2016 and, thereafter, the twelve -month period commencing on July 1 of each year during the term of the Lease Agreement. "S &P" means Standard & Poor's Ratings Services, a division of The McGraw -Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term "S &P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. "State" means the State of California. "Supplemental Indenture" means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Certificate" means the Tax Certificate executed by the Authority and the City at the time of issuance of the Bonds relating to the requirements of Section 148 of the Code, including the exhibits thereto, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. OHSUSA:762039868.2 7 "Trustee" means MUFG Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee hereunder substituted in its place as provided herein. "Verification Report" means, with respect to the deemed payment of Bonds pursuant to Section 10.02(a) hereof, a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of clause (ii)(B) of subsection (a) of Section 10.02(a) hereof. "Written Certificate" and "Written Request" (a) of the Authority mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Representative of the Authority, and (b) of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, and premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Authority or the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. OHSUSA:762039868.2 8 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. (a) The Authority hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Act and other applicable laws of the State. (b) The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 2.02. Terms of Bonds. (a) The Bonds shall be designated "Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project)." The aggregate principal amount of Bonds that may be issued and Outstanding under this Indenture shall not exceed $ except as may be otherwise provided in Section 2.08 hereof. (b) The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on July 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) and shall be in the principal amounts as follows: Maturity Date Principal Interest Jul 1 Amount Rate (c) Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first -class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than OHSUSA:762039868.2 9 $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (d) The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (e) The Bonds shall be in substantially the form set forth in Exhibit B hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority -with the manual or facsimile signature of an Authorized Officer of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. Section 2.04. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit B hereto for the Bonds, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.05. Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as herein provided. Section 2.06. Transfer and Exchange of Bonds. (a) Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a OHSUSA:762039868.2 10 form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. (b) The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. (c) The Trustee shall not be obligated to make any transfer or exchange of Bonds pursuant to this Section during the period established by the Trustee for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Section 2.07. Book -Entry System. (a) The Bonds shall initially be issued as Book - Entry Bonds, and the Bonds of each maturity date shall be in the form of a separate single fully - registered Bond (which may be typewritten). Upon initial issuance, the ownership of each Bond shall be registered in the Registration Books in the name of the Nominee, as nominee of the Depository. Payment of principal of, and interest and premium, if any, on, any Book -Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address which is, on the Record Date, shown for the Nominee in the Registration Books. (b) With respect to Book -Entry Bonds, the Authority, 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 Bonds. Without limiting the immediately preceding sentence, the Authority, 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 Bonds, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any notice with respect to Book -Entry Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in Book -Entry Bonds of a maturity to be redeemed in the event such Book -Entry Bonds are redeemed in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any amount with respect to principal of, or premium, if any, or interest on Book -Entry Bonds, or (v) any consent given or other action taken by the Depository as Owner. (c) The Authority, the City and the Trustee may treat and consider the Person in whose name each Book -Entry Bond is registered in the Registration Books as the absolute Owner of such Book -Entry Bond for the purpose of payment of principal of, and premium, if any, and interest on such Bond, for the purpose of selecting any Bonds, or portions thereof, to be redeemed, for the purpose of giving notices of redemption and other matters with respect to such Book -Entry Bond, for the purpose of registering transfers with respect to such Book -Entry Bond, OHSUSA:762039868.2 11 for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the Authority, the City and the Trustee shall not be affected by any notice to the contrary. (d) In the event of a redemption of all or a portion of a Book -Entry Bond, the Depository, in its discretion (i) may request the Trustee to authenticate and deliver a new Book - Entry Bond, or (ii) if the Depository is the sole Owner of such Book -Entry Bond, shall make an appropriate notation on the Book -Entry Bond indicating the date and amounts of the reduction in principal thereof resulting from such redemption, except in the case of final payment, in which case such Book -Entry Bond must be presented to the Trustee prior to payment. (e) The Trustee shall pay all principal of, and premium, if any, and interest on the Book -Entry Bonds only to or "upon the order of (as that term is used in the Uniform Commercial Code as adopted in the State) the respective Owner, as shown in the 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 obligations with respect to payment of principal of, and premium, if any, and interest on the Book -Entry Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the Registration Books, shall receive an authenticated Book -Entry Bond. Upon delivery by the Depository to the Owners, the Authority, 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 this Indenture shall refer to such nominee of the Depository. (f) In order to qualify the Book -Entry Bonds for the Depository's book -entry system, the Authority 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 Authority, the City or the Trustee any obligation whatsoever with respect to Persons having interests in such Book -Entry Bonds other than the Owners, as shown on the Registration Books. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to the Depository. In addition to the execution and delivery of a Letter of Representations by the Authority, the Authority, the City and the Trustee shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify Book -Entry Bonds for the Depository's book -entry program. (g) In the event the Authority determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Bonds and that such Bonds should therefore be made available, and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Bonds. In such event, the Trustee shall transfer and exchange certificated Bonds as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book -Entry Bonds, or (ii) the Depository shall no longer so act and gives notice to the Trustee of such determination, then the Authority shall discontinue the Book -Entry system with the Depository. If the Authority determines to replace the Depository with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate, fully- registered Bond for each maturity date of such Book -Entry Bonds, registered in the name of such successor or substitute OHSUSA:762039868.2 12 qualified securities depository or its nominee. If the Authority fails to identify another qualified securities depository to replace the Depository, then the Book -Entry Bonds shall no longer be restricted to being registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of Sections 2.06, 2.08 and 2.09. Whenever the Depository requests the Authority to do so, the Authority shall cooperate with the Depository in taking appropriate action after reasonable notice (i) to make available one or more separate certificates evidencing the Book -Entry Bonds to any Participant having Book -Entry Bonds credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Book -Entry Bonds. (h) Notwithstanding any other provision of this Indenture to the contrary, if the Depository is the sole Owner of the Bonds, so long as any Book -Entry Bond is registered in the name of the Nominee, all payments of principal of, and premium, if any, and interest on such Book -Entry Bond and all notices with respect to such Book -Entry Bond shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. (i) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Authority, the City or the Trustee, with respect to any consent or other action to be taken by Owners of Book -Entry Bonds, the Trustee shall establish a record date for such consent or other action and give the Depository notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same maturity in a like principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same maturity in a like aggregate principal amount in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture. Section 2.09. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bonds may be OHSUSA:762039868.2 13 printed, lithographed or typewritten, shall be of such Authorized Denominations as may be determined by the Authority, shall be in fully- registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it shall execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver, in exchange for such temporary Bonds, an equal aggregate principal amount of definitive Bonds and maturities in Authorized Denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. OHSUSA:762039868.2 14 ARTICLE III DELIVERY OF BONDS; APPLICATION OF AMOUNTS Section 3.01. Issuance of Bonds. The Authority may, at any time, execute the Bonds and deliver the same to the Trustee. The Trustee shall, on the Closing Date, authenticate the Bonds and deliver the Bonds to the Original Purchaser upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor. Section 3.02. Issuance of Bonds; Application of Proceeds. On the Closing Date, the proceeds of the sale of the Bonds received by the Trustee, $ , shall be deposited or transferred by the Trustee as follows: (a) the Trustee shall deposit the amount of $ in the Costs of Issuance Fund; and (b) the Trustee shall transfer to the Escrow Bank the amount of $ to be applied to the payment of the Prior Bonds in accordance with the provisions of the Escrow Agreement. Section 3.03. Costs of Issuance Fund. (a) The Trustee shall establish and maintain a separate fund designated the "Costs of Issuance Fund." On the Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b) The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Costs of Issuance Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On the last Business Day that is no later than six months after the Closing Date, the Trustee shall transfer any amount remaining in the Costs of Issuance Fund to the Interest Account and, upon making such transfer, the Costs of Issuance Fund shall be closed. OHSUSA:762039868.2 15 ARTICLE IV Section 4.01. Extraordinary Redemption. The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions hereof, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. Section 4.02. Optional Redemption. (a) The Bonds maturing on or after July 1, 2026 shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after July 1, 2025, from any source of available funds, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. (b) The Authority shall give the Trustee written notice of its intention to redeem Bonds pursuant to this Section not less than 45 days prior to the applicable redemption date, unless such notice shall be waived by the Trustee. Section 4.03. Mandatory Sinking Fund Redemption. (a) The Bonds maturing July 1, 20_ shall be subject to mandatory sinking fund redemption, in part, on July 1 in each year, commencing July 1, 20, at a Redemption Price equal to the principal amount of the Bonds to .be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Amount Redemption Date to be (July 1) Redeemed (Maturity) If some but not all of the Bonds maturing on July 1, 20_ are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on July 1, 20 to be redeemed pursuant to this Section on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20_ so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not OHSUSA:762039868.2 16 all of the Bonds maturing on July 1, 20_ are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on July 1, 20 to be redeemed pursuant to this Section on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20_ so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates as designated by the Authority in a Written Certificate of the Authority filed with the Trustee. (b) The Bonds maturing July 1, 20 shall be subject to mandatory sinking fund redemption, in part, on July 1 in each year, commencing July 1, 20, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Amount Redemption Date to be (July 1) Redeemed (Maturity) If some but not all of the Bonds maturing on July 1, 20_ are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on July 1, 20_ to be redeemed pursuant to this Section on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20 so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on July 1, 20_ are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on July 1, 20 to be redeemed pursuant to this Section on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20 so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates as designated by the Authority in a Written Certificate of the Authority filed with the Trustee. Section 4.04. Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and to the Original Purchaser at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of ORSUSA:762039868.2 17 redemption of all of the Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of Section 10.02 hereof, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Section 4.05. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption of Bonds pursuant to Section 4.01 hereof, among maturities of the Bonds on a pro rata basis as nearly as practicable, and (b) with respect to any redemption of Bonds pursuant to Section 4.01 hereof, as directed in a Written Certificate of the City, and by lot among Bonds with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. The Trustee shall promptly notify the Authority and the City in writing of the numbers of the Bonds so selected for redemption on such date. For purposes of such selection, any Bond may be redeemed in part in Authorized Denominations. Section 4.06. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds in Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of the Bonds surrendered. Section 4.07. Effect of Notice of Redemption. (a) Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. (b) If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as OHSUSA:762039868.2 18 aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. (c) All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. OHSUSA:762039868.2 19 ARTICLE V PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS Section 5.01. Pledge and Assignment. (a) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Indenture and the Act, the Authority hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, this Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. (b) The Authority hereby assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Authority shall retain the rights to indemnification and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of this Indenture. (c) The Trustee shall be entitled to and shall receive all of the Base Rental Payments, and any Base Rental Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. Section 5.02. Payment Fund. (a) The Trustee shall establish and maintain a separate fund designated the "Payment Fund." Within the Payment Fund, the Trustee shall establish and maintain a separate account designated the "Interest Account' and a separate account designated the "Principal Account." (b) All Lease Revenues received by the Trustee shall be deposited by the Trustee in the Payment Fund; provided, however, that Net Proceeds, other than those constituting proceeds of rental interruption insurance received with respect to the Property, shall not be deposited in the Payment Fund but, rather, shall be applied as provided in Section 6.01 or Section 6.02 hereof, as applicable. (c) The Trustee, on each Interest Payment Date, shall transfer from the Payment Fund to the Interest Account an amount equal to the interest on the Bonds coming due on such Interest Payment Date. On each Interest Payment Date, the Trustee shall withdraw from the Interest Account for payment to the Owners of the Bonds the interest on the Bonds then due and payable. In the event that, on such Interest Payment Date, amounts in the Interest Account are insufficient OHSUSA:762039868.2 20 to pay the interest on the Bonds due and payable on such Interest Payment Date, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. (d) The Trustee, on each Principal Payment Date, shall transfer from the Payment Fund to the Principal Account an amount equal to the principal of the Bonds, including principal due and payable by reason of mandatory sinking fund redemption, coming due on such date. On each Principal Payment Date, the Trustee shall withdraw from the Principal Account for payment to the Owners of the Bonds such principal then due and payable. In the event that, on such Principal Payment Date, amounts in the Principal Account are insufficient to pay the principal due and payable on such Principal Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. Section 5.03. Redemption Fund. The Trustee shall establish and maintain a special fund designated the "Redemption Fund." The Trustee shall deposit in the Redemption Fund any amounts received from the City in connection with the City's exercise of its right pursuant to Section 6.02 of the Lease Agreement to cause Bonds to be optionally redeemed. Additionally, the Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Section 6.01 or Section 6.02 hereof. Amounts in the Redemption Fund shall be disbursed therefrom by the Trustee for the payment of the Redemption Price of, and accrued interest on, Bonds redeemed pursuant to Section 4.01 or Section 4.02 hereof. Section 5.04. Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the "Rebate Fund." There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Authority or a Written Request of the City. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority or the City, and shall have no liability or responsibility to enforce compliance by the Authority or the City with the terms of the Tax Certificate. The Trustee may conclusively rely upon the determinations, calculations and certifications of the Authority or the City required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the calculations of the Authority or the City. (b) Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon receipt by the Trustee of a Written Request of the City, be withdrawn by the Trustee and remitted to the City. Section 5.05. Investments. (a) Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City two Business Days prior to the making of such investment. Moneys in all such funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such OHSUSA:762039868.2 21 moneys will be required for the purposes specified in this Indenture. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to this Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (6) of the definition thereof. (b) Any interest or profits received with respect to investments held in any of the funds or accounts established under this Indenture shall be retained therein. (c) Permitted Investments acquired as an investment of moneys in any fund or account established under this Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each June 15 and December 15. (d) The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments are credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. (e) Each of the Authority and the City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority or the City the right to receive brokerage confirmations of security transactions as they occur, each of the Authority and the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish the Authority and the City periodic cash transaction statements, which shall include details for all investment transactions made by the Trustee hereunder. OHSUSA:762039868.2 22 ARTICLE VI NET PROCEEDS AND TITLE INSURANCE; COVENANTS Section 6.01. Application of Net Proceeds. (a) If the Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Property or the affected portion thereof in accordance with the provisions hereof. (b) The Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self - insurance, received on account of any damage or destruction of the Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may, pursuant to a Written Request of the City, be invested by the Trustee in Permitted Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement. (c) Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Property or the portions of the Property which were damaged or destroyed. If the City does intend to replace or repair the Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account referred to above. (d) If such damage, destruction or loss was such that there resulted a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments results from such damage or destruction pursuant to Section 3.07 of the Lease Agreement, then the City shall be required either to (i) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Property or the portions thereof which have been damaged to the condition which existed prior to such damage or destruction, or (ii) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, pursuant to Section 4.01 hereof (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in the remaining, non - abated Base Rental Payments being sufficient to pay, as and when due, the principal of and interest on the Bonds that will remain Outstanding after such redemption. If the City is required to apply funds from the insurance proceeds and other legally available funds to the redemption of Bonds in accordance with clause (ii) above, the City shall direct the Trustee, in a Written Request of the City, to transfer the funds to be applied to such redemption to the Redemption Fund and the Trustee shall transfer such funds to the Redemption Fund. Any proceeds of any insurance, including the proceeds of any self - insurance remaining after the portion of the Property which was damaged or destroyed is restored to and made available to the City in substantially the same condition and annual fair rental value as that which existed prior to the damage or destruction as required by clause (i) above, or the redemption of Bonds as required by clause (ii) above, in each case as evidenced by a Written Certificate of the City to OHSUSA:762039868.2 23 such effect, or any proceeds not required to replace or repair the Property, or the affected portion thereof, as set forth in clause (i) above, or to use such amounts to redeem Bonds as set forth in clause (ii) above, shall be paid to the City to be used for any lawful purposes; provided, however, that the City shall first deliver to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Property after such damage or destruction is at least equal to the sum of the then unpaid principal components of Base Rental Payments. (e) The proceeds of any award in eminent domain shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to Section 4.01 hereof. Section 6.02. Title Insurance. Net Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows: (a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof, or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Property and will result in an abatement in whole or in part of Rental Payments payable by the City under the Lease Agreement, then the City shall, in a Written Request of the City, direct the Trustee to, and the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in Section 4.01 hereof. Section 6.03. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of, and premium, if any, and interest on the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of the Lease Revenues and other assets pledged for such payment as provided in this Indenture and received by the Authority or the Trustee. Section 6.04. Compliance with Indenture. The Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in this Indenture required to be complied with, kept, observed and performed by them. Section 6.05. Compliance with Ground Lease and Lease Agreement. The Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, shall enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms. OHSUSA:762039868.2 24 Section 6.06. Observance of Laws and Regulations. The Authority, the City and the Trustee shall faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.07. Other Liens. (a) The City shall keep the Property and all parts thereof free from judgments and materialmen's and mechanics' liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free fi•om any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days' written notice to comply therewith and failure of the City to so comply within such ten -day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. (b) So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. (c) The Authority and the Trustee shall not encumber the Property other than in accordance with the Ground Lease, the Lease Agreement and this Indenture. Section 6.08. Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee, take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Property or any part thereof, whether now existing or hereafter developing, shall prosecute all actions, suits or other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee and every Owner harmless from all cost, damage, expense or loss, including attorneys' fees, which they or any of them may incur by reason of any such cloud, defect, action, suit or other proceeding. Section 6.09. Recordation. The City shall record, or cause to be recorded, with the appropriate county recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City's right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 hereof. Section 6.10. Tax Covenants. (a) Neither the Authority nor the City shall take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Code. OHSUSA:762039868.2 25 Without limiting the generality of the foregoing, each of the Authority and the City shall comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Bonds. (b) In the event that at any time the Authority or the City is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Authority or the City shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the Authority or the City shall provide to the Trustee an Opinion of Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.11. Continuing Disclosure. The City shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default hereunder; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% of the aggregate principal amount of Outstanding Bonds, shall) or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.12. Further Assurances. Each of the Authority and the Trustee shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the rights and benefits provided in this Indenture, the Ground Lease and the Lease Agreement. OHSUSA:762039868.2 26 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. The following events shall be Events of Default: (a) failure to pay any installment of principal of any Bond as and when the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; (b) failure to pay any installment of interest on any Bond as and when the same shall become due and payable; (c) the occurrence and continuation of a Lease Default Event; (d) failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee, the City or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the Authority, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time; (e) failure by the City to observe and perform any of the covenants, agreements or conditions on its part in this Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the City, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time; or (f) the commencement by the Authority or the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Action on Default. In each and every case during the continuance of an Event of Default, the Trustee may at the direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or OHSUSA:762039868.2 27 for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.03 hereof. Section 7.03. Other Remedies of the Trustee. If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein or in the Bonds; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee or the Owners; or (c) by suit, action or proceeding in any court of competent jurisdiction, to require the Authority or the City, or both, to account as if it or they were the trustee or trustees of an express trust. Section 7.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.05. Application of Amounts After Default. If an Event of Default shall occur and be continuing, all Lease Revenues and any other funds thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee as follows and in the following order: (a) to the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges 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 this Indenture; (b) to the payment of all amounts then due for interest on the Bonds, ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable, with interest on the overdue interest at the rate borne by the respective Bonds; and (c) to the payment of all amounts then due for principal of the Bonds, ratably without preference or priority of any kind, according to the amounts of principal of the Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. OHSUSA:762039868.2 28 Section 7.06. Power of Trustee to Enforce. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Indenture. Section 7.07. Owners' Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder; provided, however, that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and, provided, further, that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Section 7.08. Limitation on Owners' Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall, have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. 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 any remedy hereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners, or to enforce any right under the Bonds, this Indenture, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners, subject to the provisions of this Indenture. Section 7.09. Termination of Proceedings. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then, subject to any such adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owner, then in every such case the Trustee, such Owner, the Authority and the City, subject to any OHSUSA:762039868.2 29 determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Trustee, the Owners, the Authority and the City shall continue as though no such proceedings had been taken. Section 7.10. No Waiver of Default. No delay or omission of the Trustee or of any Owner to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein, and every power and remedy given by this Indenture to the Trustee or to the Owners may be exercised from time to time and as often as may be deemed expedient. OHSUSA:762039868.2 30 ARTICLE VIII THE TRUSTEE Section 8.01. Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occutTed, perform such duties and only such duties as are expressly and specifically set forth in this Indenture. 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 this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Section 8.02. Qualifications; Removal and Resignation; Successors. (a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, having (or if such trust company, national banking association or bank is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by a federal or state agency. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, national 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. (b) The Authority and the City may, by an instrument in writing, upon at least 30 days' notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with subsection (a) 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. (c) The Trustee may at any time resign by giving written notice of such resignation by first -class mail, postage prepaid, to the Authority and the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of subsection (a) of this Section, the Trustee shall resign immediately in the manner and with the effect specified in this Section. (d) Upon removal or resignation of the Trustee, the Authority and the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of OHSUSA:762039868.2 - 31 appointment by the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in subsection (a) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other 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 this Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and 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 Authority or 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 this 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 acceptance of appointment by a successor Trustee as provided in this subsection, the successor Trustee shall, within 15 days after such acceptance, mail, by first -class mail postage prepaid, a notice of the succession of such Trustee to the trusts hereunder to the Owners at the addresses shown on the Registration Books. (e) Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national 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, national banking association or bank shall be eligible under subsection (a) of this Section, 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 Bonds contained shall be taken as statements of the Authority or the City, as applicable, and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Authority, the City or others in accordance with this Indenture. OHSUSA:762039868.2 32 (c) The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. (d) No provision of this Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. (e) The Trustee may execute any of its powers or duties hereunder through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. (f) 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. (g) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. (h) Before taking action under Article VII, under this Article or upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. (i) 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 in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. 0) The Trustee may become the Owner of 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 Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (k) 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 Bonds. (1) The Trustee shall not be liable for the failure to take any action required to be taken by it hereunder if and to the extent that the Trustee's taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. (m) The Trustee shall not be deemed to have knowledge of an Event of Default hereunder unless it has actual knowledge thereof. 33 (n) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. Section 8.04. Right to Rely on Documents and Opinions. (a) The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) Whenever in the administration of the duties imposed upon it by this 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 Written Certificate of the Authority or Written Certificate of the City, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, 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. (c) The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Section 8.05. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with prudent corporate trust industry standards, in which accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Lease Revenues received by it and all funds and accounts established by it pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the City during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the Authority and the City a monthly accounting of the funds and accounts it holds under this Indenture; provided, however, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (a) has a balance of zero, and (b) has not had any activity since the last reporting date. Section 8.06. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during business hours and upon reasonable notice to the inspection of the Authority, the City, the Owners and their agents and representatives duly authorized in writing. Section 8.07. Compensation and Indemnification of the Trustee. (a) The City shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include "overhead expenses" except as such expenses are included as a component of the Trustee's stated annual fees) hereunder, including but not limited to advances to and reasonable fees and reasonable OresusA:762039868.2 34 expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder; provided, however, that the Trustee shall not have any lien for such compensation or reimbursement against any moneys held by it in any of the funds or accounts established hereunder. (b) The City shall, to the extent permitted by law, indemnify and save the Trustee harmless against any liabilities, costs, claims or expenses, including those of its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the termination and discharge of this Indenture. OHSUSA:762039868.2 35 ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures. (a) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 11.07 hereof. No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under this Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, this Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, this Indenture, except as expressly provided in this Indenture, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) modify or amend this Section without the prior written consent of the Owners of all Bonds then Outstanding. (b) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture or in regard to questions arising hereunder which the Authority or the City may deem desirable or necessary and not inconsistent herewith, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds; and (iv) for any other reason, provided such amendment or supplement does not adversely affect the rights or interests of the Owners. (c) Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to OHSUSA:762039868.2 36 the Trustee by the Authority or the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02. Effect of Supplemental Indenture. Upon the execution and delivery of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and the Owners shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the effective date of any Supplemental Indenture pursuant to this Article may and, if the Authority or the City so determines, shall bear a notation by endorsement or otherwise in form approved by the Authority, the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority, the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, such a new Bond in equal principal amount of the same interest rate and maturity shall be exchanged for such Owner's Bond so surrendered. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Owner from accepting any amendment or modification as to any particular Bond owned by it, provided that due notation thereof is made on such Bond. OHSUSA:762039868.2 37 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. (a) If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority hereunder shall thereupon cease, terminate and become void and this Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on the Bonds. (b) Subject to the provisions of subsection (a) of this Section, when any Bond shall have been paid and if, at the time of such payment, each of the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority and the City hereunder shall cease, terminate, become void and be completely discharged and satisfied as to such Bond. (c) Notwithstanding the discharge and satisfaction of this Indenture or the discharge and satisfaction of this Indenture in respect of any Bond, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non - presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Section 10.02. Bonds Deemed To Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the . meaning and with the effect provided in Section 10.01 hereof. Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.04 hereof, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with Section 4.04 hereof, (ii) there OHSUSA:762039868.2 38 shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to this subsection in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds. (b) No Bond shall be deemed to have been paid pursuant to clause (ii) of subsection (a) of this Section unless the Authority or the City shall cause to be delivered to the Authority, the City and the Trustee (A) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority, the City and the Trustee, (B) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of subsection (a) of this Section resulting in such deemed payment, in form and substance acceptable to the Authority, the City and the Trustee, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (C) a copy of an Opinion of Counsel, dated the date of such deemed payment and addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority, the City and the Trustee, to the effect that such Bond has been paid within the meaning and with the effect expressed in this Indenture, and all agreements, covenants and other obligations of the Authority and the City hereunder as to such Bond have ceased, terminated, become void and been completely discharged and satisfied. (c) The Trustee may seek and is entitled to rely upon (i) an Opinion of Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to clause (ii) of subsection (a) of this Section have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in subsection (b) of this Section. Section 10.03. Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the principal of, or premium or interest on, any Bonds which remain unclaimed for two years after the date when such principal, premium or interest has become payable, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the date when such principal, premium OHSUSA:762039868.2 39 or interest become payable, shall, at the Written Request of the Authority, be repaid by the Trustee to the Authority as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners of such Bonds shall look only to the Authority for the payment of such principal, premium or interest. ORSUSA:762039868.2 40 ARTICLE XI MISCELLANEOUS Section 11.01. Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.02. Limitation of Rights. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Trustee, the Authority, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this 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 Trustee, the Authority, the City and the Owners of the Bonds. Section 11.03. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.04. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, subsection, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.05. Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the Authority: Santa Monica Public Financing Authority c/o City of Santa Monica 17174 1h Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director OHSUSA:762039868.2 41 If to the City: City of Santa Monica 1717 4`h Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director If to the Trustee: MUFG Union Bank, N.A. 120 South San Pedro Street, 0' Floor Los Angeles, California 90012 Attention: Corporate Trust Department Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 11.06. Evidence of Rights of Owners. (a) Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Authority, the City and the Trustee if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request; consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. (c) The ownership of Bonds shall be proved by the Registration Books. (d) Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Authority, the City or the Trustee in accordance therewith or reliance thereon. Section 11.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be OHSUSA:762039868.2 42 disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 11.08. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon. Section 11.09. Funds and Accounts. Any fund or account required by this 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 prudent corporate trust industry standards to the extent practicable, and with due regard for the requirements hereof and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish any such additional funds or accounts as it deems necessary to perform its obligations hereunder. Section 11.10. Business Days. 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 Indenture shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the nominal date provided in this Indenture and, unless otherwise specifically provided in this Indenture, no interest shall accrue for the period from and after such nominal date Section 11.11. Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the Authority or the City from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby. Section 11.12. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of Articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. OHSUSA:762039868.2 43 (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. Section 11.13. Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.14. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution, authentication, issuance and delivery of the Bonds pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any Person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.15. Governing Laws. This Indenture and the Bonds shall be construed and governed in accordance with the laws of the State. Section 11.16. Execution in Counterparts. This Indenture may be simultaneously executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. OHSUSA:762039868.2 1 44 IN WITNESS WHEREOF, the Authority has caused this Indenture to be signed in its name by its representative thereunto duly authorized, the City has caused this Indenture to be signed in its name by its representative thereunto duly authorized and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. SANTA MONICA PUBLIC FINANCING AUTHORITY .0 ATTEST: Sarah P. Gorman, Secretary Marsha Jones Moutrie, Authority Counsel CITY OF SANTA MONICA Lo ATTEST: Sarah P. Gorman, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney MUFG UNION BANK, N.A. C 01-ISUSA:762039868.2 45 Authorized Officer EXHIBIT A PERMITTED INVESTMENTS "Permitted Investments" means the following: (1) Direct general obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury of the United States of America); (2) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: - Export-Import Bank - Rural Economic Community Development Administration - U.S. Maritime Administration - Small Business Administration - U.S. Department of Housing & Urban Development (PHAs) - Federal Housing Administration - Federal Financing Bank; (3) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) Obligations of the Resolution Funding Corporation (REFCORP) Senior debt obligations of the Federal Home Loan Bank System; (4) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks (which may include the Trustee and its affiliates) which have a rating on their short term certificates of deposit on the date of purchase of "P -1" by Moody's and "A -1" or "A -1 +" by S &P and maturing not more than 360 calendar days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (5) Commercial paper which is rated at the time of purchase in the single highest classification, "P -1" by Moody's and "A -1 +" by S &P and which matures not more than 270 calendar days after the date of purchase; (6) Investments in a money market fund rated "AAAm" or "AAAm -G" or better by S &P, including a fund for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services; (7) 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 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 OHSUSA:762039868.2 A-I (a) which are rated, based on an irrevocable escrow account or fund (the "escrow "), in the highest rating category of Moody's or S &P or any successors thereto; or (b) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1) or (2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (8) Municipal obligations rated "Aa/AAl" or general obligations of states with a rating of "AVA" or higher by both Moody's and S &P; (9) Investment agreements with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long -term debt of which, or, in the case of a guaranteed corporation the long -term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least "Aa3" by Moody's and "AA -" by S &P; provided, that, by the terms of the investment agreement: (a) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice; (b) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; (c) the Trustee or the City receive the opinion of domestic counsel that such investment agreement is legal, valid and binding and enforceable against the provider in accordance with its terms and of foreign counsel (if applicable); (d) the investment agreement shall provide that if during its term (i) the provider's rating by either Moody's or S &P falls below "Aa3" or "AA -," respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (A) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the Trustee or a holder of the collateral, collateral free and clear of any third -party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to Moody's and S &P to maintain an "A" rating in an "A" rated structured financing (with a market value OHSUSA:762039868.2 A -2 approach); or (B) repay the principal of and accrued but unpaid interest, on the investment, and (ii) the provider's rating by either Moody's or S &P is withdrawn or suspended or falls below "A3" or "A -," respectively, the provider must, at the direction of the City or the Trustee, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Trustee; (e) the investment agreement shall state, and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the holder of collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the holder of collateral is in possession); and (f) the investment agreement must provide that if during its term (i) the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the City or the Trustee, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Trustee, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc., the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Trustee. OHSUSA:762039868.2 A-3 No. R- EXHIBIT B 1, 1 l 011 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BOND SERIES 2015 (CIVIC CENTER PARKING PROJECT) INTEREST RATE MATURITY DATE DATED DATE % July 1, 20 2015 REGISTERED OWNER: PRINCIPAL AMOUNT: CUSIP The Santa Monica Public Financing Authority (the "Authority ") hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the "Registered Owner "), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on January 1 and July 1 in each year, commencing July 1, 2016 (the "Interest Payment Dates "), until payment of such Principal Amount in full. This Bond is one of a series of a duly authorized issue of bonds designated "Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project)" (the "Bonds ") in the aggregate principal amount of $ . The Bonds are issued pursuant to the Indenture, dated as of 1, 2015 (the "Indenture "), by and among the Authority (the "Authority "), the City of Santa Monica (the "City") and MUFG Union Bank, N.A., as trustee (the "Trustee "), and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. The Indenture is entered into, and this Bond is issued under, the Marks -Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code (the "Act') and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which OHSUSA:762039868.2 B-I event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first -class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee's pursuit of remedies under the Lease Agreement upon a Lease Default Event. Pursuant to and as more particularly provided in the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge constitutes a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are subject to redemption on the dates, at the Redemption Prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Bond or any portion thereof shall be given as provided in the Indenture. The Bonds are issuable as fully- registered Bonds without coupons in Authorized Denominations ($5,000 and integral multiples thereof). Any Bond may be transferred upon 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 Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, OHSUSA:762039868.2 B-2 duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be so surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Indenture and the rights and obligations of the Authority, the City the Trustee and the Owners may be modified or amended in the manner, to the extent, and upon the terms provided in the Indenture. The Indenture contains provisions permitting the Authority to make provision for the payment of the principal of and the interest and premium, if any, on any of the Bonds so that such Bonds shall no longer be deemed to be Outstanding under the terms of the Indenture. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its representative thereunto duly authorized, attested by the manual or facsimile signature of the Secretary of the Authority, all as of the Dated Date identified above. SANTA MONICA PUBLIC FINANCING AUTHORITY ATTEST: Secretary OHSUSA:762039868.2 B -3 CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within - mentioned Indenture and registered on the Registration Books. Date: MUFG UNION BANK, N.A., AS TRUSTEE IC OHSUSA:762039868.2 B -4 Authorized Signatory ►K�WILTIOWN For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within - mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature 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. 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. OHSUSA:762039868.2 B -5 Attachment B Lease Agreement by and between CITY OF SANTA MONICA and MONICA SANTA 1 Dated as of 1, 2015 OHSUSA:762062580.2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS .................................................................. ............................... 2 Section 1.01. Definitions ............................................................. ............................... 2 ARTICLE II LEASE OF PROPERTY; TERM ..................................... ............................... 5 Section 2.01. Lease of Property .................................................. ............................... 5 Section 2.02. Occupancy; Term .................................................. ............................... 5 ARTICLE III RENTAL PAYMENTS ............' ........................................ ............................... 7 Section 3.01. Rental Payments .................................................... ............................... 7 Section 3.02. Base Rental Payments ........................................... ............................... 7 Section 3.03. Additional Rental Payments ................................. ............................... 7 Section 3.04. Fair Rental Value .................................................. ............................... 8 Section 3.05. Payment Provisions ............................................... ............................... 8 Section 3.06. Appropriations Covenant ...................................... ............................... 8 Section 3.07. Rental Abatement .................................................. ............................... 8 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS ........10 Section 4.01. Quiet Enjoyment ................................................. ............................... 10 Section 4.02. Net - Net -Net Lease .............................................. ............................... 10 Section 4.03. Right of Entry ..................................................... ............................... 10 Section 4.04. Maintenance and Utilities ................................... ............................... 10 Section 4.05. Additions to Property .......................................... ............................... 10 Section 4.06. Installation of City's Equipment ......................... ............................... 10 Section 4.07. Mechanics', Etc. Liens ........................................ ............................... 11 Section4.08. Other Liens .......................................................... ............................... 11 ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN ............................ 12 Section 5.01. Public Liability and Property Damage Insurance; Workers' Compensation Insurance ..................................... ............................... 12 Section 5.02. Title Insurance .................................................... ............................... 13 Section 5.03. Additional Insurance Provision; Form of Policies .............................13 Section 5.04. Self- Insurance ....................................................... .............................13 Section 5.05. Damage or Destruction ....................................... ............................... 14 Section 5.06. Title Insurance .................................................... ............................... 14 Section 5.07. Eminent Domain ................................................. ............................... 15 OHSUSA:762062580.2 i TABLE OF CONTENTS (continued) Page ARTICLE VI REPRESENTATIONS; COVENANTS ........................... .............................16 Section 6.01. Representations of the City ................................... .............................16 Section 6.02. Representation of the Authority ............................ .............................16 Section 6.03. Recordation ......................................................... ............................... 16 Section 6.04. Use of the Property ............................................. ............................... 16 Section6.05. Other Liens .......................................................... ............................... 16 Section6.06. Taxes ..................................................................... .............................17 Section 6.07. No Liability; Indemnification ............................... .............................17 Section 6.08. Further Assurances .............................................. ............................... 18 ARTICLE VII DEFAULTS AND REMEDIES ....................................... .............................19 Section 7.01. Events of Defaults and Remedies ......................... .............................19 Section7.02. Waiver ................................................................... .............................22 ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE ................................... ............................... 23 Section 8.01. Amendments ......................................................... .............................23 Section 8.02. Assignment and Subleasing ................................ ............................... 23 Section 8.03. Substitution or Release of the Property .............. ............................... 24 ARTICLE IX MISCELLANEOUS ....................................................... ............................... 26 Section 9.01. Assignment to Authority Trustee ........................ ............................... 26 Section 9.02. Validity and Severability .................................... ............................... 26 Section9.03. Notices ................................................................ ............................... 26 Section 9.04. Interpretation ....................................................... ............................... 27 Section 9.05. Section Headings ................................................ ............................... 27 Section 9.06. Governing Laws .................................................. ............................... 27 Section 9.07. Execution in Counterparts ................................... ............................... 27 EXHIBIT A DESCRIPTION OF THE PROPERTY ........................ ............................... A -I OHSUSA:762062580.2 ii LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease Agreement'), dated as of 1, 2015, is by and between the CITY OF SANTA MONICA, a municipal corporation and charter city organized and existing under the laws of the State of California (the "City "), as lessee, and the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the "Authority "), as lessor. RECITALS WHEREAS, in order to finance the construction, installation, reimbursement and acquisition of certain capital improvements constituting a public parking garage and related improvements (the "Project'), the City and the Authority entered into a Lease Agreement, dated as of December 1, 2004 (the "Prior Lease Agreement'); WHEREAS, in order to provide the funds necessary to finance the Project, the Authority issued its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) (the "Prior Bonds "), payable from the base rental payments to be made by the City pursuant to the Prior Lease Agreement; WHEREAS, the City desires to refinance the Project by exercising its option to prepay the base rental payments to be made by the City pursuant to the Prior Lease Agreement, thereby causing the Prior Bonds to be defeased and redeemed; WHEREAS, in order to refinance the Project, the City is leasing certain real property, and the improvements thereto (the "Property "), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Property back from the Authority pursuant to this Lease Agreement; WHEREAS, in order to provide the funds necessary to refinance the Project and redeem the Prior Bonds, the Authority is issuing its Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project), in the aggregate principal amount of $ , payable from the base rental payments to be made by the City pursuant to this Lease Agreement; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: OHSUSA:762062580.2 ARTICLE I DEFINITIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Lease Agreement, have the meanings herein specified, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 hereof. "Authority" means the Santa Monica Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. "Authorized City Representative" means the Mayor of the City, the City Manager of the City, the Director of Finance /Treasurer of the City, the Assistant City Treasurer of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. "Base Rental Deposit Date" means the [fifth] Business Day next preceding each Interest Payment Date. "Base Rental Payments" means all amounts payable to the Authority from the City as Base Rental Payments pursuant to Section 3.02 hereof. "Bond Counsel" means a firm of nationally recognized bond counsel selected by the City. "Bonds" means the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project), issued under the Indenture. "City" means the City of Santa Monica, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. "Code" means the Internal Revenue Code of 1986. "Delivery Date" means 2015. "Event of Default" means, with respect to this Lease Agreement, any event or circumstance specified in 7.01 hereof as an Event of Default. "Fair Rental Value" means, with respect to the Property, the annual fair rental value thereof. OHSUSA:762062580.2 "Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve -month period hereafter selected and designated as the official fiscal year period of the City. "Ground Lease" means the Ground Lease, dated as of 1, 2015, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and hereof. "Indenture" means the Indenture, dated as of 1, 2015, by and between the Authority and MUFG Union Bank, N.A., as Trustee, as originally executed and as it may be amended or supplemented from time to time in accordance with the provisions thereof. "Interest Payment Dates" means January 1 and July 1 of each year, commencing January 1, 2016. "Lease Agreement" means this Lease Agreement, dated as of 1, 2015, by and between the City and the Authority, as the same may be amended or supplemented pursuant to the provisions hereof. "Net Proceeds" means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. "Outstanding" has the meaning ascribed to such term in the Indenture. "Permitted Encumbrances" means with respect to the Property, as of any particular time (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of Section 6.06 hereof, permit to remain unpaid, (b) this Lease Agreement, (c) the Ground Lease, (d) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Property for the purposes for which it was acquired or is held by the City, (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Delivery Date, and (f) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Delivery Date which the City certifies in writing do not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture. "Property" means the real property described in Exhibit A hereto and any improvements thereto. "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the period from the Delivery Date through June 30, 2016 and, thereafter, the twelve -month period commencing on July 1 of each year during the term of this Lease Agreement. OHSUSA:762062580.2 "Scheduled Termination Date" means July 1, 2033. "State" means the State of California. "Trustee" means MUFG Union Bank, N.A., as trustee under the Indenture, or any successor thereto as trustee thereunder, substituted in its place as provided therein. "Written Certificate" and "Written Request" of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. OHSUSA:762062580.2 ARTICLE II LEASE OF PROPERTY; TERM Section 2.01. Lease of Property. (a) The Authority hereby leases to the City and the City hereby leases from the Authority the Property, on the terms and conditions hereinafter set forth, and subject to all Permitted Encumbrances. (b) The leasing of the Property by the City to the Authority pursuant to the Ground Lease shall not effect or result in a merger of the City's leasehold estate in the Property as lessee under this Lease Agreement and its leasehold or fee estate, as applicable, in the Property as lessor under the Ground Lease, and the Authority shall continue to have a leasehold estate in the Property pursuant to the Ground Lease throughout the term thereof and hereof. This Lease Agreement shall constitute a sublease with respect to the Property. The leasehold interest in the Property granted by the City to the Authority pursuant to the Ground Lease is and shall be independent of this Lease Agreement; this Lease Agreement shall not be an assignment or surrender of the leasehold interest in the Property granted to the Authority under the Ground Lease. Section 2.02. Occupancy; Term. (a) The City shall take possession of the Property on the Delivery Date. (b) The term of this Lease Agreement shall commence on the Delivery Date and shall end on the Scheduled Termination Date, unless such term is extended or sooner terminated as hereinafter provided. (c) If all of the Property shall be taken under the power of eminent domain, and the City does not elect to cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, as provided in clause (i) of Section 5.07(c) hereof but, rather, elects to deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds, as provided in clause (ii) of Section 5.07(c) hereof, then, on the date that possession thereof shall be so taken, the term of this Lease Agreement shall terminate. (d) If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with Article X of the Indenture, then, on the date of such payment or deemed payment, the term of this Lease Agreement shall terminate. (e) If on the Scheduled Termination Date, the Rental Payments payable hereunder shall have been abated at any time and for any reason, then the term of this Lease Agreement shall be extended until the date upon which all such Rental Payments shall have been paid in full, except that the term of this Lease Agreement shall in no event be extended more than ten years beyond the Scheduled Termination Date. (f) Upon the termination of the term of this Lease Agreement (other than as provided in Section 7.01 hereof), and the first date upon which the Bonds are no longer Outstanding, all right, title and interest in and to the Property shall vest in the City. Upon any such termination or OHSUSA:762062580.2 5 expiration, the Authority shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. OHSUSA:762062580.2 ARTICLE III RENTAL PAYMENTS Section 3.01. Rental Payments. (a) Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. (b) The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. (c) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of this Lease Agreement, as so extended. Section 3.02. Base Rental Payments. (a) The City, subject to the provisions of Section 3.07 hereof, shall pay Base Rental Payments to the Authority. The Base Rental Payments shall be payable on the Interest Payment Dates and the Base Rental Payment payable on each Interest Payment Date shall be equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. (b) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the Base Rental Payments shall be established so that the Base Rental Payment payable on each Interest Payment Date after the Scheduled Termination Date shall be equal to the principal, if any, of and interest on the Bonds remaining due and payable on such Interest Payment Date; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Property. Section 3.03. Additional Rental Payments. (a) The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; (ii) insurance premiums for all insurance required pursuant to Article V hereof; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. OHSUSA:762062580.2 7 (b) Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Section 3.04. Fair Rental Value. The parties hereto have agreed and determined that the Fair Rental Value of the Property is not less than $ as of the Delivery Date. In making such determinations of Fair Rental Value, consideration has been given to the uses and purposes which may be served by the Property and the benefits therefrom that will accrue to the City and the general public. Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period. Section 3.05. Payment Provisions. Each installment of Base Rental Payments payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the Principal Office of the Trustee, or such other place or entity as the Authority shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment which shall not be paid by the City when due and payable under the terms of this Lease Agreement shall bear interest from the date when the same is due hereunder until the same shall be paid a rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due hereunder or refunded at the time of such determination. Section 3.06. Appropriations Covenant. The City shall take such action as may be necessary to include all Rental Payments due hereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. Section 3.07. Rental Abatement. (a) Except as otherwise specifically provided in this Section, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate this Lease Agreement by virtue of any such interference, and this Lease Agreement shall continue in full force and effect. The City and the Authority shall, in a reasonable manner and in good faith, determine the amount of such abatement; provided, however, that the Rental Payments due for OHSUSA:762062580.2 8 any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall provide the Trustee with a certificate setting forth the amount of abatement and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed. (b) Notwithstanding the foregoing, to the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments, Rental Payments shall not be abated as provided in subsection (a) of this Section but, rather, shall be payable by the City as a special obligation payable solely from such Net Proceeds. OHSUSA:762062580.2 9 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS Section 4.01. Quiet Enjoyment. The parties hereto mutually covenant that the City, by keeping and performing the covenants and agreements herein contained, shall at all times during the term of this Lease Agreement peaceably and quietly have, hold and enjoy the Property without suit, trouble or hindrance from the Authority. Section 4.02. Net -Net -Net Lease. This Lease Agreement shall be deemed and construed to be a "net- net -net lease" and the City hereby agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever and notwithstanding any dispute between the City and the Authority. Section 4.03. Right of Entry. The Authority shall have the right to enter upon and to examine and inspect the Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority's rights or obligations under this Lease Agreement, and for all other lawful purposes. Section 4.04. Maintenance and Utilities. Throughout the term of this Lease Agreement, as part of the consideration for rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Property. Section 4.05. Additions to Property. Subject to Section 4.07 hereof, the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is at least equal to the value of the Property immediately prior to the making of such additions, modifications and improvements. Section 4.06. Installation of City's Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and OHSUSA:762062580.2 10 restore any and all damage to the Property resulting from the installation, modification or removal of any such items; and the Property, upon completion of any installations, modifications or removals made pursuant to this Section, shall be of a value which is at least equal to the value of the Property immediately prior to the making of such installations, modifications or removals. Nothing in this Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this Section under a conditional sale or lease purchase contract, or subject to a vendor's lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Property. Section 4.07. Mechanics', Etc. Liens. In the event the City shall at any time during the term of this Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Property and which may be secured by a mechanics', materialmen's or other lien against the Property or the Authority's interest therein, and will cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contest is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Section 4.08. Other Liens. The City shall keep the Property and all parts thereof free from judgments and materialmen's and mechanics' liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days' written notice to comply therewith and failure of the City to so comply within such ten -day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. oHSUSA:762062580.2 11 ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN Section 5.01. Public Liability and Property Damage Insurance; Workers' Compensation Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with - respect to which the Net Proceeds of such insurance shall have been paid. The City's obligations under this subsection may be satisfied by self - insurance, provided that such self - insurance complies with the provisions of Section 5.04 hereof. (b) The City shall maintain or cause to be maintained casualty insurance insuring the Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as provided in Section 5.05 hereof. The City's obligations under this subsection may be satisfied by self - insurance, provided that such self - insurance complies with the provisions of Section 5.04 hereof. (c) The City shall maintain rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to subsection (b) of this Section in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City's right to the use or occupancy of the Property. The City's obligations under this subsection may not be satisfied by self - insurance. (d) The insurance required by this Section shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City's OHSUSA:762062580.2 12 professionally certified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. Section 5.02. Title Insurance. The City shall provide, at its own expense, one or more CLTA title insurance policies for the Property, in the aggregate amount of not less than the aggregate principal amount of the Outstanding Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Property (b) the Authority's ground leasehold estate in the Property under the Ground Lease, and (c) the City's leasehold estate hereunder in the Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. The Net Proceeds of such title insurance shall be applied as provided as provided in Section 5.06 hereof. Section 5.03. Additional Insurance Provision; Form of Policies. (a) The City shall pay or cause to be paid when due the premiums for all insurance policies required by Section 5.01 hereof, and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days' notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee. (b) The City shall cause to be delivered to the Trustee, on or before August 15 of each year, commencing August 15, 2016, a schedule of the insurance policies being maintained in accordance herewith and a Written Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of this Article. The Trustee shall be entitled to rely upon said Written Certificate of the City as to the City's compliance with this Article. The Trustee shall not be responsible for the sufficiency of coverage or amounts of such policies. Section 5.04. Self - Insurance. Any self - insurance maintained by the City pursuant to this Article shall comply with the following terms: (a) the self - insurance program shall be approved in writing by the City's professionally certified risk manager or by an independent insurance consultant; (b) the self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi- annual basis by the City's professionally certified risk manager or by an independent insurance consultant and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City's professionally certified risk manager or such independent insurance consultant, as applicable; and (c) in the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City's professionally certified risk manager or by an independent insurance consultant, shall be maintained. OHSUSA:762062580.2 13 Section 5.05. Damage or Destruction. (a) If the Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City's determination as to whether or not such damage or destruction will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b) If the City determines that such damage or destruction will not result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. (c) If the City determines that such damage or destruction will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self - insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof which have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. Section 5.06. Title Insurance. (a) If a defect in title to the Property results in the creation of a right to receive Net Proceeds under any policy of title insurance with respect to the Property or any portion thereof, the City shall, within 30 days of the creation of such right, notify the Trustee in writing of the City's determination as to whether or not such title defect will result OHSUSA:762062580.2 14 in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b) If the City determines that such title defect will not result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, such Net Proceeds shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such title defect will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) within 60 days of the creation of such right to receive such Net Proceeds, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered such Net Proceeds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. Section 5.07. Eminent Domain. (a) If all or a portion of the Property shall be taken under the power of eminent domain, the City shall, no later than 45 days prior to the day that possession thereof shall be so taken, notify the Trustee in writing of the City's determination as to whether or not such taking will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b) If the City determines that such taking will not result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, any award made in eminent domain proceedings for such taking shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such taking will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) no later than 45 days prior to the day that possession thereof shall be so taken, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. OHSUSA:762062580.2 15 ARTICLE VI REPRESENTATIONS; COVENANTS Section 6.01. Representations of the City. The City represents and warrants (a) that the City has the full power and authority to enter into, to execute and to deliver this Lease Agreement and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Lease Agreement, and (b) the Property will be used in the performance of essential governmental functions. Section 6.02. Representation of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver this Lease Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement and the Indenture. Section 6.03. Recordation. The City shall record, or cause to be recorded, with the appropriate county recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City's right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 of the Indenture. Section 6.04. Use of the Property. The City will not use, operate or maintain the Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner which does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Property or its interest or rights under this Lease Agreement. Section 6.05. Other Liens. The City shall keep the Property and all parts thereof free from judgments and materialmen's and mechanics' liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days' written notice to comply therewith and failure of the City to so comply within such ten -day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. OHSUSA:762062580.2 16 Section 6.06. Taxes. (a) The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the term of this Lease Agreement as and when the same become due. (b) After giving notice to the Authority and the Trustee, the City or any sublessee may, at the City's or such sublessee's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority or the Trustee shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Property will be materially endangered or the Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the Trustee. Section 6.07. No Liability; Indemnification. (a) The Authority and its directors, officers, agents and employees, shall not be liable to the City or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Property. To the extent permitted by law, the City shall, at its expense, indemnify and hold the Authority and the Trustee and all directors, members, officers and employees thereof harmless against and from any and all claims by or on behalf of Person arising from the acquisition, construction, occupation, use, operation, maintenance, possession, conduct or management of or fi•om any work done in or about the Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restrictions, laws, ordinances, or regulations affecting the Property or the occupancy or use thereof, but excepting the negligence or willful misconduct of the persons or entity seeking indemnity. The City also covenants and agrees, at its expense, to pay and indemnify and save the Authority and the Trustee and all directors, officers and employees thereof harmless against and from any and all claims arising from (i) any condition of the Property and the adjoining sidewalks and passageways, (ii) any breach or default on the part of the City in the performance of any covenant or agreement to be performed by the City pursuant to this Lease Agreement, (iii) any act or negligence of licensees in connection with their use, occupancy or operation of the Property, or (iv) any accident, injury or damage whatsoever caused to any person, firm or corporation in or about the Property or upon or under the sidewalks and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any claim referred to in this Section, but excepting the negligence or willful misconduct of the person or entity seeking indemnity. In the event that any action or proceeding is brought against the Authority or the Trustee or any director, member, officer or employee thereof, by reason of any such claim, the City, upon notice from the Authority or the Trustee or such director, member, officer or employee thereof, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to the Authority or the Trustee or such director, member, officer or employee thereof. OHSUSA:7620625802 17 (b) In no event shall the Authority be liable for any incidental, indirect, special or consequential damage in connection with or arising out of this Lease Agreement or the City's use of the Property. Section 6.08. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Lease Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided in this Lease Agreement. OHSUSA:762062580.2 18 ARTICLE VII DEFAULTS AND Section 7.01. Events of Defaults and Remedies. (a) If (i) the City shall fail (A) to pay any Rental Payment payable hereunder when the same becomes due and payable, time being expressly declared to be of the essence in this Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained herein to be kept or performed by the City, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority, or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, (ii) the City's interest in this Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Authority, (iii) the City or the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute, or (iv) the City shall fail to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, such failure or event shall constitute and Event of Default under this Lease Agreement. (b) Upon the occurrence of any Event of Default hereunder, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (i) To terminate this Lease Agreement in the manner hereinafter provided on account of such Event of Default, notwithstanding any re -entry or re- letting of the Property as hereinafter provided for in subparagraph (ii) hereof, and to re -enter the Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of such Event of Default, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re -entry upon the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. Neither notice to pay Rental Payments or to deliver up possession of the Property given pursuant to law nor any entry or re -entry by the Authority nor any oxsusA:762062580.2 19 proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re -entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority's interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of an Event of Default hereunder shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease Agreement. The City covenants and agrees that no surrender of the Property or of the remainder of the term hereof or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (ii) Without terminating this Lease Agreement, (A) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions hereof to be kept or performed by the City, regardless of whether or not the City has abandoned the Property, or (B) to exercise any and all rights of entry and re -entry upon the Property. In the event the Authority does not elect to terminate this Lease Agreement in the manner provided for in subparagraph (i) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, if the Property is not re -let, to pay the full amount of the Rental Payments to the end of the term of this Lease Agreement or, in the event that the Property is re -let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and /or Rental Payment deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of Rental Payments hereunder, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments herein specified, and notwithstanding any entry or re- entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re -entry or obtaining possession of the Property. Should the Authority elect to re -enter as herein provided, the City hereby irrevocably appoints the Authority as the agent and attorney -in -fact of the City to re -let the Property, or any part thereof, from time to time, either in the Authority's name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re- entry upon and re- letting of the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re -let the Property in the event of such re- entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such re- letting shall constitute a surrender or termination of this Lease Agreement irrespective of the use or the term for which such re- letting is made or the terms and conditions of such re- letting, or otherwise, but that, on the contrary, upon the occurrence of an Event of Default hereunder, the right to terminate OHSUSA:762062580.2 20 this Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in subparagraph (i) hereof. The City further agrees to pay the Authority the cost of any alterations or additions to the Property necessary to place the Property in condition for re- letting immediately upon notice to the City of the completion and installation of such additions or alterations. The City hereby waives any and all claims for damages caused or which may be caused by the Authority in re- entering and taking possession of the Property as herein provided and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Property. (c) In addition to the other remedies set forth in this Section, upon the occurrence of an Event of Default hereunder, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by this Lease Agreement or by law. The provisions of this Lease Agreement and the duties of the City and of its board, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions: (i) Accounting. By action or suit in equity to require the City and its board, officers and employees and its assigns to account as the trustee of an express trust. (ii) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Authority. (iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority's rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided herein. (d) Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege hereunder shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term "re -let" or "re- letting" as used in this Section shall include, but not be limited to, re- letting by means of the operation by the Authority of the Property. If any statute or rule of law validly shall limit the remedies given to the Authority hereunder, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. (e) In the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of this Lease Agreement, the City agrees to pay a reasonable amount as and for attorney's fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority hereunder. (f) Notwithstanding anything to the contrary contained in this Lease Agreement, the Authority shall have no right upon a default by the City hereunder, an Event of Default hereunder or otherwise to accelerate Rental Payments. OHSUSA:762062580.2 21 (g) Notwithstanding anything herein to the contrary, the termination of this Lease Agreement by the Authority on account of an Event of Default hereunder shall not effect or result in a termination of the lease of the Property by the City to the Authority pursuant to the Ground Lease. Section 7.02. Waiver. Failure of the Authority to take advantage of any default on the part of the City shall not be, or be construed as, a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the City of any term, covenant or condition hereof, or to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of any other default or of the same default subsequently occurring. The acceptance of Rental Payments hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease Agreement. OHSUSA:762062580.2 22 ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE Section 8.01. Amendments. (a) This Lease Agreement and the Ground Lease, and the rights and obligations of the Authority and the City hereunder and thereunder, may be amended at any time by an amendment hereto or thereto which shall become binding upon execution by the City and the Authority, but only with the prior written consent of the Owners of a majority of the aggregate principal amount the Bonds then Outstanding, provided that no such amendment shall (i) extend the payment date of any Base Rental Payment or reduce any Base Rental Payment, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the aggregate principal amount the Bonds, the consent of the Owners of which is required for the execution of any amendment of this Lease Agreement or the Ground Lease, without the prior written consent of the Owners of all the Bonds then Outstanding. (b) This Lease Agreement and the Ground Lease, and the rights and obligations of the City and the Authority hereunder and thereunder, may also be amended at any time by an amendment hereto or thereto which shall become binding upon execution by the City and the Authority, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed herein or therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved herein or therein to or conferred herein or therein on the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or therein or in regard to questions arising hereunder or thereunder which the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and which shall not materially adversely affect the rights or interests of the Owners; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds; (iv) to provide for the substitution or release of a portion of the Property in accordance with the provisions of Section 8.03 hereof; or (v) to make such other changes herein or therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and which shall not materially adversely affect the interests of the Owners. Section 8.02. Assignment and Subleasing. Neither this Lease Agreement not any interest of the City hereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation of law or otherwise; provided, however, that the Property OHSUSA:762062580.2 23 may be subleased in whole or in part by the City, provided that any such sublease shall be subject to all of the following conditions: (a) this Lease Agreement and the obligation of the City to make all Rental Payments hereunder shall remain the primary obligation of the City; (b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) any sublease of the Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under this Lease Agreement, including, the right to re -enter and re -let the Property or terminate this Lease Agreement upon an Event of Default hereunder; and (d) the City shall furnish the Authority and the Trustee with an opinion of Bond Counsel to the effect that such sublease will not, in and of itself, cause the interest evidenced by the Bonds to be included in gross income for federal income tax purposes. Section 8.03. Substitution or Release of the Property. The City shall have the right to substitute alternate real property for any portion of the Property or to release a portion of the Property from this Lease Agreement. All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution or release pursuant to this Section, there shall be no reduction in or abatement of the Base Rental Payments due from the City hereunder as a result of such substitution or release. Any such substitution or release of any portion of the Property shall be subject to the following specific conditions, which are hereby made conditions precedent to such substitution or release: (a) an independent certified real estate appraiser selected by the City shall have found (and shall have delivered a certificate to the City and the Trustee setting forth its findings) that the Property, as constituted after such substitution or release (i) has an annual fair rental value greater than or equal to 105% of the maximum amount of the principal of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds), (ii) has a fair replacement value at least equal to the aggregate principal amount of the Bonds then Outstanding, and (iii) has a useful life equal to or greater than the useful life of the Property, as constituted prior to such substitution or release; (b) the City shall have obtained or caused to be obtained an CLTA title insurance policy or policies with respect to any substituted property in the amount of the fair market value of such substituted property (which fair market value shall have been determined by an independent certified real estate appraiser), of the type and with the endorsements described in Section 5.02 hereof, (c) the City shall have certified to the Trustee that the substituted real property is of approximately the same degree of essentiality to the City as the portion of the Property for which it is being substituted; OHSUSA:762062580.2 24 (d) the City shall have provided the Trustee with an opinion of Bond Counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes; and (e) the City, the Authority and the Trustee shall have executed, and the City shall have caused to be recorded with the Los Angeles County Recorder, any document necessary to reconvey to the City the portion of the Property being substituted or released and to include any substituted real property in the description of the Property contained herein and in the Ground Lease. OHSUSA:762062580.2 25 ARTICLE IX MISCELLANEOUS Section 9.01. Assignment to Authority Trustee. The City understands and agrees that, upon the execution and delivery of the Indenture (which is occurring simultaneously with the execution and delivery hereof), all right, title and interest of the Authority in and to this Lease Agreement will be sold, assigned and transferred to the Trustee for the benefit of the Owners of the Bonds. The City hereby consents to such sale, assignment and transfer. Upon the execution and delivery of the Indenture, references in the operative provisions hereof to the Authority shall be deemed to be references to the Trustee, as assignee of the Authority. Section 9.02. Validity and Severability. If for any reason this Lease Agreement shall be held by a court of competent jurisdiction to be void, voidable or unenforceable by the Authority or by the City, or if for any reason it is held by such a court that any of the covenants and conditions of the City hereunder, including the covenant to pay Rental Payments, is unenforceable for the full term hereof, then and in such event this Lease Agreement is and shall be deemed to be a Lease Agreement under which the Rental Payments are to be paid by the City annually in consideration of the right of the City to possess, occupy and use the Property, and all of the terms, provisions and conditions of this Lease Agreement, except to the extent that such terms, provisions and conditions are contrary to or inconsistent with such holding, shall remain in full force and effect. Section 9.03. Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: If to the Authority: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director Santa Monica Public Financing Authority c/o City of Santa Monica 17174 th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director OHSUSA:762062580.2 26 If to the Trustee: MUFG Union Bank, N.A. 120 South San Pedro Street, 4`h Floor Los Angeles, California 90012 Attention: Corporate Trust Department Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 9.04. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of Articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Lease Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Lease Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 9.05. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Lease Agreement. Section 9.06. Governing Laws. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Section 9.07. Execution in Counterparts. This Lease Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. OHSUSA:762062580.2 27 IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. CITY OF SANTA MONICA Im ATTEST: Sarah P. Gorman, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney SANTA MONICA PUBLIC FINANCING AUTHORITY IC ATTEST: Sarah P. Gorman, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel oHSUSA:762062580.2 28 EXHIBIT A DESCRIPTION OF THE PROPERTY All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: THAT CERTAIN PARCEL OF LAND SITUATED IN THE CITY OF SANTA MONICA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, BEING THAT PORTION OF THE RANCHO SAN VICENTE Y SANTA MONICA AS SHOWN ON A MAP THEREOF RECORDED IN BOOK 3, PAGES 30 AND 31 OF PATENTS, TOGETHER WITH PORTIONS OF LOTS 1 AND 2 IN BLOCK 3 OF THE BANDMI TRACT AS SHOWN ON A MAP THEREOF FILED IN BOOK 55, PAGES 56 AND 57 OF MISCELLANEOUS RECORDS, BOTH IN THE OFFICE OF THE COUNTY RECORDER OF SAID LOS ANGELES COUNTY, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS BEING "NORTH 440 44' 01" WEST 48.92 FEET" IN THE NEW CENTERLINE OF FOURTH STREET ON PARCEL MAP NO. 18134 FILED IN BOOK 202, PAGES 21 THROUGH 23 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID LOS ANGELES COUNTY, SAID TERMINUS ALSO BEING THE INTERSECTION OF SAID NEW CENTERLINE OF FOURTH STREET WITH THE CENTERLINE OF OLYMPIC BOULEVARD EASTBOUND AS SHOWN ON SAID PARCEL MAP; THENCE AT RIGHT ANGLES TO SAID NEW CENTERLINE OF FOURTH STREET, SOUTH 45-15'00" WEST 37.50 FEET TO THE SOUTHWESTERLY RIGHT -OF -WAY LINE OF FOURTH STREET (75.00 FEET WIDE); THENCE ALONG SAID SOUTHWESTERLY RIGHT -OF -WAY LINE, NORTH 44° 45'00" WEST 9.35 FEET TO A POINT IN A NON - TANGENT CURVE CONCAVE SOUTHEASTERLY AND HAVING A RADIUS OF 25.00 FEET, A RADIAL LINE OF SAID CURVE FROM SAID POINT BEARS SOUTH 07° 08'39" EAST, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE ALONG SAID CURVE SOUTHWESTERLY 13.78 FEET THROUGH A CENTRAL ANGLE OF 31° 35' 21 "; THENCE TANGENT FROM SAID CURVE SOUTH 510 16' 00" WEST 93.93 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY AND HAVING A RADIUS OF 25.00 FEET; THENCE ALONG SAID CURVE SOUTHWESTERLY, SOUTHERLY AND SOUTHEASTERLY 41.89 FEET THROUGH A CENTRAL ANGLE OF 96° 00' 47'; THENCE TANGENT FROM SAID CURVE SOUTH 440 44'47" EAST 366.42 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHERLY AND HAVING A RADIUS OF 15.00 FEET; THENCE ALONG SAID CURVE SOUTHEASTERLY, EASTERLY AND NORTHEASTERLY 23.58 FEET THROUGH A CENTRAL ANGLE OF 900 04' 34'; THENCE TANGENT FROM SAID CURVE NORTH 45° 10' 39" EAST 112.18 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHWESTERLY AND HAVING A RADIUS OF 20.00 FEET; THENCE ALONG SAID CURVE NORTHEASTERLY 10.97 FEET THROUGH A CENTRAL ANGLE OF 310 26' 24" TO SAID SOUTHWESTERLY RIGHT -OF -WAY LINE OF FOURTH STREET (75.00 FEET WIDE); THENCE ALONG SAID SOUTHWESTERLY RIGHT -OF -WAY LINE AND NON- TANGENT FROM SAID CURVE NORTH 450 26' 02" WEST 329.77 FEET AND NORTH 440 45'00" WEST 58.53 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING FOREVER, THE TITLE AND EXCLUSIVE RIGHT TO ALL OF THE MINERALS AND MINERAL ORES OF EVERY KIND AND CHARACTER NOW KNOWN TO EXIST OR HERAFTER DISCOVERED UPON, WITHIN OR UNDERLYING SAID LAND OR THAT MAY BE PRODUCED THEREFROM INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ALL PETROLEUM, OIL, NATURAL GAS AND OTHER HYDROCARBON OHSUSA:762062580.2 B-1 SUBSTANCES AND PRODUCTS DERIVED THEREFROM, TOGETHER WITH THE EXCLUSIVE AND PERPETUAL RIGHT OF SAID GRANTOR, ITS SUCCESSOR AND ASSIGNS OF INGRESS AND EGRESS BENEATH THE SURFACE OF SAID LAND, TO EXPLORE FOR, EXTRACT, MINE AND REMOVE THE SAME, AND TO MAKE SUCH USE OF THE SAID LAND BENEATH THE SURFACE AS IS NECESSARY OR USEFUL IN CONNECTION THEREWITH, WHICH USE MAY INCLUDE LATERAL OR SLANT DRILLING, DIGGING, BORING, OR SINKING OF WELLS, SHAFTS OR TUNNELS, PROVIDED HOWEVER, THAT SAID GRANTOR, ITS SUCCESSOR AND ASSIGNS, SHALL NOT USE THE SURFACE OF SAID LAND IN THE EXERCISE OF ANY OF SAID RIGHTS AND SHALL NOT DISTURB THE SURFACE OF SAID LAND OR ANY IMPROVEMENTS THEREON OR REMOVE OR IMPAIR THE LATERAL OR SUBJACENT SUPPORT OF SAID LAND OR ANY IMPROVEMENTS THEREON, AS RESERVED BY PACIFIC ELECTRIC RAILWAY COMPANY, A CORPORATION, BY DEED RECORDED JULY 17, 1958 IN BOOK D 158 PAGE 141, OFFICIAL RECORDS. OHSUSA:762062580.2 B-2 Attachment C Ground Lease TO BE RECORDED AND WHEN RECORDED RETURN TO: Orrick, Herrington & Sutcliffe LLP 777 South Figueroa Street, 32nd Floor Los Angeles, California 90017 Attention: Laura Gao THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11929 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27353 OF THE CALIFORNIA GOVERNMENT CODE. by and between 1 1 and Dated as of 192015 OHSUSA:762063090.2 GROUND LEASE THIS GROUND LEASE (this "Ground Lease "), executed and entered into as of 1, 2015, is by and between the CITY OF SANTA MONICA, a municipal corporation and charter city organized and existing under the laws of the State of California (the "City "), as lessor, and the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the "Authority "), as lessee. RECITALS WHEREAS, in order to finance the construction, installation, reimbursement and acquisition of certain capital improvements constituting a public parking garage and related improvements (the "Project'), the City and the Authority entered into a Lease Agreement, dated as of December 1, 2004 (the "Prior Lease Agreement'); WHEREAS, in order to provide the funds necessary to finance the Project, the Authority issued its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) (the "Prior Bonds "), payable from the base rental payments to be made by the City pursuant to the Prior Lease Agreement; WHEREAS, the City desires to refinance the Project by exercising its option to prepay the base rental payments to be made by the City pursuant to the Prior Lease Agreement, thereby causing the Prior Bonds to be defeased and redeemed; WHEREAS, in order to refinance the Project, the City is leasing certain real property, and the improvements thereto (the "Property "), to the Authority pursuant to this Ground Lease, and the City is subleasing the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the "Lease Agreement'); WHEREAS, the Property is described in Exhibit A attached hereto; WHEREAS, in order to provide the funds necessary to refinance the Project, the Authority is issuing its Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project), in the aggregate principal amount of $ , payable from the base rental payments to be made by the City pursuant to the Lease Agreement; WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Ground Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Ground Lease; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: OHSUSA:762063090.2 ARTICLE I DEFINITIONS Except as otherwise defined herein, or unless the context clearly otherwise requires, words and phrases defined in Section 1.01 of the Lease Agreement shall have the same meanings in this Ground Lease. ARTICLE II LEASE OF THE PROPERTY; RENTAL Section 2.01. Lease of Property. The City hereby leases to the Authority, and the Authority hereby leases from the City, for the benefit of the Owners of the Bonds, the Property, subject only to Permitted Encumbrances, to have and to hold for the term of this Ground Lease. Section 2.02. Rental. (a) The Authority shall pay to the City as and for rental of the Property hereunder, the sum of not to exceed $ (the "Ground Lease Payment "). The Ground Lease Payment shall be paid from the proceeds of the Bonds; provided, however, that in the event the available proceeds of the Bonds are not sufficient to enable the Authority to pay such amount in full, the remaining amount of the Ground Lease Payment shall be reduced to an amount equal to the amount of such available proceeds. (b) The City shall deposit the Ground Lease Payment in one or more separate funds or accounts to be held and administered for the purpose of defeasing and redeeming the Prior Bonds. The Authority and the City hereby find and determine that the amount of the Ground Lease Payment does not exceed the fair market value of the leasehold interest in the Property which is conveyed hereunder by the City to the Authority. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Property under this Ground Lease. ARTICLE III QUIET ENJOYMENT The parties intend that the Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. Subject to any rights the City may have under the Lease Agreement (in the absence of an event of default) to possession and enjoyment of the Property, the City hereby covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Property during the term hereof and will, at the request of the Authority and at the City's cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. OHSUSA:762063090.2 2 ARTICLE IV SPECIAL COVENANTS AND PROVISIONS Section 4.01. Waste. The Authority agrees that at all times that it is in possession of the Property, it will not commit, suffer or permit any waste on the Property, and that it will not willfully or knowingly use or permit the use of the Property for any illegal purpose or act. Section 4.02. Further Assurances and Corrective Instruments. The City and the Authority agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to be or for carrying out the expressed intention of this Ground Lease, the Indenture and the Lease Agreement. Section 4.03. Waiver of Personal Liability. (a) All liabilities under this Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint powers authority, and the City hereby releases each and every director, officer and employee of the Authority of and from any personal or individual liability under this Ground Lease. No director, officer or employee of the Authority shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority hereunder. (b) All liabilities under this Ground Lease on the part of the City shall be solely liabilities of the City as a city and municipal corporation, and the Authority hereby releases each and every member, officer and employee of the City of and from any personal or individual liability under this Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City hereunder. Section 4.04. Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Property. Section 4.05. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Property at any reasonable time to inspect the same. Section 4.06. Representations of the City. The City represents and warrants to the as follows: (a) the City has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution of this Ground Lease; (b) except for Permitted Encumbrances, the Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Property for governmental purposes as contemplated by the City; OHSUSA:762063090.2 3 (c) all taxes, assessments or impositions of any kind with respect to the Property, except current taxes, have been paid in full; and (d) the Property is necessary to the City in order for the City to perform its governmental function relating to public education. Section 4.07. Representations of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Ground Lease. ARTICLE V ASSIGNMENT, SELLING AND SUBLEASING Section 5.01. Assignment, Selling and Subleasing. (a) This Ground Lease may be assigned or sold, and the Property may be subleased, as a whole or in part, by the Authority, without the necessity of obtaining the consent of the City, if an event of default occurs under the Lease Agreement. The Authority shall, within 30 days after such an assignment, sale or sublease, furnish or cause to be furnished to the City a true and correct copy of such assignment, sublease or sale, as the case may be. (b) The Authority shall assign all of its rights hereunder to the Trustee appointed pursuant to the Indenture. Section 5.02. Restrictions on City. The City agrees that, except with respect to Permitted Encumbrances, it will not mortgage, sell, encumber, assign, transfer or convey the Property or any portion thereof during the term of this Ground Lease. City. ARTICLE VI IMPROVEMENTS Title to all improvements made on the Property during the term hereof shall vest in the ARTICLE VII TERM; TERMINATION Section 7.01. Term. The term of this Ground Lease shall commence as of the date of commencement of the term of the Lease Agreement and shall remain in full force and effect from such date to and including July 1, 2033, unless such term is extended or sooner terminated as hereinafter provided. Section 7.02. Extension; Early Termination. If, on July 1, 2033, the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of this Ground Lease shall be OHSUSA:762063090.2 automatically extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, except that the term of this Ground Lease shall in no event be extended more than ten years. If, prior to July 1, 2033, all Bonds shall be fully paid, or provisions therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, the term of this Ground Lease shall end simultaneously therewith. ARTICLE VIII MISCELLANE ®US Section 8.01. Binding Effect. This Ground Lease shall inure to the benefit of and shall be binding upon the City, the Authority and their respective successors and assigns. Section 8.02. Severability. In the event any provision of this Ground Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 8.03. Amendments: Substitution and Release. This Ground Lease may be amended, changed, modified, altered or terminated only in accordance with the provisions of the Lease Agreement. The City shall have the right to substitute alternate real property for the Property or to release portions of the Property as provided in the Lease Agreement. Section 8.04. Assignment. The Authority and City acknowledge that the Authority has assigned its right, title and interest in and to this Ground Lease to the Trustee pursuant to the Indenture. The City consents to such assignment. Section 8.05. Captions. The captions or headings in this Ground Lease are for convenience only and in no way define or limit the scope or intent of any provision of this Ground Lease. Section 8.06. Governing Laws. This Ground Lease shall be governed by and construed in accordance with the laws of the State of California. Section 8.07. Execution in Counterparts. This Ground Lease may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 01ISUSA:762063090.2 5 IN WITNESS WHEREOF, the parties hereto have caused this Ground Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. ATTEST: City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney ATTEST: Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel OHSUSA:762063090.2 6 CITY OF SANTA MONICA In SANTA MONICA PUBLIC FINANCING AUTHORITY : EXHIBIT A DESCRIPTION OF THE PROPERTY All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: THAT CERTAIN PARCEL OF LAND SITUATED IN THE CITY OF SANTA MONICA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, BEING THAT PORTION OF THE RANCHO SAN VICENTE Y SANTA MONICA AS SHOWN ON A MAP THEREOF RECORDED IN BOOK 3, PAGES 30 AND 31 OF PATENTS, TOGETHER WITH PORTIONS OF LOTS 1 AND 2 IN BLOCK 3 OF THE BANDINI TRACT AS SHOWN ON A MAP THEREOF FILED IN BOOK 55, PAGES 56 AND 57 OF MISCELLANEOUS RECORDS, BOTH IN THE OFFICE OF THE COUNTY RECORDER OF SAID LOS ANGELES COUNTY, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE SHOWN AS BEING "NORTH 440 44' 01" WEST 48.92 FEET" IN THE NEW CENTERLINE OF FOURTH STREET ON PARCEL MAP NO. 18134 FILED IN BOOK 202, PAGES 21 THROUGH 23 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID LOS ANGELES COUNTY, SAID TERMINUS ALSO BEING THE INTERSECTION OF SAID NEW CENTERLINE OF FOURTH STREET WITH THE CENTERLINE OF OLYMPIC BOULEVARD EASTBOUND AS SHOWN ON SAID PARCEL MAP; THENCE AT RIGHT ANGLES TO SAID NEW CENTERLINE OF FOURTH STREET, SOUTH 45-15'00" WEST 37.50 FEET TO THE SOUTHWESTERLY RIGHT -OF -WAY LINE OF FOURTH STREET (75.00 FEET WIDE); THENCE ALONG SAID SOUTHWESTERLY RIGHT -OF -WAY LINE, NORTH 44° 45'0011 WEST 9.35 FEET TO A POINT IN A NON - TANGENT CURVE CONCAVE SOUTHEASTERLY AND HAVING A RADIUS OF 25.00 FEET, A RADIAL LINE OF SAID CURVE FROM SAID POINT BEARS SOUTH 07° 08'39" EAST, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE ALONG SAID CURVE SOUTHWESTERLY 13.78 FEET THROUGH A CENTRAL ANGLE OF 310 35' 21'; THENCE TANGENT FROM SAID CURVE SOUTH 510 16'0011 WEST 93.93 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY AND HAVING A RADIUS OF 25.00 FEET; THENCE ALONG SAID CURVE SOUTHWESTERLY, SOUTHERLY AND SOUTHEASTERLY 41.89 FEET THROUGH A CENTRAL, ANGLE OF 960 00' 47'; THENCE TANGENT FROM SAID CURVE SOUTH 440 44'47" EAST 366.42 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHERLY AND HAVING A RADIUS OF 15.00 FEET; THENCE ALONG SAID CURVE SOUTHEASTERLY, EASTERLY AND NORTHEASTERLY 23.58 FEET THROUGH A CENTRAL ANGLE OF 90° 04' 34 "; THENCE TANGENT FROM SAID CURVE NORTH 45° 10' 39" EAST 112.18 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHWESTERLY AND HAVING A RADIUS OF 20.00 FEET; THENCE ALONG SAID CURVE NORTHEASTERLY 10.97 FEET THROUGH A CENTRAL ANGLE OF 310 26' 24" TO SAID SOUTHWESTERLY RIGHT -OF -WAY LINE OF FOURTH STREET (75.00 FEET WIDE); THENCE ALONG SAID SOUTHWESTERLY RIGHT -OF -WAY LINE AND NON - TANGENT FROM SAID CURVE NORTH 450 26'02" WEST 329.77 FEET AND NORTH 440 45'0011 WEST 58.53 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING FOREVER, THE TITLE AND EXCLUSIVE RIGHT TO ALL OF THE MINERALS AND MINERAL ORES OF EVERY KIND AND CHARACTER NOW KNOWN TO EXIST OR HERAFTER DISCOVERED UPON, WITHIN OR UNDERLYING SAID LAND OR THAT MAY BE PRODUCED THEREFROM INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ALL PETROLEUM, OIL, NATURAL GAS AND OTHER HYDROCARBON SUBSTANCES AND PRODUCTS DERIVED THEREFROM, TOGETHER WITH THE EXCLUSIVE OHSUSA:762063090.2 A -1 AND PERPETUAL RIGHT OF SAID GRANTOR, ITS SUCCESSOR AND ASSIGNS OF INGRESS AND EGRESS BENEATH THE SURFACE OF SAID LAND, TO EXPLORE FOR, EXTRACT, MINE SURFACE AS IS NECESSARY OR UOSEF�L IN CONNECTION TH THEREWITH, WH CH USE MAY SAME, AND INCLUDE LATERAL OR SLANT DRILLING, DIGGING, BORING, OR SINKING OF WELLS, SHAFTS OR TUNNELS, PROVIDED HOWEVER, THAT SAID GRANTOR, ITS SUCCESSOR AND ASSIGNS, SHALL NOT USE THE SURFACE OF SAID LAND IN THE EXERCISE OF ANY OF SAID RIGHTS AND SHALL NOT DISTURB THE SURFACE OF SAID LAND OR ANY SUBJACENT SPPORT OF SAID LANDOOR OANY IMPROVEMENTSPTHEREON, ASTREESERVED BY PACIFIC ELECTRIC RAILWAY COMPANY, A CORPORATION, BY DEED RECORDED NLY 17, 1958 IN BOOK D 158 PAGE 141, OFFICIAL RECORDS. A -2 OHSUSA:762063090.2 STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On , 2015, before me, Notary Public, personally appeared proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his /her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. RY under the laws of the State of California that I certify under PENALTY OF PERN the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature OHSUSA:762063090.2 [SEAL] STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On , 2015, before me, , Notary Public, personally appeared proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature OHSUSA:762063090.2 [SEAL] Attachment D Continuing Disclosure Certificate and Preliminary Official Statement 1 1 Dated as of 1, 2015 Relating to Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) oxsuSA:7620625292 CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this "Disclosure Certificate "), dated as of 1, 2015, is executed and delivered by the City of Santa Monica (the "City "). WHEREAS, pursuant to the Indenture, dated as of 1, 2015 (the "Indenture "), by and among the Santa Monica Public Financing Authority (the "Authority "), the City and MUFG Union Bank, N.A., as trustee (the "Trustee "), the Authority has issued $ aggregate principal amount of the Santa Monica Public Finance Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds "); WHEREAS, the Bonds are payable from the base rental payments to be made by the City under the Lease Agreement, dated as of 1, 2015, by and between the City, as lessee, and the Authority, as lessor; and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners (capitalized undefined terms used herein have the meanings ascribed thereto in Section 1 hereof) and Beneficial Owners of the Bonds, and in order to assist the Participating Underwriters in complying with the Rule; NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 hereof. "Annual Report Date" means the date in each year that is nine months after the end of the City's fiscal year, which date, as of the date of this Disclosure Certificate, is April 1. "Beneficial Owner" means any person that 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). "Dissemination Agent" means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" means any of the events listed in Section 4(a) or (b) hereof. "MSRB" means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http: / /emma.msrb.org. OHSUSA:762062529.2 "Official Statement" means the Official Statement, dated , 2015 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. "Owner" means the person in whose name any Bond shall be registered. "Participating Underwriters" means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Rule" means Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to provide to the MSRB an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2014 -15 fiscal year. The Annual Report may include by reference other information as provided in Section 3 hereof, provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City's fiscal year changes, it shall, or it shall instruct the Dissemination Agent to, give notice of such change in a filing with the MSRB. (b) Not later than 15 Business Days prior to the date specified in subsection (a), the City shall provide the Annual Report to the Dissemination Agent, if any. The Dissemination Agent shall (i) file any Annual Report received by it with the MSRB, as provided herein, and (ii) file a report with the City certifying that the Annual Report has been filed with the MSRB pursuant to this Disclosure Certificate, stating the date it was so filed. (c) If the City is unable to file, or cause the Dissemination Agent to file, an Annual Report with the MSRB by the date required in subsection (a) of this Section, the City shall, in a timely manner, file or cause to be filed with the MSRB, a notice in substantially the form attached as Exhibit A. Section 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) Audited financial statements of the City for the preceding fiscal year, prepared in accordance with the generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 2(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited financial statements of the City, the Annual Report shall also include the following: onsusA:762062529.2 2 (i) The principal amount of Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and (ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the January 2 next preceding the Annual Report Date. (c) To the extent not included in the audited financial statements of the City, the Annual Report shall also include the following items, providing financial and operating data substantially similar to that provided in the corresponding tables and charts in the Official Statement: (i) [Information under "Retirement System"; (ii) City Building Construction; (iii) City Principal Property Taxpayers; (iv) City Direct and Overlapping Debt; (v) City Net Debt; (vi) City Assessed Value of Taxable Property; (vii) City Assessed Valuations, Property Tax Rates, Secured Levies and Collection and Delinquencies; (viii) City Tax Revenues by Source; (ix) City Assessed Value, Debt Limit and Ratio of Bonded Debt to Assessed Value and Per Capita; (x) City General Fund Balance Sheet; (xi) City General Fund Summary of Revenues and Expenditures; and (xii) Summary of City's current fiscal year's investments, including types and amounts of investments, return on investments, average yield of investments and market value of investments.] In addition to any of the information expressly required to be provided under paragraphs (a), (b) and (c), above, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been made available to the public on the MSRB website. The City shall clearly identify each such other document so included by reference. OHSUSA:762062529.2 3 Section 4. Reporting of Listed Events. (a) Pursuant to the provisions of this Section, 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 later than ten business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) tender offers; (vii) defeasances; (viii) rating changes; or (ix) bankruptcy, insolvency, receivership or similar event of the City. For purposes of the event identified in paragraph (ix), 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, 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, in a timely manner not later than ten business days after the occurrence of the event: (i) unless described in paragraph (v) of subsection (a) of this Section, 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; (ii) modifications to rights of Owners; OHSUSA:762062529.2 (iii) optional, unscheduled or contingent bond calls; (iv) release, substitution or sale of property securing repayment of the Bonds; (v) non - payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and (vii) appointment of a successor or additional Paying Agent or the change of name of a Paying Agent. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the City shall determine if such event would be material under applicable Federal securities laws. (d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under applicable Federal securities laws, the City shall file, or shall cause the Dissemination Agent to file, within ten business days of such occurrence, a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (vii) of subsection (a) of this Section and (iii) of subsection (b) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Section 6. Termination of Reporting 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, or cause the Dissemination to give, notice of such termination in a filing with the MSRB. 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 shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the City. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. OHSUSA:762062529.2 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 Section 2(a), Section 3 or Section 4(a) or (b) hereof, 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 undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment or waiver 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 a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure 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 required to be filed pursuant to this Disclosure Certificate, 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 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 required to be filed pursuant to this Disclosure Certificate. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner 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; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. City Court in or nearest to the County of Los ORSUSA:762062529.2 6 Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. CITY OF SANTA MONICA ATTEST: Sarah P. Gorman, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney oHSUSA:7620625292 7 EXHIBIT A FORM OF NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Santa Monica Public Financing Authority Name of Issue: Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) Date of Issuance: 2015 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the "City ") has not provided an Annual Report with respect to the above -named Bonds as required by Section 2 of the Continuing Disclosure Certificate, dated as of 1, 2015, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by .l Dated: CITY OF SANTA MONICA oxsusA:762062529.2 A -1 OH &S 5/26/15 Draft PRELIMINARY OFFICIAL STATEMENT DATED , 2015 NEW ISSUE – FULL BOOK -ENTRY RATINGS: Fitch: ° Moody's: " " Standard & Poor's: " " (See "RATINGS" herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the Authority, based on an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded f•on gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt fr•an State of California personal income tares. In the fierther opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimmn taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of or the amount, accrual a• receipt of interest on, the Bonds. . See "TAXdI477ERS "herein. LOGO $ SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2015 (CIVIC CENTER PARKING PROJECT) Dated: Date of Delivery Due: July 1, as shown below The Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds ") are payable from base rental payments (the "Base Rental Payments ") to be made by the City of Santa Monica (the "City") for the right to the use of certain real property (the "Property ") pursuant to a Lease Agreement, dated as of I, 2015 (the "Lease Agreement "), by and between the City, as lessee, and the Santa Monica Public Financing Authority (the "Authority"), as lessor. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" herein. The Bonds me being issued to provide funds to (i) refinance the Authority's Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) and (ii) pay the costs incurred in connection with the issuance of the Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS," "PLAN OF REFUNDING" and "PROJECT" herein. The City has covenanted under the Lease Agreement to make all Base Rental Payments provided for therein, to include all such payments as a separate line item in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City's obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property. See "RISK FACTORS — Abatement" herein. The Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). Interest on the Bonds is payable semiannually on January I and July I of each year, commencing January 1, 2016. Purchasers will not receive certificates representing their interest in the Bonds, Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of, and premium, if any, and interest on the Bonds will be paid by MUFG Union Bank, N.A., as trustee (the "Trustee ") to DTC for subsequent disbursement to OTC Participants who are obligated to remit such payments to the beneficial owners of the Bonds. See APPENDIX D BOOK -ENTRY ONLY SYSTEM" herein. The Bonds are subject to extraordinary redemption from condemnation award or insurance proceeds prior to maturity as described herein. See "THE BONDS — Redemption' herein. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE, AS PROVIDED IN THE INDENTURE, SOLELY FROM LEASE REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE LEASE REVENUES CONSIST OF ALL BASE RENTAL PAYMENTS PAYABLE BY THE CITY PURSUANT TO THE LEASE AGREEMENT, INCLUDING ANY PREPAYMENTS THEREOF, ANY NET PROCEEDS AND ANY AMOUNTS RECEIVED BY THE TRUSTEE AS A RESULT OF OR IN CONNECTION WITH THE TRUSTEE'S PURSUIT OF REMEDIES UNDER THE LEASE AGREEMENT UPON A LEASE DEFAULT EVENT. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE THE RENTAL PAYMENTS, INCLUDING THE BASE RENTAL PAYMENTS, DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire official statement to obtain information essential to the making of an informed investment decision. The Bonds were awarded to (the "Original Purchaser•) at a hue interest cast of % (prior to adjustment) pursuant to competitive bidding which was held on _, 2015, as set forth in the Notice Inviting Bids, dated , 2015. The Bonds are offered when, as and if authenticated and issued and received by the Original Purchaser, subject to the approval by Orrick Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the Authority, and certain other conditions. Certain legal matters will be passed on for the Preliminary, subject to change. OHSUSA:761799065.5 40233 -10 OH &S 5/26/15 Draft Authority and the City by the City Attorney of the City and by Orrick Herrington & Sutcliffe LLP, Los Angeles California, as Disclosure Counsel. Public Resources Advisory Group has served as financial advisor to the City in connection with the issuance of the Bonds. It is anticipated that the Bonds in definitive farm will be available for delivery to DTC in New Pork New York on at, about J 2015. OHSUSA:76I799065.5 40233 -10 Maturity Date (July I) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 MATURITY SCHEDULE* (Base CUSIP No! � $ Serial Bonds Principal Interest Amount Rate Yield CUSIPNo.* $ % Term Bonds due July 1, 20_; Yield %; CUSIPf $ % Term Bonds due July 1, 20_; Yield %; CUSIPt ` Preliminary, subject to change. t CUSIP® is a registered trademark of the American Bankers Association, CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S &P Capital IQ. Copyright© 2015 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. The City, the Authority, the Financial Advisor and the Original Purchaser take no responsibility for the accuracy of such numbers. OHSUSA:761799065.5 40233 -10 No dealer, broker, salesperson or other person has been authorized by the Authority or the City to provide any information or to make any representations other than as contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the Authority or the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been obtained from official sources which are believed by the Authority and the City to be reliable but it is not guaranteed as to accuracy or completeness. The information and expression of opinion 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 Authority or the City since the date hereof. The information in this Official Statement has been provided by the City and sources the City considers reliable. The Original Purchaser has provided the following sentence for inclusion in this Official Statement. The Original Purchaser has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Original Purchaser does not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE ORIGINAL PURCHASER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE ORIGINAL PURCHASER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE ORIGINAL PURCHASER. This Official Statement contains forward-looking statements within the meaning of the federal securities laws. Such statements are based on currently available information, expectations, estimates, assumptions, projections and general economic conditions. Such words as expects, intends, plans, believes, estimates, anticipates or variations of such words or similar expressions are intended to identify forward-looking statements and include, but are not limited to, statements under the captions "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" and "CITY OF SANTA MONICA FINANCES." The forward - looking statements are not guarantees of future performance. Actual results may vary materially from what is contained in a forward- looking statement. The achievement of certain results or other expectations contained in such forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. No assurance is given that actual results will meet the Authority's or the City's forecasts in any way, regardless of the level of optimism communicated in the information. The City and the Authority assume no obligation to provide public updates of forward- looking statements. CUSIP data herein (Copyright 2015, American Bankers Association) is provided by Standard and Poor's, CUSIP Service Bureau, a division of The McGraw -Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. The City, the Authority, the Financial Advisor and the Original Purchaser take no responsibility for the accuracy of such numbers. The City maintains a website, however, the information presented therein is not a part of this Official Statement and should not be relied on in making an investment decision with respect to the Bonds. OHSUSA:761799065.5 40233 -10 CITY OF SANTA MONICA (County of Los Angeles, California) City Council Kevin McKeown, Mayor Tony Vazquez, Mayor Pro Tenrpore Sue Himmehich Gleam Davis Pam O'Connor Terry O'Day Ted Winterer Santa Monica Public Financing Authority Kevin McKeown, Chairperson Tony Vazquez, Chairperson Pro Tempore Sue Himmelrich Gleam Davis Pam O'Connor Terry O'Day Ted Winterer Interim City Manager/Interim Authority Executive Director Elaine Polachek City Attorney /Authority Attorney Marsha Jones Moutrie City Clerk /Authority Secretary Sarah Gorman Director of Finance/Authority Treasurer /City Treasurer Gigi Decavalles- Hughes Financial Advisor Public Resources Advisory Group Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Trustee MUFG Union Bank, N.A. OHSUSA:761799065.5 40233 -10 (THIS PAGE INTENTIONALLY LEFT BLANK) OHSUSA:761799065.5 40233 -10 TABLE OF CONTENTS Page INTRODUCTION.......................................................................................................... ..............................1 THEBONDS .................................................................................................................. ..............................3 General.............................................................................................................. ..............................3 Redemption....................................................................................................... ..............................3 Transfer and Exchange of Bonds ...................................................................... ..............................6 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ............................. ..............................7 Pledgeof Revenues ........................................................................................... ..............................7 Abatement......................................................................................................... ..............................7 Substitution and Removal of Property .............................................................. ..............................8 Actionon Default .............................................................................................. ..............................8 NoReserve Fund for the Bonds ........................................................................ ..............................8 BaseRental Payments ....................................................................................... ..............................9 AdditionalRental Payments .............................................................................. ..............................9 Insurance.......................................................................................................... .............................10 Damage or Destruction of the Property ........................................................... ..............................1 l ESTIMATED SOURCES AND USES OF FUNDS ..................................................... .............................12 BASE RENTAL PAYMENT SCHEDULE .................................................................. .............................13 PLANOF REFUNDING .............................................................................................. .............................13 THEPROPERTY .......................................................................................................... .............................14 THEAUTHORITY ....................................................................................................... .............................15 CITY OF SANTA MONICA ........................................................................................ .............................15 General............................................................................................................. .............................15 Governmentand Administration ...................................................................... .............................15 CITY OF SANTA MONICA FINANCES ................................................................... .............................16 Accounting Policies and Financial Reporting .................................................. .............................16 BudgetaryProcess ............................................................................................ .............................16 TaxReceipts ..................................................................................................... .............................18 PropositionlA ................................................................................................. .............................20 Principal Property Taxpayers ........................................................................... .............................21 General Fund Financial Summary .................................................................... .............................22 AssessedValuations ......................................................................................... .............................26 Ad Valorem Property Taxes ............................................................................. .............................28 Dissolution of Redevelopment ......................................................................... .............................30 -i- OHSUSA:761799065.5 40485740 TABLE OF CONTENTS (continued) Page StateBudget Acts ............................................................................................. .............................31 Changesin State Budget .................................................................................. .............................36 Investmentof City Funds ................................................................................. .............................36 SelfInsurance ................................................................................................... .............................38 RetirementSystem ........................................................................................... .............................38 Other Post Employment Benefits ..................................................................... .............................45 MedicalTrusts .................................................................................................. .............................46 LaborRelations ................................................................................................ .............................46 Long -Term Debt ............................................................................................... .............................47 OverlappingDebt ............................................................................................. .............................48 FutureBor rowing ............................................................................................. .............................49 RISKFACTORS ........................................................................................................... .............................49 General Considerations — Security for the Bonds .......................................... .............................49 Abatement........................................................................................................ .............................50 Seismic Activity and Natural Disasters ............................................................ .............................51 Drought and Emergency Drought Response .................................................... .............................52 Substitution and Removal of Property ............................................................. .............................52 Limited Recourse on Default; No Acceleration of Base Rental ....................... .............................52 Possible Insufficiency of Insurance Proceeds .................................................. .............................53 Limitationson Remedies .................................................................................. .............................53 Lossof Tax Exemption .................................................................................... .............................54 No Liability of Authority to the Owners .......................................................... .............................54 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS........................................................................................ .............................54 Article XIIIA of the California Constitution .................................................... .............................54 Article XIIIB of the California Constitution .................................................... .............................55 Articles XIIIC and XIIID of the California Constitution ................................. .............................57 Tiered Municipal Water Rate Structures After Capistrano Taxpayers Association Case .............58 Statutory Spending Limitations ........................................................................ .............................59 Budget Initiatives Approved in 2010 ............................................................... .............................59 FutureInitiatives .............................................................................................. .............................60 TAXMATTERS ........................................................................................................... .............................60 CERTAINLEGAL MATTERS .................................................................................... .............................62 -ii- OHSUSA:761799065.5 40233 -10 TABLE OF CONTENTS (continued) Page ABSENCE OF LITIGATION ....................................................................................... .............................62 VERIFICATION OF MATHEMATICAL COMPUTATIONS ................................... .............................62 PURCHASE AND REOFFERING ............................................................................... .............................63 RATINGS.................................................................................................................... ............................... 63 FINANCIALADVISOR ............................................................................................... .............................63 CONTINUING DISCLOSURE .................................................................................... .............................63 MISCELLANEOUS ...................................................................................................... .............................64 APPENDIX A GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTAMONICA ...................................................................................... ............................... A -1 APPENDIX B EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 ...................................................................... ............................B -1 APPENDIX C DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .............0 -1 APPENDIX D BOOK - ENTRY -ONLY SYSTEM ................................................. ............................... D -1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ............. ............................E -1 APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL ............ ............................... F -1 -iii - OHSUSA:761799065.5 40233 -10 OFFICIAL STATEMENT SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2015 (CIVIC CENTER PARKING PROJECT) INTRODUCTION This Official Statement (which includes the cover page, inside cover page and Appendices hereto) (the "Official Statement "), provides certain information concerning the sale and delivery of $ * aggregate principal amount of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds "). The Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). Interest on the Bonds is payable semiannually on January 1 and July 1 of each year, commencing January 1, 2016. Purchasers will not receive certificates representing their interest in the Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of, and premium, if any, and interest on the Bonds will be paid by MUFG Union Bank, N.A., as trustee (the "Trustee ") to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Bonds. See "APPENDIX D— BOOK -ENTRY ONLY SYSTEM" herein. The Bonds are subject to redemption prior to maturity as described herein. See "THE BONDS Redemption" herein. The net proceeds of the sale of the Bonds will be used to (i) currently refund and redeem the Authority's Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) (the "Prior Bonds ") and (ii) pay the costs incurred in connection with the issuance of the Bonds. See "PLAN OF REFINANCING" herein. The Bonds will be issued pursuant to the Marks -Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code (the "Act "), and the laws of the State of California, and an Indenture, dated as of 1, 2015 (the "Indenture "), by and among the Authority, the City and the Trustee. The Bonds are payable from base rental payments (the "Base Rental Payments ") to be made by the City for the right to the use of certain real property (the "Properly ") pursuant to a Lease Agreement, dated as of 1, 2015 (the "Lease Agreement "), between the City, as lessee, and the Santa Monica Public Financing Authority (the "Authority"), as lessor. The City covenants under the Lease Agreement to take such action as may be necessary to include all Rental Payments, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Property, administrative costs of the Authority relating to the Property, fees and expenses of the Trustee and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described herein. Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City's right to use and occupy the Property or any portion thereof. See "RISK FACTORS — Abatement" herein. Abatement of Base Rental Payments under the Preliminary, subject to change. OHSUSA:761799065.5 1 40233 -10 Lease Agreement, to the extent payment is not made from alternative sources as set forth below, would result in all Bond Owners receiving less than the full amount of principal of and interest on the Bonds. To the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments due under the Lease Agreement, Rental Payments shall not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from such Net Proceeds. The City will not fund a reserve fund for the Bonds. Amounts held or to be held in a reserve fund or account established for any other series of bonds or any reserve fund credit policy for any other series of bonds will not be used or drawn upon to pay principal of, and premium, if any, and interest on the Bonds. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE, AS PROVIDED IN THE INDENTURE, SOLELY FROM LEASE REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE LEASE REVENUES CONSIST OF ALL BASE RENTAL PAYMENTS PAYABLE BY THE CITY PURSUANT TO THE LEASE AGREEMENT, INCLUDING ANY PREPAYMENTS THEREOF, ANY NET PROCEEDS AND ANY AMOUNTS RECEIVED BY THE TRUSTEE AS A RESULT OF OR IN CONNECTION WITH THE TRUSTEE'S PURSUIT OF REMEDIES UNDER THE LEASE AGREEMENT UPON A LEASE DEFAULT EVENT. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE THE RENTAL PAYMENTS, INCLUDING THE BASE RENTAL PAYMENTS, DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The City has agreed to provide, or cause to be provided, certain annual financial information and operating data and, in a timely manner, through the Electronic Municipal Market Access (EMMA) website of the MSRB, or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to S.E.C. Rule 15c2- 12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended ( "Rule 15c2 -12 "). These covenants have been made in order to assist the Original Purchaser in complying with SEC Rule 15c2- 12(b)(5). See "CONTINUING DISCLOSURE" herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure certificate pursuant to which such reports are to be made. The summaries or references to the Indenture, Lease Agreement and other documents, agreements and statutes referred to herein, and the description of the Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined herein) which are defined in the Indenture or the Lease Agreement shall have the meanings set forth therein, some of which are summarized in APPENDIX C ------ "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." OHSUSA:761799065.5 2 40233 -10 THE BONDS General The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof (each, an "Authorized Denomination "), so long as no Bond shall have more than one maturity date. The Bonds will be dated as of and bear interest (calculated on the basis of a 360 - day year comprised of twelve 30 -day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Bonds will be paid semiannually on January 1 and July 1 (each, an "Interest Payment Date ") of each year, commencing January 1, 2016. Interest on the Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon will be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable fiom the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has previously been paid or duly provided for. As defined in the Indenture, the term "Record Date" means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. Interest will be paid in lawful money of the United States on each Interest Payment Date. Interest will be paid by check of the Trustee mailed by first -class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date will, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which will be given to such Owner not less than ten days prior to such special record date. The principal of and premium, if any, on the Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Bonds will be issued as fully registered bonds, registered in the name of Cede & Co, as nominee of DTC, and will be available to actual purchasers of the Bonds (the `Beneficial Owners ") in the denominations set forth above, under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined herein) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See "APPENDIX D —BOOK- ENTRY ONLY SYSTEM" herein. Redemption Optional Redemption. The Bonds maturing on or after July 1, 2026 shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after July 1, 2025, from any source of available funds, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. OHSUSA:761799065.5 40233 -10 Mandatory Sinking Fund Redemption. The Bonds maturing July 1, 20_ shall be subject to mandatory sinking fund redemption, in part, on July 1 in each year, commencing July 1, 20_, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (July 1) * Maturity. Principal Amount to be Redeemed If some but not all of the Bonds maturing on July 1, 20_ are optionally redeemed under the Indenture, the principal amount of Bonds maturing on July 1, 20_ to be redeemed from sinking fund payments on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20 so optionally redeemed under the Indenture, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on July 1, 20 are redeemed from sinking fund payments, the principal amount of Bonds maturing on July 1, 20 to be redeemed from sinking fund payments on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20 so redeemed from sinking fund payments, such reduction to be allocated among redemption dates as designated by the Authority in a Written Certificate of the Authority filed with the Trustee. The Bonds maturing July 1, 20_ shall be subject to mandatory sinking fund redemption, in part, on July 1 in each year, commencing July 1, 20, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Amount Redemption Date to be (July 1) Redeemed * Maturity. OHSUSA:761799065.5 40233 -10 If some but not all of the Bonds maturing on July 1, 20 are optionally redeemed under the Indenture, the principal amount of Bonds maturing on July 1, 20_ to be redeemed from sinking fund payments on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20_ so optionally redeemed under the Indenture, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on July 1, 20 are redeemed from sinking fund payments, the principal amount of Bonds maturing on July 1, 20 to be redeemed from sinking fund payments on any subsequent July 1 shall be reduced by the aggregate principal amount of the Bonds maturing on July 1, 20 so redeemed from sinking fund payments, such reduction to be allocated among redemption dates as designated by the Authority in a Written Certificate of the Authority filed with the Trustee. Extraordinary Redemption front Condemnation Award or Insurance Proceeds. The Bonds are subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Notice of Redemption. So long as the Bonds are held in book -entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and to the Original Purchaser, at least 15 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption from and to the extent of any insurance proceeds or condemnation OxsysA:761799065.5 5 40233 -10 award received with respect to all or a portion of the Property, among maturities of all Bonds on a pro rata basis as nearly as practicable, and otherwise as directed in a Written Certificate of the City, and by lot among Bonds with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bands which may be separately redeemed. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds in Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the principal corporate trust office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. Transfer and Exchange of Bonds The following provisions regarding the exchange and transfer of the Bonds apply only during any period in which the Bonds are not subject to DTC's book -entry system. While the Bonds are subject to DTC's book -entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds of other Authorized Denominations. The Trustee shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds during the period established by the Trustee for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. OHSUSA:761799065.5 6 40233 -10 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Pledge of Revenues The Bonds are payable from and secured by Rise Rental Payments and Additional Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture. Base Rental Payments shall be paid by the City from any and all legally available funds. The City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor. As provided in the Indenture, the Authority will assign to the Trustee for the benefit of the Bond Owners all of the Authority's right, title and interest in and to the Lease Agreement, including, without limitation, its right to receive Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that, the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See " Base Rental Payments" below. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the payment of the principal of, and premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture. Such pledge constitutes a first lien on such assets. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee's pursuit of remedies under the Lease Agreement upon a Lease Default Event. The Authority has no taxing power. Abatement Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each such period. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall continue in full force and effect. The amount of such abatement shall be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, OHSUSA:761799065.5 40233 -10 ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement shall be extended as provided in the Lease Agreement, except that the term shall in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the City. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Rental Abatement." Notwithstanding the foregoing, to the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments due under the Lease Agreement, Rental Payments shall not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from such Net Proceeds. Substitution and Removal of Property The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement. After a substitution or release, the portion of the Property for which the substitution or release has been effected shall be released from the leasehold encumbrance of the Lease Agreement. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Substitution and Removal of Property." Action on Default Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and will have the right to re -enter and re -let the Property. In the event such re- letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Events of Default and Remedies. See also "RISK FACTORS — Limited Recourse on Default; No Acceleration of Base Rental" herein. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement — Default' and " —The Indenture — Events of Default," " —Other Remedies of the Trustee," and "Limitation on Suits." No Reserve Fund for the Bonds The City will not fund a reserve fund for the Bonds. Amounts held or to be held in a reserve fund or account established for any other series of bonds or any reserve fund credit policy for any other series of bonds will not be used or drawn upon to pay principal of, redemption premium, if any, or interest on the Bonds. OHSUSA:761799065.5 40233 -10 Base Rental Payments Rental Payments, including Base Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment shall be deposited with the Trustee no later than the 15th day of the month next preceding each Interest Payment Date (the "Base Rental Deposit Date ") preceding the Interest Payment Date on which such Base Rental Payment is due. All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority with the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund. Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date and on the Business Day immediately preceding each Principal Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund as are necessary to the Interest Fund and the Principal Fund to provide for the payment of the interest on and principal of the Bonds. Scheduled Base Rental Payments relating to the Bonds are set forth below under the heading "BASE RENTAL PAYMENT SCHEDULE." THE OBLIGATION OF THE CITY TO MAKE THE RENTAL PAYMENTS, INCLUDING THE BASE RENTAL PAYMENTS, DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Additional Rental Payments For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental payments thereunder, in addition to the Base Rental Payments, such amounts as shall be required for the payment of the following: (i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees. (iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with section 148(1) of the Internal Revenue Code of 1986. OHSUSA:761799065.5 40233 -10 (v) All other payments required to be paid by the City under the provisions of the Lease Agreement or the Indenture. Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts shall be payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Insurance The Lease Agreement requires the City to maintain or cause to be maintained throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Such policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Properly. Such policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City's obligations under this subsection may be satisfied by self - insurance in accordance with the Lease Agreement. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— hnsurance." The City shall maintain or cause to be maintained casualty insurance insuring the Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as set forth below under "Damage or Destruction of the Property." The City's obligations under this subsection may be satisfied by self - insurance in accordance with the Lease Agreement. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement — Insurance." The City shall maintain rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to the paragraph immediately above in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City's right to the use or occupancy of the Property. The City's obligations under this subsection may not be satisfied by self - insurance. The insurance required above shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City's professionally certified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such OHSUSA:761799065.5 10 40233 -10 policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days' notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee. The City is required under the Lease Agreement to provide, at its own expense, one or more CLTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Bonds, insuring the fee interest of the Authority in the Property, and the City's leasehold estate in the Property under the Lease Agreement, subject only to Permitted Encumbrances, and providing that all proceeds thereunder are payable to the Trustee for the benefit of the Owners. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement — Insurance." Damage or Destruction of the Property If the Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City's determination as to whether or not such damage or destruction will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement. If the City determines that such damage or destruction will not result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. If the City determines that such damage or destruction will result in a substantial interference with the City's right to the use or occupancy of the Property and an abatement in whole or in party of Rental Payments pursuant to the Lease Agreement, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self - insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof which have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to the Lease Agreement, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the redemption from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Property (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage OHSUSA:761799065.5 1 1 40233 -10 or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS The Lease Agreement — Abatement," "— Substitution or Release of the Property" and "— Damage or Destruction." ESTIMATED SOURCES AND USES OF FUNDS The sources and uses of funds with respect to the Bonds and the refunding of the Prior Bonds are shown below. SOURCES Principal Amount of Bonds Plus Net Original Issue Premium Plus Amounts Released from Prior Trust Agreement Total Sources USES Deposit to Escrow Fund Cost of Issuance Fund (1) Original Purchaser's Discount Total Uses (1) Includes legal, financial advisory, rating agency, printing fees and other miscellaneous costs of issuance. OHSUSA:761799065.5 12 40233 -10 BASE RENTAL PAYMENT SCHEDULE Following is the schedule of Base Rental Payments due with respect to the Bonds: Date Principal Interest Total Payments Annual Payments Total PLAN OF REFUNDING The Prior Bonds were originally issued pursuant to that certain Trust Agreement, dated as of December 1, 2004 (the "Prior Trust Agreement'), by and between the Authority and Union Bank of California, N.A., the predecessor in interest to MUFG Union Bank, N.A., as trustee, in the original aggregate principal amount of $38,930,000 and currently outstanding in the aggregate principal amount of $31,450,000. The Prior Bonds were issued to finance the design, construction, installation, reimbursement and/or acquisition of certain capital improvements constituting a public parking garage and related improvements located off of 4s` Street (between Olympic and Pico boulevards) at 333 Civic Center Drive (the "Civic Center Parking Structure "). Upon the issuance of the Bonds, a portion of the proceeds of sale of the Bonds, together with certain amounts on deposit in the funds and accounts created under the Prior Trust Agreement will be deposited in an irrevocable escrow fund (the "Escrow Fund ") established by the Authority with MUFG Union Bank, N.A. (the "Escrow Bank "), pursuant to an Escrow Agreement, dated as of 1, 2015 011SUSA:761799065.5 13 40233 -10 (the "Escrow Agreement'), by and between the Authority and the Escrow Bank. Amounts so deposited in the Escrow Fund will be invested in certain securities and held in cash, in an aggregate amount which, together with the interest to be derived therefrom, shall be sufficient, without reinvestment, to redeem the outstanding Prior Bonds on July _, 2015 (the "Redemption Date ") at a prepayment price equal to the principal of the Prior Bonds, plus the accrued but unpaid interest on the Prior Bonds to the Redemption Date. The Prior Bonds to be refunded are shown below: Maturity Date CUSIP No. (July 1) Par Amount Coupon (802437) 2016 $ 1,145,000 3.850% CA9 2017 1,190,000 4.000 C137 2018 1,240,000 4.100 CC5 2019 1,285,000 4.125 CD3 2020 1,340,000 4.250 CEl 2021 1,395,000 4.375 CF8 2022 1,460,000 4.400 CG6 2023 1,520,000 4.500 CH4 2024 1,590,000 4.500 CIO 2025 1,660,000 4.600 CK7 2028 5,470,000 4.750 CL5 2033 11,050,000 5.000 CM3 The Arbitrage Group, Inc. (the "Verification Agent'), will verify as to the Escrow Fund that the cash and securities on deposit therein, together with the earnings thereon, shall be sufficient to pay in full all of the principal of, and premium, if any, and interest on the Prior Bonds coming due on the Redemption Date. See "VERIFICATION OF MATHEMATICAL COMPUTATIONS" herein. The securities and other monies held under the Escrow Agreement are pledged to the payment of the Prior Bonds and neither the principal of nor the interest thereon will be available for the payment of the Bonds. THE PROPERTY The Properly constitutes the land and improvements constituting the Civic Center Parking Structure. The Civic Center Parking Structure sits on a City -owned Site consisting of an approximately one -acre, rectangular- shaped parcel that is bound by Fourth Street on the east, Civic Center Drive on the south, Avenida Mazatlan alley on the west, and Olympic Drive on the north. Surrounding uses consist of a) the Doubletree Hotel to the east, b) the Civic Auditorium parking lot to the south, c) the County Courthouse to the west, and d) the Public Safety Facility to the north. The City will lease the Property to the Authority pursuant to the Ground Lease. The Authority will then sublease the Property and the Civic Center Parking Structure (i.e., the Property) to the City pursuant to the Lease Agreement. The Civic Center Parking Structure was completed in 2007 and consists of an approximately 880 - space public parking structure of five levels above grade with rooftop parking and one and one -half levels below grade, for a total of approximately 300,000 square feet of parking area. In addition, 11,321 square feet of leasable commercial space is included on the first and second levels adjacent to Fourth Sheet and Olympic Drive. The parking structure consists of a reinforced concrete movement frame with post tensioned beams and slabs. The parking structure provides public visitor parking in the Civic Center and downtown area, parking for official City vehicles, and for City personnel. Currently Standard Parking Corporation 01- ISUSA:761799065.5 14 40233 -10 manages the parking facility, together with several other city parking structures, under a management agreement. The Property has an approximate insured value of $30,000,000 which does not include land value. The City and the Authority have agreed and determined that the Fair Rental Value of the Property is not less than $ . In making such determinations of Fair Rental Value, consideration has been given to the uses and purposes which may be served by the Property and the benefits therefrom that will accrue to the City and the general public. THE AUTHORITY The Santa Monica Public Financing Authority was organized pursuant to the provisions of Article I of Chapter 15 of Division 7 of Title 1 of the State Government Code and a Joint Exercise of Powers Agreement, dated as of July 25, 1995, by and between the City and the Redevelopment Agency of the City of Santa Monica. The Authority was organized for the purpose of financing and assisting local agencies in financing capital improvements, working capital, liability or other insurance needs or projects. The City Council serves the governing body of the Authority. The Authority has no financial liability to the Owners of the Bonds with respect to the payment of Base Rental Payments by the City or with respect to the performance by the City of the other agreements and covenants it is required to perform. CITY OF SANTA MONICA General The City of Santa Monica is situated on the western side of Los Angeles County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. The City encompasses an area slightly greater than eight square miles and has an estimated population of 92,185 persons, making it the 21 st largest city in Los Angeles County. 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, 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. OHSUSA:761799065.5 15 40233 -10 See also, APPENDIX A — "GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA." CITY OF SANTA MONICA FINANCES The following selected financial information provides a brief overview of the City's finances. This financial information has been extracted from the City's audited financial statements and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as Appendix B hereto. See APPENDIX B— "EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2014." 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 each of the past 30 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 the 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 first year of the budget is adopted, and the second year approved, each through passage of appropriate resolutions. See "General Fund Financial Summary" below for a summary of the City's general fund budget for Fiscal Year 2014 -15. Overall, the City's fund balances continue to benefit from a number of cost saving measures approved by Council and implemented since Fiscal Year 2010 -11. The most noteworthy changes relate to compensation structure changes approved by employees during the collective bargaining process, including annual incremental increases to public safety employee pension contributions and a second tier of reduced retirement benefits for new miscellaneous employees, and decreased pension costs as a result of $25.1 million in pay downs of the City's unfunded pension liability beginning in Fiscal Year 2010 -11 through the end of Fiscal Year 2013 -14. In February 2014, the City Council adopted a policy that, OHSUSA:761799065.5 16 40233 -10 provided that there are sufficient funds, the annual budget would include a minimum set -aside of $1 million in the General Fund, and commensurate set -aside amounts in all other funds, to be used towards payments to CalPERS. These payments would be in addition to the Annual Required Contribution and would serve to reduce the City's unfunded retirement liability. If any additional funds are available, staff would also annually assess the set -aside of any additional funds for CalPERS payments against other unfunded needs, and present the City Council with a recommendation. This policy would remain in effect until such time as there is no remaining unfunded retirement liability. Council has given staff direction to make an additional $5 million payment before July 1, 2015 using Fiscal Year 2013 -14 savings, bringing the total pay down amount to $30.1 million. The City plans to continue to prepay its contributions to CalPERS, the City's pension fund, as it has done at the beginning of each year since Fiscal Year 2007 -08, and to set aside the discount received from such prepayments for future pension costs or further pay downs of unfunded liability. Despite these mitigating steps taken by the City, CalPERS has made a number of changes to actuarial demographic assumptions that have increased contribution rates. It is important for the City to continue to work with its employees to identify measures that will ensure that increases in ongoing compensation costs do not outstrip those of revenue growth. The passage of the Public Employees' Pension Reform Act, or PEPRA, in September 2012 is working to further control cost increases in the future, as new employees are receiving reduced retirement benefits and cities will be encouraged to increase employees' share of contribution costs. The City recently approved the prefunding of its Other Postemployment Benefits (OPEB) and will begin setting aside funds in an irrevocable trust by June 30, 2015. In addition to pension costs, health insurance costs are also increasing significantly and that trend is expected to continue in the near future. In Fiscal Year 2009 -10, to mitigate the impacts of increasing health insurance costs, the City reached an agreement with miscellaneous and Fire Department employees to share in the cost. Beginning in Fiscal Year 2011 -12, members of the Police Officers Association began contributing to their health insurance costs. In 2018, the City could be subject to the Patient Protection and Affordable Care Act's "Cadillac Tax," an excise tax on high -cost health plans that may cost the City as much as $2.5 million annually. There are still many unknowns about this tax, including the threshold level and whether it will in fact be levied in 2018. In the meantime, staff has included the worst case scenario of a Cadillac Tax in its forecasting. In Fiscal Year 2014 -15, members from all of the City's collective bargaining groups increased their annual contribution to healthcare; these increases will continue to escalate for three years to help offset rising costs, and the City will continue to look for new ways to lower healthcare costs. As part of the Fiscal Year 2013 -2015 Biennial Budget development process, City departments were asked to find ways to offset their current budgets by 5 %. Departments identified expenditure savings, increased cost recovery through new audit and collection measures and based on a fee study, and lowered the capital improvement project (CIP) budget. In the second year of the Biennial Budget, staff determined that, based on stronger than anticipated revenue growth, the City would be able to restore the cuts made to the CIP program. This revenue growth has continued through Fiscal Year 2014 -15, and the City has used the additional ongoing revenues to meet community priorities, including increased Fire personnel deployment to respond to higher emergency call volumes, and, as proposed in the upcoming Fiscal Year 2015 -2017 Biennial Budget, additional public safety personnel over the next two years to be prepared for additional increases in call volume in the City with the opening of the Expo Light Rail Line and the vital economic growth. The proposed Fiscal Year 2015 -2017 Biennial Budget includes programs, measures and policies focused on increasing transparency and integrity. The budget includes an expanded set of fiscal and debt policies. A new open data portal allows the public easy access to a growing database of information, ranging from tree information to employee compensation, in addition to the Opengov application that OHSUSA:761799065.5 17 40233 -10 allows users to view the City's budget from a number of perspectives. The information on such website is, however, not incorporated herein by such reference or otherwise. On the recommendations of both the City's external and internal auditors, and following best practices, the City will convene a new Audit Committee in Fiscal Year 2015 -16. Since the end of the most recent recession, City sales taxes and transient occupancy taxes recovered and exceeded their pre - recession levels, reflecting a general increase in economic activity, 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 Yeats 2013 -14 through 2014 -15 provided for a general fund reserve of 15% and an economic uncertainty fund of $9.7 million for emergencies or an unanticipated financial reversal; however, the total fund balance as of June 30, 2014 is significantly larger than this reserve amount, providing flexibility to respond to the uncertain economy. Tax Receipts Taxes received by the City include Utility User's Taxes, Sales Taxes, Property Taxes, Business License Taxes, Transient Occupancy Taxes and other miscellaneous taxes. The City has a diversified tax base; for Fiscal Year 2013 -14, the five major tax sources listed above account for between 9% and 15 %, each, of General Fund revenues. See APPENDIX B- `EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,2014." The following table sets forth General Fund tax revenues received by the City, by source: Table 1 City of Santa Monica Tax Revenues by Source (t) For Fiscal Years 2009 -10 through 2013 -14 ($'s in thousands) Fiscal Year Ended June 30 Source 2010 2011 2012 Utility User's Tax $ 31,620 $ 31,625 $ 31,296 45,832 Sales Taxes 26,637 37,420 31,690 36,048 40,226 Property Taxestz> Transient Occupancy Tax 29,804 32,747 36,143 Business License Taxes 26,553 25,480 8,786 26,325 9,394 Parking Facility Taxes 7,848 273 492 46 Vehicle License Fees Real Property Transfer Tax 3,432 3,954 5,192 Condominium Taxes 19 $163,606 21 $170,843 37 $194,491 Total 2013 2014 $ 31,450 $ 32,817 47,881 44,392 40,997 27,518 9,954 48 6,027 18 $208,285 49,210 50,114 44,396 29,783 10,598 39 6,273 14 $223,244 ( )) Does not include Highway Users' faxes which are recorded in the Gas Tax Fund, Unit Dwelling'raxes, 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 baekfill payments, redevelopment and successor agency statutory pass through and residual payments to the City and certain local public safely fund amounts. See "Sales Tax" and "Vehicle License Fee Reduction" below. Source: City of Santa Monica Finance Department. A brief discussion of Property Taxes, Utility User's Taxes, Transient Occupancy Taxes, Sales Taxes and Business License Taxes follows: OHSUSA:761799065.5 18 40233 -10 Property Taxes. Property Tax receipts of approximately $50.1 million provided the largest tax revenue source of the City, contributing approximately 22% of General Fund tax revenues and approximately 15% of total General Fund revenues during Fiscal Year 2013 -14. 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. Approximately $1.6 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 2013 -14 was approximately 2 %. Utility User's Toy- Utility user's tax receipts of approximately $32.8 million provide a major tax revenue source for the City, contributing approximately 15% of General Fund tax revenues and approximately 10% of total General Fund revenues during Fiscal Year 2013 -14. The Utility User's Tax is imposed on all users of natural gas, electricity, water, wastewater, cable television and telecommunication 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 $32,702 or $28,538 for persons living alone (as of July 1, 2014). 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 Toy- Sales tax receipts of approximately $49.2 million provide another major tax revenue source for the City, contributing approximately 22% of General Fund tax revenues and approximately 15% of total General Fund revenues during Fiscal Year 2013 -14. Approximately $8.6 million of amounts shown as sales tax is attributable to State allocations of property taxes related to the "Triple Flip." Under the "Triple Flip," one - quarter of local governments' 1% share of the sales tax imposed on taxable transactions within their jurisdiction is redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation provides for property taxes in the ERAF to be redirected to local government. Because the ERAF moneys were previously earmarked for schools, the legislation provides for schools to receive other state general fund revenues. It is expected that the swap of sales taxes for property taxes will terminate once the deficit financing bonds are repaid, which is currently expected to occur by early Fiscal Year 2016 -17. Such amounts are expected to equal approximately $8.9 million for Fiscal Year 2014 -15. 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. As of the date of this Official Statement, the Statewide tax rate is 7.5 %. The State collects and administers the tax, makes distributions on taxes collected within the City, and transfers tax receipts to the OHSUSA:761799065.5 19 40233 -10 City's General Fund each month. "Triple -flip" allocations are made semi - annually. In the City the sales tax rate is 9.5 %, of which 7.5% is collected and administered by the State on taxes collected within the City. Additional sales tax totaling 1.5% are 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 1/2 cent transaction and use tax. Beginning on April 1, 2011, eligible transactions have been subject to this tax. A non- binding Measure YY calling for 50% of the tax to be paid to the Santa Monica Malibu Unified School District also passed. Pursuant to Measure YY, the City is currently sharing 50% of Measure Y revenues with the Santa Monica Malibu Unified School District. Approximately $15 million of Measure Y revenue was received in Fiscal Year 2013 -14, of which approximately $7.5 million was paid to the Santa Monica Malibu Unified School District. Measure Y has no sunset provision. Transient Occupancy Tax. Transient occupancy tax receipts of approximately $44.4 million represent the third largest revenue source for the City in Fiscal Year 2013 -14, contributing approximately 20% of General Fund tax revenues and approximately 13% of total General Fund revenues during Fiscal Year 2013 -14. 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 basis and are 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 $30 million are an additional significant source of tax revenue for the City contributing approximately 13% of General Fund tax revenues and approximately 9% of total General Fund revenues during Fiscal Year 2013 -14. 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 public and private parking garages and lots and a real property transfer tax, which have contributed approximately $10.6 million and $6.3 million, respectively, in Fiscal Year 2013 -14, approximately 8% of General Fund tax revenues and approximately 5% total General Fund revenues. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE AND APPROPRIATIONS." Proposition 1A City services are funded with money from local taxes, fees and user charges, State aid and other sources. Property tax, sales tax, transient occupancy tax, utility user's tax, business license tax, parking revenues and development - related fees constitute the majority of City revenue sources. Proposition IA ( "Proposition IA "), proposed by the Legislature in connection with the 2004 05 Budget Act and approved by the voters in November 2004, 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 OHSUSA:761799065.5 20 40233 -10 allocation of local sales tax revenues, subject to certain exceptions. Proposition IA 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 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. 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. In general, Proposition LA's effect on State finances could be the opposite of its effect on local finances. Specifically, Proposition IA could result in decreased resources being available for State programs than otherwise could be the case. This reduction, in turn, would affect State spending or taxes, some of which could be adverse to the City. Principal Property Taxpayers The ten principal property taxpayers in the City and their gross assessed values are listed below. Table 2 City of Santa Monica Principal Property Taxpayers For Fiscal Year 2013 -14 (Based on Taxes Paid) Taxpayer California Colorado Center LLC Water Garden Realty Holding LLC SC Enterprises SMBP LLC Macerich Santa Monica Place Douglas Emmett 1998 LLC Prudential Financial Inc. CREP 2700 Holdings LLC Ocean Avenue LLC Hart Arboretum LLC Agensys Inc. Assessed Value Total City Net Taxable Assessed Value Source: City of Santa Monica Finance Department; HdL, Coren and Cone; Los Angeles County Auditor- Controller. OHSUSA:761799065.5 21 40233 -10 Percentage of Taxable Assessed Total City Taxable Value Rank Assessed Value $ 491,946,902 1 1.79% 477,555,810 2 1.74 362,847,328 3 1.32 317,056,252 4 1.15 315,990,361 5 1.15 184,505,458 6 0.67 178,600,000 7 0.65 177,803,319 8 0.65 167,750,000 9 0.61 156,289,056 10 0.57 $ 2,830,344,486 10.30 $27,514,108,574 100.00% Source: City of Santa Monica Finance Department; HdL, Coren and Cone; Los Angeles County Auditor- Controller. OHSUSA:761799065.5 21 40233 -10 General Fund Financial Summary The information contained in the following tables of revenues, expenditures and changes in fund balance, and assets and liabilities has been derived from the City's audited financial statements for Fiscal Years 2011 -12 through 2013 -14. Excerpts of the City's audited financial statements for the fiscal year ended June 30, 2014 is attached as APPENDIX B hereto. Audited financial statements for prior years are available upon request from the Finance Department of the City. OHSUSA:761799065.5 22 40233 -10 Table 3 City of Santa Monica General Fund Balance Sheet For Fiscal Years 2011 -12 through 2013 -14 ASSETS Cash and investments Restricted cash and investments Receivables (net, where applicable, of allowances for uncollectibles): Accounts Notes Property taxes Interest Other governments Due from other funds Due from Successor Agency Deposits Prepaids Restricted cash and investments with fiscal agent Advances to other funds Advances to Successor Agency Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities Accounts payable Accrued liabilities Contracts payable (retained percentage) Due to other funds Due to Successor Agency Due to other governments Unearned revenue Deferred revenue Deposits payable Total liabilities Deferred inflows of resources Fund balance Nonspendable Restricted Committed Assigned Unassigned Total fund balance Total liabilities, deferred inflows of resources, and fund balance 2011 -12 2012 -13 2013 -14 $386,177,304 14,103,727 9,589,483 1,503,357 779,379 1,751,267 7,731,246 58,528 205,066 34,434,743 17,240,093 21,382,237 $494,956,430 $ 13,308,102 9,178,046 1,660,214 30,880,832 3,514 $235,213,619 143,319,680 60,617,642 10,570,360 816,293 514,469 1,419,605 761,420 1,080,136 58,528 652,427 14,060,201 17,406,692 22,759,012 $509,250,084 $ 15,873,412 9,030,457 3,331,754 5,919,525 16,875,634 $264,816,273 119,424,814 61,014,719 12,836,126 466,888 551,825 1,987,448 1,309,001 49,669 58,528 215,921 352,204 17,401,900 24,106,933 $504,592,249 $ 13,943,640 9,948,566 49,604 41,944,838 2,231,885 22,711,519 73,502,364 -- 956,922 475,843 518,434 78,699,149 125,008,989 68,636,967 22,181,490 43,056,449 640,000 233,153,471 117,225 871 416,257,281 22,179,119 23,808,940 519,506 220,409,168 117,324,362 384,241,095 69,943,979 22,257,819 12,371,619 519,937 212,669,876 118,192,052 366,011,303 $494,956,430 1509,250,084 $504,592,249 This statement is a summary statement only. The complete Comprehensive Annual Financial Report of the City, including the Notes to the Financial Statements therein, is an integral part of this statement. For Fiscal Year 2013 -14 results, see APPENDIX B— "EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,2014." Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2011 -12 through 2013 -14. OHSUSA:761799065.5 23 40233 -10 Table 4 City of Santa Monica General Fund Summary of Revenues and Expenditures For Fiscal Years 2011 -12 through 2013 -14 Revenues: Property taxes Sales taxes Other taxes Licenses and permits Intergovernmental Charges for services Fine and forfeitures Investment income Rental income Settlement income Other Total revenues Expenditures: Current: General government Public safety General services Cultural and recreation services Library Housing and community development Bond issue costs Total expenditures Excess (deficit) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Proceeds from issuance of long -term debt Proceeds from issuance of refunding bonds Premium on debt issued Payment to refunded bond escrow agent Total other financing sources (uses) Extraordinary item: Extraordinary item — payment to the Successor Agency Net change in fund balance Fund balance at beginning of year Fund balance at end of year 2011 -12 2012 -13 2013 -14 $ 40,226,124 $ 44,392,416 $ 50,113,693' 45,831,961 47,880,634 49,210,039 108,433,055 116,011,858 123,920,480 30,518,601 33,692,704 36,880,897 404,210 362,434 145,746 36,752,956 34,495,715 37,379,895 15, 651,820 15,303,990 16,253,546 3,555,400 (2,906) 4,700,546 8,351,319 8,603,344 9,066,536 29,229,525 23,433,176 2,433,175 115,846,146 8,071,504 7,842,987 $434,801,117 $332,244,869 $337,947,540 $ 63,808,035 $ 61,881,527 $ 68,011,996 104,231,630 103, 593, 583 110,476,529 63,901,709 42,425,213 45,263,188 50,178,636 51,717,096 40,454,989 11,303,654 14,862,099 17,141,778 40,248,095 72,159,786 46,635,505 416,993 -- -- 334,088,752 346,639,304 327,983,985 100,712,365 (14,394,435) 9,963,555 11,276,113 9,214,611 15,709,176 (25,549,932) (12,640,305) (10,556,787) 32,178,250 -- -- 19,950,000 -- -- 4,339,840 -- -- (21,925,071) -- -- 20,269,200 (3,425,694) 5,152,389 120,981,565 295,275,716 $416,257,281 (14,196,057) (32,016,186) 416,257,281 $384,241,095 (33,345,736) (18,229,792) 384,241,095 $366,011,303 This statement is a summary statement only. The complete Comprehensive Annual Financial Report of the City, including the Notes to the Financial Statements therein, is an integral part of this statement. For Fiscal Year 2013 -14 results, see APPENDIX B— "EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,2014." Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2011 -12 through 2013 -14. OFISUSA:761799065.5 24 40233 -10 The following table sets forth the budgetary information for Fiscal Years 2013 -14 and 2014 -15 and the proposed budget for Fiscal Year 2015 -16. The City currently expects no materially adverse changes in year end 2014 -15 general fund budget results as compared to the summary information shown below. Table 5 City of Santa Monica General Fund Budget Summary For Fiscal Years 2012 -13 through 2015 -16 Revenues: Property Taxes Sales Taxes Other Taxes Licenses and Permits Intergovernmental Charges for Services Fine and Forfeitures Use of Money and Property Other Total Revenues Operating Appropriations: City Council City Manager Records and Election Services Finance City Attorney Human Resources Information Systems Planning and Community Development Police Fire Community and Cultural Services Library Public Works Housing and Economic Development Non - Departmental Subtotal Interfund Transfers Total Operating Expenditures Operating Surplus Available for Capital Projects Less: Capital Projects Fiscal You Revenues Less Appropriations for Operating and Capital * Fiscal Year Fiscal Year Fiscal Year 2013 -14 2014 -15 Revised 2015 -16 Proposed Actual ($000'x) Budget ($000's) Badget ($000's) $ 50,114 49,210 123,920 36,881 146 37,380 16,253 13,767 10,276 $337,947 $ 847 8,405 2,250 11,008 9,273 3,753 7,587 29,243 74,148 33,345 24,334 10,945 37,131 4,705 67,051 324,025 (15,074) 308,951 28,996 47,312 $ 46,377 51,036 127,921 36,898 562 35,262 16,026 12,077 7,716 $333,875 $ 1,294 13,181 2,692 12,162 10,183 4,300 8,481 31,587 78,063 35,098 25,311 12,271 40,737 5,516 33,939 314,815 (11,876) 302,939 30,936 30,830 $ 48,778 53,993 132,040 37,838 141 37,112 16,042 13,287 7,846 $347,077 $ 918 14,630 2,406 12,512 10,213 4,239 9,158 33,196 81,741 35,904 26,568 12,420 41,869 5,719 34,488 325,979 (6,939) 319,041 28,036 28,488 $ (18,316) $ 106 $ (452) * Negative balances signify use of reserves specifically set aside for use on capital projects. OHSUSA:761799065.5 40233 -10 25 See 'Budgetary Process" below for a discussion of the potential impact of the recent slowdown in tourism in the City and the slowing economies of the State and the United States. Assessed Valuations The City uses the facilities and services of the County of Los Angeles (the "County ") for the assessment and collection of taxes. City taxes are collected at the same time and on the same tax rolls as are the County, City and special district taxes. Assessed valuations are the same for both City and County taxing purposes. The valuation of property in the City is established by the Los Angeles County Assessor, except for public utility property, which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to Fiscal Year 1981 -82, assessed valuations were reported at 25% of the full value of the property. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" herein. The California State Legislature adopted two types of State - reimbursed exemptions beginning in the tax year 1969 -70. The first currently exempts 100% of the full value of business inventories from taxation. The second exemption currently provides a credit of $7,000 of the full value of an owner- occupied dwelling for which application has been made to the Los Angeles County Assessor. Revenue estimated to be lost to local taxing agencies due to the above exemptions has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies. OHSUSA:761799065.5 26 40233 -10 0 0 0 0 0 0 0 0 0 0 O U y 0 0 0 0 0 0 0 0 0 0 Q y a°i y+' � W VtNNiONd�Vi V L Vl O V Vl V O M O M M vOi l� e r r 00 � W O V M vv Vt b r r T C of d' �O Vl c0 V 00 d' Iq O rNN V N�nO7 N� y, 7 � M 00 N V O O [� CO Vt M � y d •5O W � � 'C y N ✓1 M G\ N W O� --� V vi ^� � ® ,pug = rMMNNNNNNN � O Pn W � � .o .. v w � C .•7 Vi �Dhrnco oo t�� A'a aNy a N M N N N N N N M 7 $ o 69 .o vw O A M O N t� oo N h N N i OQ� 0007 ���V y 70 d OL ry O vi. -.hb�O Moor �t�oo oo a�o;000 " "^" �h � U o V t c F� �U en ' t�o000��� virnrn o a "a "�° M C O O oN0 r p h�O l�Oi O NVi vi op �O y �Q � a N M N C It m m m 't a $ v ti v o r v��D hCO N M7 vv Vt Ad Valorem Property Taxes Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of real property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State and County assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" herein. The County levies a one percent property tax on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special and school districts. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November I and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax - defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one -half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax - defaulted property is subject to sale by the Treasurer and Tax Collector of the County of Los Angeles. Property taxes on the unsecured roll are assessed as of the January 1 lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one -half percent per month begins to accrue on November 1. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. City taxes are collected on the same bill as County taxes. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS— Article XIIIA of the California Constitution" herein for information on the effect, if any, of current litigation on assessed values in the City or the availability of revenue sources which may be provided by the State to replace lost property tax revenues. The following tabulation shows the secured taxes levied by the City during the past five fiscal years, together with the total amounts and percentages of taxes uncollected as of June 30 of each fiscal year. OHSUSA:761799065.5 28 40233 -10 �V q q A b M b � VJ 1W q O O N V � u a q o 0 5qo U ,Y r b kn V y� w W w d L a h Nov G#;a � .. o F t� � �t .• q ,-� q oo �n 0 p dC M O1 O M M N h 0 r T ONi N M : cl 6 C w .a o U y yq k � a1 X 0 CO CO M O M d U tC O 06 r-: �p 6 O O M O k p O+N h'+M O�vi MiD Q\ �R p V 7 OM4mNOON�n d'O O� O. 7 Y= N ul O\ M M 00 Q\ 7 N N a 00 00 h W T �D N N EA ♦.� k G d F q O M h 0� 00 d' N Vl m W � o � Qii v L d U N V1 W D\ M V 6� 00 O q L � 07 OO�N�/1 d' N0o V V r,7 U� U �o a N N N N N N 43 L iD O�iN 70007 N � � V] M V1 V1 V1 M CO D\ V l� � ooOMb V viNN7� � �O OO"T ONNNC+iM Vi L u o 0 0 0 0 0 0 0 0 0 W W U U R N U ti Y' U u e 0 a C O O EA kN `5T y L Q m C 4.^ O � 4 us 1 v m� o � � a A o °'3 Dpq V ^y O U C �°O O �.V 'S0 Vi d vi p w° S 5 � o EE O o y V nn . V O UV U O N o 01 N I e 0 rn y o � V Dissolution of Redevelopment On December 29, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association et al v. Matosantos et al. The net effect of the decision was to require all California redevelopment agencies, including the Redevelopment Agency of the City of Santa Monica (the "Former RDA "), to be dissolved as of February 1, 2012. On January 10, 2012, the Santa Monica City Council elected to become the Successor Agency to the Former RDA in order to satisfy obligations of the former agency, as well as to retain housing assets and functions of the former agency. On June 27, 2012, as part of the Fiscal Year 2012 -13 State budget package, the State Legislature passed and the Governor signed AB 1484, a measure meant to clarify existing legislation related to the dissolution of redevelopment. The Successor Agency submitted to the California Department of Finance (DOF) an inventory of all housing assets and an accounting of all available cash and cash - equivalent housing assets (the Housing Due Diligence Review) and non - housing assets (the Non - Housing Due Diligence Review), and held meet and confer sessions with the DOF on both of the Due Diligence Reviews and the ROPS to appeal a number of DOF denials. Despite the appeals, the DOF maintained its decisions with one exception and the City, as Successor Agency, filed a lawsuit against the DOF protesting these terms. On October 21, 2013, the Successor Agency reached a settlement agreement with the DOF to pay $56.7 million as full remittance and payment of all uncommitted or unobligated cash and cash - equivalent balances previously held by the Former RDA and identified in the Due Diligence Reviews. Under the terms of the agreement, the Successor Agency would make four equal payments through July 2015. The Successor Agency paid the settlement in full on January 14, 2015, accelerating the final payment by six months. The Successor Agency has received Final and Conclusive Determinations on its tax allocation bonded indebtedness and its bank loans, ensuring that the DOF will continue to approve the use of tax increment funds for debt service payments. The Successor Agency's continued strong financial position, backed by a healthy property tax base, contributed to Santa Monica's Earthquake Redevelopment debt receiving the highest rating offered to redevelopment debt in California by Moody's on May 21, 2013, and an affirmation of strong debt ratings by Standard & Poor and Fitch. In addition, the State Department of Finance has declared that a number of the City's assets that were formerly owned by the Former RDA, such as the City's eight Downtown parking structures, are indeed governmental purpose assets and are therefore exempt from disposition as required under redevelopment dissolution law. On January 16, 2015, the DOF issued a Finding of Completion to the Agency, allowing the Successor Agency to apply for repayment of previously- denied City/Agency agreements. With the Finding of Completion, the City also has six months to prepare a Long Range Property Management Plan (LRPMP), which details disposition of the various Successor Agency properties; at this time, the City is awaiting final confirmation that no previous redevelopment properties are subject to disposition. The State Controller's Office completed its review of assets transferred from the Former RDA to the City, and staff is waiting for the final report on the findings. Among the preliminary findings was an asserted $19,149,679 in unauthorized transfers from the Successor Agency to the City. Pending the outcome of the audit, the City's budgeting strategy is to anticipate the worst until there is confirmation that assets are safe. In the meantime, the known effects of the dissolution of redevelopment are many. Two major projects, the Civic Center Joint Use Project with the Santa Monica - Malibu Unified School District (SMMUSD) and the rehabilitation of the Civic Auditorium, were suspended. One of the consequential benefits of redevelopment dissolution on the City is that the City receives a 10 -14% share of residual property tax increment that was formerly directed to the Former RDA. These residual payments should increase as the Former RDA's debt service is paid off. OHSUSA:761799065.5 30 40233 -10 State Budget Acts The following information concerning the State of California's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State budget is regularly available at various State - maintained websites. Text of the State budget may be found at the Department of Finance website, www.dof ea.gov, under the heading "California Budget. " An impartial analysis of the State budget is posted by the Ogee of the Legislative Analyst (the "LAO') at www.lao. ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Original Purchaser, and the City and the Original Purchaser take no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. The State's fiscal year begins on July I and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget "). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available firom prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two- thirds majority vote of each house of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line -item vetoes are subject to override by a two- thirds majority vote of each house of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Proposition 30. The passage of the Governor's November Tax Initiative ( "Proposition 30 ") placed on the November, 2012 ballot results in an increase in the State sales tax by a quarter -cent for four years and, for seven years, raising taxes on individuals after their first $250,000 in income and on couples after their first $500,000 in earnings. These increased tax rates will affect approximately 1 percent of California personal income tax filers and in effect starting in the 2012 tax year, ending at the conclusion of the 2018 tax year. The LAO has estimated that, as a result of Proposition 30, additional state tax revenues of about $6 billion annually from 2012 -13 through 2016 -17 will be received by the State with lesser amounts of additional revenue available in fiscal years 2017 -18 and 2018 -19. Proposition 30 also places into the State Constitution certain requirements related to the transfer of certain State program responsibilities to local governments, mostly counties, including incarcerating certain adult offenders, supervising parolees, and providing substance abuse treatment services. California Public Employees' Pension Reform Act. On September 12, 2012, Governor Brown signed Assembly Bill 340, creating the Public Employees' Pension Reform Act ( "PEPRA "). Among other things, PEPRA creates a new benefit tier for new employees /members entering public agency employment and public retirement system membership for the first time on or after January 1, 2013. The OHSUSA:761799065.5 31 40233 -10 new tier has a single general member benefit formula and three safety member benefit formulas that must be implemented by all public agency employers unless the formula in existence on December 31, 2012 has both a lower normal cost and a lower benefit factor at normal retirement age. PEPRA requires that all new employees /members, hired on or after January 1, 2013, pay at least 50% of the normal cost contribution. The normal cost contribution is the contribution set by the retirement system's actuary to cover the cost of a current year of service. The City believes that the provisions of PEPRA will help to control its pension benefit liabilities in the future. Proposed Fiscal Year 2015 -16 Budget. The Governor's proposed State budget for Fiscal Year 2015 -16 (the "Proposed 2015 -16 Budget ") was released on January 9, 2015. The Proposed 2015 -16 Budget assumes total State General Fund revenues and transfers of $108 billion and authorizes total expenditures of $111.7 billion for Fiscal Year 2014 -15. The LAO's Overview of the Proposed 2015 -16 Budget, released on January 13, 2015 (the "2015 -16 LAO Overview "), noted that the State is projected to end Fiscal Year 2014 -15 with a general fund surplus of $2.1 billion, comprised of a balance of $452 million in the State's traditional budget reserve and a balance of $1.6 billion in the Budget Stabilization Account. For Fiscal Year 2015 -16, the Proposed 2015 -16 Budget assumes total State General Fund revenues of $113.4 billion and authorizes expenditures of $113.3 billion. In addition, the Proposed 2015- 16 Budget revises the Fiscal Year 2013 -14 minimum funding guarantee upward to $58.7 billion (an increase of $371 million from the estimate included in the 2014 -15 State Budget) and for Fiscal Year 2014 -15, revises the minimum funding guarantee to $63.2 billion (approximately $2.3 billion higher than that included in the 2014 -15 State Budget). In addition, for Fiscal Year 2015 -16, the Proposed 2015 -16 Budget sets the minimum funding guarantee at $65.7 billion, including $47 billion from the State General Fund, which reflects an increase of $2.6 billion from the revised level for Fiscal Year 2014 -15. The 2015 -16 LAO Overview also notes that, despite the increase in the minimum guarantee, the State General Fund share is only $371 million with a projected growth in available local property tax collections accounting for the balance, and that for purposes of Proposition 98, Fiscal Year 2015 -16 is a "Test 2" year, with the minimum guarantee driven primarily by an increase in per- capita personal income. The LAO noted the following: • Higher Revenue Projections and Spending Increases. The administration projects that General Fund tax revenues will end 2014 -15 more than $2 billion above its projections in last June's state budget package. Further, the administration projects that the General Fund's three major taxes collectively will increase by over $5.6 billion in 2015 -16, to a level that is more than $1 billion above administration estimates from last June for the 2015 -16 fiscal year. These higher revenue projections result in a multibillion — dollar influx of new funds for schools and community colleges under the Proposition 98 minimum funding guarantee. The administration's budget estimates also assume that General Fund spending for Medi —Cal, the state's primary health care program for low— income people, is up by hundreds of millions of dollars in 2014 -15, compared to last year's budget assumptions, and by about $800 million above that level in 2015 -16. The budget identifies other increased health and human services costs and potential budgetary risks. • Governor's Priorities. In the near term, the Governor's reluctance to propose significant new program commitments outside of Proposition 98 could help avoid a return to the boom and bust budgeting of the past. His proposal to pay off state government's retiree health liabilities over the next few decades would, if fully funded, address the last of state government's large unaddressed liabilities. Over the long run, eliminating those liabilities would significantly lower state costs, affording future generations more flexibility in public budgeting. The Governor, however, proposes no additional funds to implement the plan. Proposition 2 provides a stream of dedicated funding for debt payments that is available to address these retiree health liabilities. 01-ISUSA:761799065.5 32 40233 -10 • Higher Revenues Likely for 2014 -15. Recent strong economic data and a surge in state income tax collections in December led the LAO to conclude that the state likely will collect more tax revenue in 2014 -15 than the administration now estimates. Barring a sustained stock market drop, an additional 2014 -15 revenue gain of $1 billion to $2 billion seems likely. Even bigger gains of a few billion dollars more are possible. Additional revenues in 2014 -15 will go largely or entirely to schools and community colleges and could result in a few billion dollars of higher ongoing state payments to schools. Whether tax revenues grow further, stagnate, or, in the worst case, decline in 2015 -16 will depend in large part on trends in volatile capital gains and business income. History tells us that the current strength of state revenues, bolstered by a soaring stock market last year, may not continue for long. As the Governor argues, the budget remains vulnerable to downturns that may re— emerge with little warning. Building budget reserves and paying down state debts remain important goals. Significant proposals or adjustments set forth in the Proposed 2015 -16 Budget affecting California public agencies include the following: Law Enforcement. The Proposed 2015 -16 Budget proposes to continue $40 million General Fund allocation to "front line" law enforcement activities. The Board of State and Community Corrections allocates funds to individual cities acting as the fiduciary agent within each county receiving the funds. • Transportation. The Proposed 2015 -16 Budget includes total funding of $15.8 billion ($84 million General Fund and $15.7 billion other funds) for all programs administered within the State Transportation Agency. In addition, the shared revenues budget allocates over $1.4 billion in fuel excise tax to cities and counties for local streets and roads. • Elimination of Redevelopment Agencies. The Proposed 2015 -16 Budget anticipates that in 2014 -15 and 2015 -16 combined, cities will receive an additional $580 million, counties $660 million, and special districts $200 million. • Property Taxes. The Proposed 2015 -16 Budget anticipates ongoing property tax revenues of more than $900 million annually to be distributed to cities, counties, and special districts that can be used by local governments to fund police, fire, and other critical public services. State Mandate Reimbursements. The Proposed 2015 -16 Budget continues the suspension of most mandates not related to law enforcement or property taxes. After satisfying the Proposition 98 guarantee, additional revenues, up to $800 million, are proposed to pay down the remainder of the State's pre -2004 mandate debt. The Proposed 2015 -16 Budget estimates that the trigger mechanism will result in a $533 million payment toward this mandate debt. These funds will provide counties, cities, and special districts with general purpose revenue. Deferred Maintenance. The Proposed 2015 -16 Budget includes $478 million ($125 million General Fund) for critical deferred maintenance at universities, community colleges and in State parks, prisons, State hospitals and other State facilities. • Education. The Proposed 2015 -16 Budget provides over $1.2 billion in funding to support a coordinated framework for adult education, career technical education, workforce investment, and apprenticeships intended to provide training and education to workers in California so they can develop the skills they need for self - sufficiency and greater personal advancement. May Revision. On May 18, 2015, the Governor released his May Revision to the Proposed 2015- 16 Budget. Overall, the May Revision reflects a $6.7 billion increase in General Fund revenues compared OHSUSA:761799065.5 33 40233 -10 to the January Budget. The Constitution, reflecting the voters' priorities, directs the use of these revenues as follows: • Proposition 98 increases General Fund spending by $5.5 billion for K -12 schools and community colleges. • Proposition 2 requires that an additional $633 million be saved in the Rainy Day Fund and an additional $633 million be used to pay down debts and liabilities. Proposition 2 was designed to help the state save when times are good. Higher revenues from capital gains will both be saved and used to pay down debts. By the end of the year, the state's Rainy Day Fund will have a total balance of $3.5 billion. The May Revision commits new spending in only three additional areas: • Creating the first -ever California Earned Income Tax Credit to assist the state's lowest - income workers. The credit will provide $380 million in benefits to 2 million Californians. This credit — combined with increased funding for education and health care reform, together with an increased minimum wage — will provide increased state support for California's poorest residents. • Holding tuition flat at the state's universities for California undergraduate students for two more years by providing increased ongoing funding to California State University and temporary assistance to the University of California to pay down its unfunded pension liability. • Providing health care and other safety net services to currently undocumented immigrants who gain Permanent Residence Under Color of Law status under the President's executive actions. Further, the May Revision notes near -term application of funds as the State addresses the budgetary debts accumulated over the past decade and a half In the next three months alone, the state will: • Repay the remaining $1 billion in deferrals to schools and community colleges (which once peaked at $10 billion). • Make the last payment on the $15 billion in Economic Recovery Bonds that were used to cover budget deficits from as far back as 2002. • Repay local governments the final mandate reimbursements for activities completed in 2004 or earlier (totaling $765 million). The elimination of all of these budgetary debts and a healthier Rainy Day Fund balance is proposed to give the state fiscal capacity when the next recession begins. But these steps alone will not ensure an enduring balanced budget. Already, the commitments that the state made in the past two years are straining the state's finances. Under a projection of current policies, the budget would be upside down by more than $2 billion by 2018 -19. For K -12 schools, funding levels will increase by more than $3,000 per student in 2015 -16 over 2011 -12 levels. This reinvestment provides the opportunity to correct historical inequities in school district funding with continued implementation of the Local Control Funding Formula. Rising state revenues means that the state can implement the formula well ahead of schedule. When the formula was OHSUSA:761799065.5 34 40233 -10 adopted in 2013-14, funding was expected to be $47 billion in 2015-16. The May Revision provides $6.1 billion more— with the formula instead allocating $53.1 billion this coming year. The May Revision also invests in the quality and affordability of the state's higher education system. University tuition almost doubled during the recession, creating a hardship for many students and their families. To maintain affordability, the May Revision holds tuition for California undergraduate students flat through 2016 -17. The May Revision commits $38 million in ongoing funding for the California State University (CSU), for a total of $158 million in new funding. As part of an agreement with the University of California (UC), the state will provide temporary funding from Proposition 2 to assist in paying down UC's unfunded pension liability — as UC imposes a pension cap consistent with the state's 2012 reform law. For the last several years, the Census Bureau has reported that about 16 percent of California residents are living in poverty — slightly above the national average of 14.9 percent. The Census Bureau's supplemental measure of poverty, which considers broader measures of income and the cost of living, reflects a poverty rate of 23.4 percent (a three -year average). While the state's economic conditions have improved since the Governor's Budget, much of the gains continue to be made by the state's wealthiest residents. California has an extensive safety net for its neediest residents who live in poverty, and the state has maintained those core benefits despite the recession. In the past two years, the recovering economy has allowed the state to take even greater steps to assist the state's neediest residents. These efforts are assisting millions of Californians. • The implementation of health care reform has extended coverage under Medi -Cal to an additional four million Californians in just three years and added new services such as treatment for substance abuse and mental health. The expansion has already increased General Fund costs by approximately more than $1 billion annually and that amount will rise to more than $2 billion by 2017 -18 as the federal government begins to reduce its share of costs beginning in 2017. Under the May Revision, coverage will also be provided to immigrants who gain Permanent Residence Under Color of Law status under the President's executive actions. For Medi -Cal and other programs, this will add General Fund costs of an estimated $200 million when the federal changes are fully implemented ($62 million in 2015- 16). • The Local Control Funding Formula is concentrating the greatest school funding — billions more this year alone — to those students who face the greatest challenges. • The state increased the minimum wage by 25 percent, to $10 per hour, and guaranteed that 6.5 million workers are eligible for sick leave. General Fund costs to implement these measures will be nearly $250 million by 2016 -17. Despite these steps, millions of Californians remain below the federal poverty line. The Budget takes additional steps to counteract the effects of poverty: • Establish the state's first Earned Income Tax Credit to help the poorest working families in California. This targeted credit will provide a refundable tax credit for wages and would focus on the lowest - income Californians — households with incomes less than $6,580 if there are no dependents or $13,870 if there are three or more dependents. The proposed credit would match 85 percent of the federal OHSUSA:761799065.5 35 40233 -10 credit at the lowest income levels, providing an average estimated household benefit of $460 annually for 825,000 families (representing 2 million individuals), with a maximum benefit of $2,653. Provide $1.4 billion ($150 million more than the Governor's Budget) in funding to support a coordinated framework for adult education, career technical education, workforce investment and apprenticeships. Establish an amnesty program for those Californians with past due court- ordered debt from traffic infractions. Participating individuals can reduce their debts by 50 percent, reduce the administrative fees they pay from $300 to $50, and have their drivers' licenses reinstated. The May Revision additionally addresses the current drought. The State of California has experienced four consecutive years of below - average rain and snow, and is currently facing severe drought conditions in all 58 counties. The most recent surveys recorded the statewide average snowpack, which is the source for one -third of the state's water, at just 2 percent of the normal average. Since the Governor first declared a state of emergency in January 2014, the Administration has worked with the Legislature to appropriate approximately $1.9 billion to assist drought- impacted communities and provide additional resources for critical water infrastructure projects. The state's emergency drought response accelerates several of the key actions in the California Water Action Plan. The May Revision includes an additional $2.2 billion of one -time resources to continue the state's response to drought impacts. The funds will protect and expand local water supplies, conserve water and respond to emergency conditions. [LAO Analysis on May Revision to Come] Changes in State Budget The final State Budget, which requires approval by a two- thirds vote of each house of the State Legislature, may differ substantially from the Governor's original budget proposal. Accordingly, the City cannot predict the impact that the 2015 -16 budget, or subsequent budgets, will have on its finances and operations. The State Budget will be affected by State and national economic conditions and other factors over which the City will have no control. The City cannot predict the impact that the 2015 -16 budget, or subsequent budgets, will have on its finances and operations. The State Budget will be affected by State and national economic conditions and other factors over which the City will have no control. 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, Director of Finance /City Treasurer, and the Assistant City Treasurer, provides general oversight and acts in an advisory capacity regarding City investments. to 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 has been certified by the Association of Public Treasurers, United States and Canada. OxsuSA:761799065.5 36 40233 -10 The Investment Policy establishes three objectives for City investment: (1) Safety of principal: The overall value of City funds shall not be diminished in the process of securing and investing those funds or over the duration of the investments. (2) Liquidity of funds: Funds shall be made available to meet all anticipated City obligations and a prudent reserve shall be kept to meet unanticipated cash requirements. (3) Return on investment: Earn a market rate of interest from City funds commensurate with the objectives of safety and availability of the principal invested. Specific Investment Restrictions. The Investment Policy mandates "prudent" investment in those instruments specifically authorized by State law and establishes additional diversification guidelines with respect to instruments, maturity, and deposit institutions. It is the City Treasurer's policy to generally 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 pooled 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 for December 2014 (the "December 2014 Cash and Investment Report") provides a monthly summary review of the City's investment portfolio and cash position. As of December 31, 2014, the value of cash and investments held in the pooled portfolio increased by $5.6 million in December to $666 million and was then $8.9 million more than one year ago. The pooled portfolio yield - to- maturity of 0.9% was one basis point higher than the prior month and twenty basis points higher than in December 2013. Net investment earnings for the month were $0.5 million. Fiscal year -to -date earnings as of December 31, 2014 were 24.5% greater than for the same period last year. The extended low interest rate environment continues to limit investment returns. Additionally, the uncertainty regarding redevelopment dissolution has required the holding of extraordinarily large cash balances. As of December 31, 2014, the average weighted days -to- maturity was 797 days. In addition to the pooled portfolio, the City's total cash holdings as of December 31, 2014 included $27.2 million in debt proceeds held in trust with various fiscal agents, $20.4 million in other funds held in trust, and $29,222 in petty cash/change funds for a total balance of $713.6 million, $8.9 million more than one year earlier. The Monthly Report dated as of December 31, 2014, indicates that: 62.6% of the City's pooled investment portfolio ($416.6 million) was invested in Federal Agency securities; 18.4% ($122.4 million) was invested in corporate bonds; 10.7% ($71.4 million) was held as cash in a general bank account; 7.4% ($49.6 million) was invested in the Local Agency Investment Fund of the State (LATE); and less than 1.0% was held in Federal Treasury Bills ($2.99 million) and in State of California obligations ($3.02 oxsusA:761799065.5 37 40233 -10 million). As of December 31, 2014, the market value of the City's portfolio was approximately $1.3 million greater than the book value. 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, 2014 audited financial statements, the net reserves amounts related to the City were $5,673,969 (15% of ACCEL's total net reserves and incurred but not reported). Total assets of ACCEL at June 30, 2014 were $52,857,861. 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, 2014, based on interest rates of 2.0% for general, automobile, and transit and 5.0% for workers' compensation. 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. Nonincremental claims expenses have not been included as part of the liability for claims. Retirement System The City contributes to the State of California Public Employees' Retirement System (CalPERS), an agent multiple - employer public employee retirement system that acts as a common investment and administrative agent for cities in the State. Ca1PERS provides retirement and disability benefits, annual cost -of living adjustments, and death benefits to plan members and beneficiaries. Ca1PERS acts as a common investment and administrative agent for participating public entities within California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of Ca1PERS annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA, 95814 or on their website: www.calpers.ca.gov. The information on such website is not incorporated OHSUSA:761799065.5 38 40233 -10 herein by such reference or otherwise. See Note 5 in APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED SEPTEMBER 30,2013." The City makes two types of contributions for covered employees. The first contribution represents the amount the City is required to make (the employer rate). The second represents an amount, which is made by the employee, but is reimbursed to the employee by the City (the member rate). The member rate is set by contract and normally remains unchanged. The employer rate is an actuarially established rate, is set by CalPERS, and changes from year to year. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance. 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 CalPERS, 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). The City's payroll for employees covered by CalPERS for the year ended June 30, 2014 was $174,775,776. Total payroll for the City for the year ended June 30, 2015 is projected to be $178,686,057. Police officers currently reimburse the City 3.5% of their annual salary, an amount that will increase to 5.0% in Fiscal Year 2015 -16 and 6.5% in Fiscal Year 2016 -17. Firefighters currently pay the employee contribution of 9% and reimburse the City 1% of their annual salary, an amount that will increase to 2.5% in Fiscal Year 2015 -16 and 4% in 2016 -17. Miscellaneous employees currently reimburse the City for the cost of an enhanced benefit at the rate amount of 6.7% of covered salary. Police and miscellaneous employee groups currently reimburse the City for the value of the employer paid member contributions (8% for miscellaneous employees and 9% for safety). The total amount paid by employees towards retirement was $13,328,605, or 25% of the total cost of retirement contributions, in Fiscal Year 2013 -14. The actuarial methods and assumptions used are those adopted by the CalPERS 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 CalPERS. The defined pension benefit is payable monthly for life, in an amount that varies, for employees hired before July 1, 2012, from 2.4% at age 50 to a maximum of 3% at age 55 for fire safety employees, 3% at age 50 for police safety employees and 2% at age 50 to a maximum of 2.7% at age 55 for miscellaneous employees, of the employee's single highest year's salary for each year of credited service. The Plan also provides death and disability benefits. In 2012, the City and miscellaneous employees agreed to create a second tier benefit for those hired July 1, 2012 through December 31, 2012. The benefits vary from 1.4% at age 50 to a maximum of 2.4% at age 63. The Governor, in September 2012, signed AB 340 and AB 197, two bills which enacted the California Public Employees' Pension Reform Act of 2013 (PEPRA). AB 340 made several changes to the pension benefits that may be offered to employees hired on or after January 1, 2013, including setting a new maximum benefit, a lower -cost pension formula for safety and non - safety employees with requirements to work longer in order to reach full retirement age and a cap on the amount used to calculate a pension. Among other things, AB 340 also enacted pension spiking reform for new and existing employees, required three -year averaging of final compensation for new employees, and provided employers with new authority to negotiate cost - sharing agreements with current employees. AB OHSUSA:761799065.5 39 40233 -10 340 also contained limitations on the use of retired annuitants, requiring that an annuitant have a six - month break in service prior to returning to work. The legislation created mandatory benefits tiers for new employees who have not worked for another Ca1PERS agency hired beginning January 1, 2013 ranging from 2.0% at age 50 to a maximum of 2.7% at age 57 for police safety and fire safety employees and 1.1% at age 50 to a maximum of 2.4% at age 62 for miscellaneous employees. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute and City ordinance. For Fiscal Years 2013 -14 and 2014 -15, employer contribution rates are as follows: Amoral Rate Components Miscellaneous Fire Police 2013 -14 2014 -15 2013 -14 2014 -15 2013 -14 2014 -15 A. Normal cost rate 9.598% 9.481% 15.180% 15.296% 19.698% 19.478% B. Unfunded liability 8.023 9.207 12.893 15.442 19.565 21.377 C. Total Required 17.621% 18.688% 28.073% 30.738% 39.263% 40.855% Pension Funding Information. The staff actuaries at CalPERS 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 2014 covered CaIPERS' Fiscal Year ended June 30, 2013). 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, 2013, that was delivered in October 2014, will affect the City's Fiscal Year 2015 -16 required contribution rate). Ca1PERS rules require the City to implement the actuary's recommended rates. In calculating the annual actuarially recommended contribution rates, the CaIPERS actuary calculates, on the basis of certain assumptions, the actuarial present value of benefits that CalPERS will fund under the CaIPERS 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 Ca1PERS will fund under the CalPERS Plans that are attributed to the current year, and the actuarial accrued liability (the "AAL ") represents the actuarial present value of benefits that CalPERS 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 CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS 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 CalPERS will fund under the CalPERS Plans to retirees and active employees upon their retirement and not as a fixed expression of the liability the City owes to CalPERS under its CalPERS Plans. The actuarial funding method used is the Entry Age Normal Cost Method. Under this method, projected benefits are determined for all members and the associated liabilities are spread in a manner that produces level annual cost as a percent of pay in each year from the age of hie (entry age) to the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost. OHSUSA:761799065.5 40 40233 -10 The actuarial accrued liability for active members is then calculated as the portion of the total cost of the plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits, for active members beyond the assumed retirement age, and for members entitled to deferred benefits, is equal to the present value of the benefits expected to be paid. No normal costs are applicable for these participants. The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an amortization of the unfunded liability as a level percentage of assumed future payrolls. Commencing with the June 30, 2013 valuation all new gains or losses are tracked and amortized over a fixed 30 -year period with a 5 year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. All changes in liability due to plan amendments (other than golden handshakes), changes in actuarial assumptions, or changes in actuarial methodology are amortized separately over a 20- year period with a 5 year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. Changes in unfunded accrued liability due to a Golden Handshake will be amortized over a period of 5 years. If a plan's accrued liability exceeds the market value of assets, the annual contribution with respect to the total unfunded liability may not be less than the amount produced by a 30 -year amortization of the unfunded liability. An exception has been made for the change in asset value from actuarial to market value in this valuation. The CalPERS Board approved a 30 -year amortization with a 5 -year ramp - up /ramp -down for only this change in method. Additional contributions will be required for any plan or pool if their cash flows hamper adequate funding progress by preventing the expected funded status on a market value of assets basis to either: Increase by at least 15 percent by June 30, 2043; or Reach a level of 75 percent funded by June 30, 2043 The necessary additional contribution will be obtained by changing the amortization period of the gains and losses, except for those occurring in the fiscal years 2008 -09, 2009 -10, and 2010 -11 to a period, which will result in the satisfaction of the above criteria. Ca1PERS actuaries will reassess the criteria above when performing each future valuation to determine whether or not additional contributions are necessary. An exception to the funding rules above is used whenever the application of such rules results in inconsistencies. In these cases, a "fresh start" approach is used. This simply means that the current unfunded actuarial liability is projected and amortized over a set number of years. As mentioned above, if the annual contribution on the total unfunded liability was less than the amount produced by a 30 -year amortization of the unfunded liability, the plan actuary would implement a 30 -year fresh start. However, in the case of a 30 -year fresh start, just the unfunded liability not already in the (gain) /loss base (which is already amortized over 30 years), will go into the new fresh start base. In addition, a fresh start is needed in the following situations: 1) When a positive payment would be required on a negative unfunded actuarial liability (or conversely a negative payment on a positive unfunded actuarial liability); or 2) When there are excess assets, rather than an unfunded liability. In this situation, a 30 -year fresh start is used, unless a longer fresh start is needed to avoid a negative total rate. OHSUSA:761799065.5 41 40233 -10 It should be noted that the actuary may choose to use a fresh start under other circumstances, In all cases, the fresh start period is set by the actuary at what is deemed appropriate; however, the period will not be less than five years, nor greater than 30 years. In each actuarial valuation, the CaIPERS actuary estimates the actuarial value of the assets (the "Actuarial Value ") of the CaIPERS 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 CaIPERS 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. On April 17, 2013, the CaIPERS Board of Administration approved a recommendation to change the CaIPERS amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015 -16 rates, CaIPERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed 30 -year period with the increases or decreases in the rate spread directly over a 5 -year period. On January 1, 2013, PEPRA took effect. The impact of the PEPRA changes are included in the rates and the benefit provision listings of the June 30, 2013 valuation for the 2015 -16 rates. On April 17, 2013, the CaIPERS Board of Administration approved a recommendation to change the CalPERS amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015- 16 rates, CaIPERS will no longer use an actuarial value of assets and will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed 30 -year period with the increases or decreases in the rate spread directly over a 5 -year period. In 2014 CalPERS completed a 2 -year asset liability management study incorporating actuarial assumptions and strategic asset allocation. On February 19, 2014 the CaIPERS Board of Administration adopted relatively modest changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset allocation is expected to have a long- term blended return that continues to support a discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic assumptions that more closely align with actual experience. The most significant of these is mortality improvement to acknowledge the greater life expectancies seen in CalPERS membership and expected continued improvements. The new actuarial assumptions will be used to set the Fiscal Year 2016 -17 contribution rates for public agency employers. The increase in liability due to new actuarial assumptions will be calculated in the 2014 actuarial valuation and will be amortized over a 20 -year period with a 5 -year ramp -up /ramp -down in accordance with Board policy. Projected Future Employer Contribution Rates. The projected future employer contribution rates for the City are as follows. The table below shows projected employer contribution rates (before cast sharing) for Fiscal Year 2015 -16 and for the following five Fiscal Years, assuming CalPERS earns 18 percent for Fiscal Year 2013 -14 and 7.50 percent every fiscal year thereafter, and assuming that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the beginning of the Fiscal Year 2016 -17. OHSUSA:761799065.5 42 40233 -10 Projected Future Employer Contribution Rates Fiscal Year Miscellaneous Fire Police 2015 -16 19.550% 32.419% 42.805% 2016 -17 21.0 35.0 46.1 2017 -18 21.8 36.9 48.0 2018 -19 22.7 38.8 50.0 2019 -20 23.5 40.7 51.9 2020 -21 23.6 40.7 52.1 * Projected. T CaIPERS projected. Source: City of Santa Monica Finance Department and 2014 CalPERS Report. See also "Notes to Financial Statements" in APPENDIX B — `EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2014." Funding History. 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 2013 are set forth in the table below. Underfunded liability is primarily the result of a significant decline in the value of the plan assets, less than anticipated investment returns by Ca1PERS and an increase in benefits for Miscellaneous and Public Safety employees. As described below, the City has addressed the underfunded liability through significant changes to its compensation structure including annual incremental increases to public safety employee pension contributions and a second tier of reduced retirement benefits for new miscellaneous employees. The City cannot predict the level of future contributions to CalPERS which may be required by CalPERS but such amounts may increase significantly over current levels. The funding history below shows the recent history of the actuarial accrued liability, actuarial value of assets, market value of assets, funded ratios and covered payroll, separately for Miscellaneous Members, Fire Safety Members and Police Safety Members. 011susA:761799065.5 43 40233 -10 Miscellaneous Members (dollars in thousands) Fire Safety Members (dollars in thousands) Entry Age Market Valuation Normal Actuarial Market Underfunded Actuarial Value Annual UAAL as a Date Accrued Value of Value of Liability Funded Funded Covered Percentage (June 30) Liability Assets Assets (UAAL) Ratio Ratio Payroll of Payroll 2013* $810,732 $585,420 $585,408 $225,312 72.2% 72.2% $134,174 167.9% 2012 757,193 604,495 512,241 152,698 79.8 67.6 129,806 117.6 2011 700,584 553,563 497,408 147,031 79.0 71.0 125,749 116.9 2010 649,678 505,032 397,089 144,646 77.7 61.1 119,583 121.0 2009 608,461 470,981 342,369 137,480 77.4 56.3 116,219 1183 2008 523,122 438,590 443,164 84,532 83.8 84.7 108,404 78.0 Fire Safety Members (dollars in thousands) * Beginning with the June 30, 2013 CalPERS valuation, Actuarial Value of Assets as reported by CalPERS equals Market Value of Assets as a result of CaIPERS Direct Rate Smoothing Policy. Source: City of Santa Monica Finance Department attd 2014 CalPERS Report. As discussed above with respect to the City's current finances generally, the City has recently made significant changes to its compensation structure, which changes were approved by employees during the collective bargaining process, including annual incremental increases to public safety employee pension contributions and a second tier of reduced retirement benefits for new miscellaneous employees, and decreased pension costs as a result of $25.1 million in pay downs of the City's unfunded pension liability beginning in Fiscal Year 2010 -11 through the end of Fiscal Year 2013 -14. In February 2014, the City Council adopted a policy that, provided that there are sufficient funds, the annual budget would include a minimum set -aside of $1 million in the General Fund, and commensurate set -aside amounts in all other funds, to be used towards payments to CalPERS. These payments would be in addition to the Annual Required Contribution and would serve to reduce the City's unfunded retirement oHSUSA:761799065.5 44 40233 -10 Entry Age Market Valuation Normal Actuarial Market Underfunded Actuarial Value Annual UAALasa Date Accrued Value of Value of Liability Funded Funded Covered Percentage (June 30) Liability Assets Assets (UAAL) Ratio Ratio Payroll of Payroll 2013* $190,424 $133,725 $133,725 $56,699 70.2% 70.2% $15,275 371.2% 2012 182,266 146,676 122,262 35,590 80.5 67.1 14,362 247.8 2011 173,591 140,675 124,921 32,916 81.0 72.0 14,057 234.2 2010 163,845 134,365 104,939 29,480 82.0 64.0 13,752 214.4 2009 155,343 129,054 93,894 26,289 83.1 60.4 13,350 196.9 2008 142,775 124,224 126,941 18,551 87.0 88.9 12,514 148.2 Police Safety Members (dollars in thousands) Entry Age Market Valuation Normal Actuarial Market Underfunded Actuarial Value Annual UAAL as a Date Accrued Value of Value of Liability Funded Funded Covered Percentage (June 30) Liability Assets Assets (UAAL) Ratio Ratio Payroll of Payroll 2013* $346,389 $243,858 $243,858 $102,531 70.4% 70.4% $27,642 370.9% 2012 326,610 256,820 216,240 69,790 78.6 66.2 27,208 256.5 2011 307,730 241,473 216,527 66,257 78.5 70.4 25,800 256.8 2010 289,882 226,716 178,005 63,166 78.2 61.4 25,907 243.8 2009 276,030 215,162 156,630 60,868 77.9 56.7 24,169 251.8 2008 251,441 204,336 209,249 47,105 81.3 83.2 23,481 200.6 * Beginning with the June 30, 2013 CalPERS valuation, Actuarial Value of Assets as reported by CalPERS equals Market Value of Assets as a result of CaIPERS Direct Rate Smoothing Policy. Source: City of Santa Monica Finance Department attd 2014 CalPERS Report. As discussed above with respect to the City's current finances generally, the City has recently made significant changes to its compensation structure, which changes were approved by employees during the collective bargaining process, including annual incremental increases to public safety employee pension contributions and a second tier of reduced retirement benefits for new miscellaneous employees, and decreased pension costs as a result of $25.1 million in pay downs of the City's unfunded pension liability beginning in Fiscal Year 2010 -11 through the end of Fiscal Year 2013 -14. In February 2014, the City Council adopted a policy that, provided that there are sufficient funds, the annual budget would include a minimum set -aside of $1 million in the General Fund, and commensurate set -aside amounts in all other funds, to be used towards payments to CalPERS. These payments would be in addition to the Annual Required Contribution and would serve to reduce the City's unfunded retirement oHSUSA:761799065.5 44 40233 -10 liability. If any additional funds are available, staff would also annually assess the set -aside of any additional funds for CalPERS payments against other unfunded needs, and present the City Council with a recommendation. This policy would remain in effect until such time as there is no remaining unfunded retirement liability. Council has given staff direction to make an additional $5 million payment before July 1, 2015 using Fiscal Year 2013 -14 savings, bringing the total pay down amount to $30.1 million. The City plans to continue to prepay its contributions to CalPERS as it has done at the beginning of each year since Fiscal Year 2007 -08, and to set aside the discount received from such prepayments for future pension costs or further pay downs of unfunded liability. Despite these mitigating steps taken by the City, CalPERS has made a number of changes to actuarial demographic assumptions that have increased contribution rates. It is important for the City to continue to work with its employees to identify measures that will ensure that increases in ongoing compensation costs do not outstrip those of revenue growth. The passage of PEPRA in September 2012 is working to further control cost increases in the future, as new employees are receiving reduced retirement benefits and cities will be encouraged to increase employees' share of contribution costs. Other Post Employment Benefits In addition to providing pension benefits through CalPERS, 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 under a single employer benefit plan. These benefits are subject to negotiations between the City and each bargaining unit and the related memorandum of understanding (MOU) is approved by the City Council. 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 City service equals or exceeds 70. Under the terms of a MOU between the City and a coalition of the various non -sworn bargaining units (Coalition), all non -sworn permanent retirees are allowed to continue participating in one of the City's health plans at the same rate as active employees. As with other MOU's, this benefit is subject to bargaining between the City and the Coalition. The City also maintains minimum benefits for public safety employees provided by the City's contract with its healthcare provider. The City has paid OPEB through employer only contributions on a pay -as- you -go basis and no contribution is required from employees. The Plan does not issue a stand -alone financial statement. The City's OPEB cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance within the parameters of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The ARC represents a level of funding that if paid on an ongoing basis is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years utilizing the level percentage of projected payroll method. The amortization period is open. The City has funded OPEB on a pay -as- you -go basis. The City's annual required contribution for Fiscal Year 2013 -14 was 1.7% of payroll. The following table shows the components of the City's annual OPEB cost for the year, the amount contributed to the plan, and changes in the City's OPEB obligation to the plan. OHSUSA:761799065.5 45 40233 -10 The following is the City's net OPEB Obligation and Annual OPEB Cost (dollars in thousands): Annual required contribution $2,666 Interest on OPEB obligation 424 Adjustment to annual required contribution (375) Annual OPEB expense 2,715 Contributions made (987) Increase in net OPEB obligation 1,728 Net OPEB obligation - beginning of the year 8,480 Net OPEB obligation - end of the year $ 10,208 The City has funded the OPEB on a pay -as- you -go basis. While the annual required contribution in Fiscal Year 2013 -14 was $2,665,740, the City paid $986,716, which represents the value of the current year's retiree payments. The annual OPEB cost is reported as expenses in the non - departmental governmental activities program. Five -year trend information is disclosed below (in thousands): Source: City of Santa Monica Finance Department, The City recently approved the prefunding of its Other Postemployment Benefits (OPEB) and will begin setting aside funds in an irrevocable trust by June 30, 2015. 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 limited solely to the amount contributed (determined by negotiations between the various bargaining groups and the City) related investment earnings, and forfeitures. For the fiscal year ended June 30, 2014 the City contributed $2,882,626 towards the retiree medical trusts. These are administered through third - party administrators and the City does not perform the investing function or have other significant responsibility relating to the management of plan assets. Thus, plan assets and any related liabilities have been excluded from the City's basic financial statements. Labor Relations In accordance with the Meyers- Milias -Brown Act, the City has adopted an Ordinance, which establishes the procedures for the administration of employer- employee relations. This includes the procedure by which the City meets and confers with representatives of recognized employee organizations (i.e., unions and associations) regarding matters within the scope of representation, including wages, hours and other terms and conditions of employment within the appropriate unit. OHSUSA:761799065.5 46 40233 -10 Annual OPEB Cost (AOC) Net OPEB (Employer Actual Percentage of Obligation Fiscal Year Contribution) Contribution AOC Contributed (Asset) 9/30/2012 $2,321 $675 29.1% $6,740 9/30/2013 2,451 711 29.0 8,480 9/30/2014 2,715 987 36.4 10,208 Source: City of Santa Monica Finance Department, The City recently approved the prefunding of its Other Postemployment Benefits (OPEB) and will begin setting aside funds in an irrevocable trust by June 30, 2015. 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 limited solely to the amount contributed (determined by negotiations between the various bargaining groups and the City) related investment earnings, and forfeitures. For the fiscal year ended June 30, 2014 the City contributed $2,882,626 towards the retiree medical trusts. These are administered through third - party administrators and the City does not perform the investing function or have other significant responsibility relating to the management of plan assets. Thus, plan assets and any related liabilities have been excluded from the City's basic financial statements. Labor Relations In accordance with the Meyers- Milias -Brown Act, the City has adopted an Ordinance, which establishes the procedures for the administration of employer- employee relations. This includes the procedure by which the City meets and confers with representatives of recognized employee organizations (i.e., unions and associations) regarding matters within the scope of representation, including wages, hours and other terms and conditions of employment within the appropriate unit. OHSUSA:761799065.5 46 40233 -10 Of the approximately 2,010 budgeted permanent City employees, most are represented by eleven bargaining units, including 480 by the Municipal Employees Association, 201 by the Santa Monica Police Officers Association, 106 by Local 1109 of the Firefighters Association, 2 by the Fire Executive Management Association, 319 by the Sheet Metal, Air, Rail, Transportation, Transportation Division (SMART TD), 43 by the Management Team Associates, 96 by the Supervisory Team Associates, 381 by the International Brotherhood of Teamsters (IBT), 301 by the Administrative Team Associates, 23 by the Public Attorneys Union, and 17 by the Public Attorneys Legal Support Staff. An Executive Pay Plan covers 18 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. Table 8 City of Santa Monica Bargaining Units Bargaining unit Term 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 June 30, 2014, the City had $10,100,000 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 June 30, 2014, there were $79,570,000 in non -voter approved bonded or certificated City lease obligations outstanding. A summary of long -term revenue bonds and lease obligations outstanding as of June 30, 2014 is as follows: OHSUSA:761799065.5 47 40233 -10 From To Administrative Team Associates July 1, 2014 June 30, 2016 Executive Pay Plan July 1, 2013 June 30, 2015 Fie Executive Management Association July 1, 2014 June 30, 2017 International Brotherhood of Teamsters July 1, 2015 June 30, 2015 Management Team Associates July 1, 2014 June 30, 2015 Municipal Employee Association July 1, 2014 June 30, 2016 Public Attorneys' Legal Staff Support Union July 1, 2012 June 30, 2015 Public Attorneys Union July 1, 2012 June 30, 2015 Santa Monica Firefighters July 1, 2014 June 30, 2017 Santa Monica Police Officers Association July 1, 2014 June 30, 2017 SMART TD July 1, 2014 June 30, 2017 Supervisory Team Associates July 1, 2014 June 30, 2015 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 June 30, 2014, the City had $10,100,000 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 June 30, 2014, there were $79,570,000 in non -voter approved bonded or certificated City lease obligations outstanding. A summary of long -term revenue bonds and lease obligations outstanding as of June 30, 2014 is as follows: OHSUSA:761799065.5 47 40233 -10 Table 9 City of Santa Monica Long -Term Revenue Bonds and Lease Obligations Outstanding (As of June 30, 2014) Governmental Activities Lease Oblisations Parking Authority Refunding 2002 Public Finance Authority 2011 Public Finance Authority Refunding 2009 Public Finance Authority Refunding 2011 Public Finance Authority 2004 u) Subtotal Revenue Bonds Hyperion Project Revenue Refunding 2012 (2) Total (1) To be refunded with net proceeds of the Bonds. (2) Payable from net revenues of the City's Wastewater System remaining after payment of operation and maintenance costs. Source: City of Santa Monica Finance Department. The following table sets forth assessed value within the City, the applicable debt limit, the ratio of bonded debt to assessed value and the bonded debt per capita. 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 overlapping debt of the City as of June 30, 2014 is provided below: OHSUSA:761799065.5 48 40233 -10 Final Balance at Original Maturity Interest June 30, Date of Issue Issue Date Rate 2014 May 1, 2002 $ 10,480,000 July 1, 2016 3.50 -4.50% $ 3,120,000 Nov 16, 2011 32,065,000 June 1, 2031 4.00 -5.00 30,845,000 Dec. 16, 2009 9,155,000 July I, 2021 2.00 -5.00 6,560,000 Nov. 16, 2011 8,625,000 Dec. 1, 2020 2.00 -4.00 6,530,000 Dec. 14, 2004 38,930,000 July 1, 2033 3.35 -5.00 32,515,000 $ 99,255,000 $79,570,000 May 30, 2012 $ 8,955,000 Feb. 1, 2022 2.00 -4.00% $ 8,955,000 $119,535,000 $98,625,000 (1) To be refunded with net proceeds of the Bonds. (2) Payable from net revenues of the City's Wastewater System remaining after payment of operation and maintenance costs. Source: City of Santa Monica Finance Department. The following table sets forth assessed value within the City, the applicable debt limit, the ratio of bonded debt to assessed value and the bonded debt per capita. 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 overlapping debt of the City as of June 30, 2014 is provided below: OHSUSA:761799065.5 48 40233 -10 Table 10 City of Santa Monica Statement of Overlapping Debt As of June 30, 2014 Overlapping Debt: Los Angeles County General Fund Obligations Los Angeles County Superintendent of Schools Certificates of Participation Los Angeles County Flood Control District Metropolitan Water District Santa Monica Community College District Los Angeles Unified School District Santa Monica - Malibu Unified School District Los Angeles County Regional Park and Open Space Assessment District Santa Monica Community College District Certificates of Participation Los Angeles Unified School District Certificates of Participation Los Angeles Community College District Santa Monica - Malibu Unified School District Certificates of Participation Overlapping Tax Increment Debt Total (1) Percentage of overlapping agency's assessed valuation located within boundaries of the City. Source: California Municipal Statistics, Inc. Future Borrowing The City is considering the issuance of lease revenue bonds in 2017 to fund the construction of a new fire station and a city services building. These decisions are subject to future review and approval by the City Council. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. General Considerations — Security for the Bonds The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee's pursuit of remedies under the Lease Agreement upon a Lease Default Event. The Authority has no taxing power. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the OHSUSA:761799065.5 49 40233 -10 Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable (0 Debt $1,835,420,030 2.415% $ 44,325,394 9,529,882 2.415 230,147 17,480,000 2.506 438,049 132,275,000 1.260 1,666,665 305,103,121 66.027 201,450,438 10,533,960,000 0.000 21,068 291,068,787 66.079 192,335,344 113,615,000 2.415 2,743,802 18,405,000 66.027 12,152,269 365,858,657 0.000 732 3,642,560,000 0.010 364,256 12,391,501 66.079 8,188,180 98,435,000 $562,351,344 The City is considering the issuance of lease revenue bonds in 2017 to fund the construction of a new fire station and a city services building. These decisions are subject to future review and approval by the City Council. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. General Considerations — Security for the Bonds The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee's pursuit of remedies under the Lease Agreement upon a Lease Default Event. The Authority has no taxing power. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the OHSUSA:761799065.5 49 40233 -10 meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Base Rental Payments and Additional Rental Payments from any source of legally available funds and the City has covenanted in the Lease Agreement that it will take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the Base Rental Payments. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other activities before making Base Rental Payments and other payments due under the Lease Agreement. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, the City's appropriations have never exceeded the limitation on appropriations under Article XIIIB of the California Constitution. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS — Article XIHB of the California Constitution" herein. Abatement In the event of substantial interference with the City's right to use and occupy any portion of the Property by reason of damage to, or destruction or condemnation of the Property, or any defects in title to the Property, Base Rental Payments will be subject to abatement. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS— Abatement" herein. In the event that such portion of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the City's rental interruption insurance will be available in lieu of Base Rental Payments or in the event that casualty insurance proceeds are insufficient to provide for complete repair or replacement of such portion of the Property or redemption of the Bonds, there could be insufficient funds to make payments to Owners in full. It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Property is substantially higher or lower than its value at the time of the execution and delivery of the Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Bonds. If damage, destruction, title defect or eminent domain proceedings with respect to the Property results in abatement of the Base Rental Payments related to such Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction) and eminent domain proceeds, if any, are insufficient to make all payments of principal of and interest on Bonds during the period that the Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the OIISUSA:761799065.5 50 40233 -10 Bond Owners for nonpayment under such circumstances. To the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments due under the Lease Agreement, Rental Payments shall not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from such Net Proceeds. The City will not fund a reserve fund for the Bonds. Seismic Activity and Natural Disasters The City, like all southern California communities, may be subject to unpredictable seismic activity, fires or floods. The City, like most regions that border the Pacific Ocean, is an area of significant seismic activity and, therefore, is subject to potentially destructive earthquakes. The San Andreas fault is the major active fault in the State, and is approximately 40 miles from the Property. Several active or potentially active faults are located closer to the Property, including the Santa Monica fault, the Malibu Coast fault and the Newport- Inglewood fault. According to the City of Santa Monica Final Master Environmental Assessment (dated April 1996), the City is subject to sometimes violent shaking from periodic earthquakes. On January 17, 1994, a 6.8 magnitude earthquake occurred in Northridge, California which resulted in 450 injuries and 3 fatalities in the City. The City sustained damage to 530 buildings, including 2300 housing units and the temporary shutdown of St. John's Hospital. A total of 53 of the 530 damaged buildings were demolished. The Safety Element of the City of Santa Monica General Plan (dated January 1995) identifies the area of the City in which the Property is located as one that is considered to be at a very low level of susceptibility to liquefaction in the event of an earthquake. Similarly, the City is susceptible to tsunami and seiche hazards. A tsunami is a sea wave generated by a submarine earthquake, landslide or volcanic eruption. A seiche is another form of earthquake- or landslide- induced wave or oscillation that can be generated in an enclosed body of water such as a lagoon or harbor. Tsunamis and seiches have both caused damage in the Santa Monica area. According to the City, the Property does not appear to be located in an area that is susceptible to tsunami run up and seiche hazards. Staff will implement the Citywide Seismic Retrofit Program over the next two years. The program will begin with an ordinance mandating the strengthening and structural retrofit of potentially hazardous buildings identified over a year -long process. The program will be implemented shortly after the effective date of the ordinance and will continue over multiple years as buildings are brought into compliance with the requirements. The technical details of the program are being developed with major input from a volunteer advisory committee organized by the Structural Engineers Association of Southern California. Staff is also researching various methods of private financing that the community could access, and is monitoring proposed legislation at the State level on the use of tax credits for seismic retrofits, and will provide this information along with the project kickoff. In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the City, which could impact the ability of the City to make Base Rental Payments when due and, accordingly, could have an adverse effect on the Authority's ability to make timely payments of principal of and interest on Bonds. The City is not required under the Lease Agreement to maintain earthquake or flood insurance on the Property. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Insurance" herein. OHSUSA:761799065.5 51 40233 -10 Drought and Emergency Drought Response On March 27, 2015, Governor Brown signed emergency legislation (AB 91 and 92) that will mandate reductions in residential use and expedite $1 billion for drought and water infrastructure projects, including emergency food aid, drinking water, water recycling, conservation awareness, and flood protection. The action comes as the Sierra Nevada snowpack, which Californians rely on heavily during the summer for their water needs, is near a record low. Previously, on January 17, 2014, Governor Brown proclaimed a state of emergency due to the severe drought conditions faced by the State. Legislation was enacted in February which provided $687.4 million to support drought relief. The 2014 -15 State Budget includes additional one -time resources to continue immediate drought - related efforts started in 2014, such as an increase of $53.8 million general fund and $12.2 million other funds for firefighting efforts, and an increase of $18.1 million general fund to aid in assessing water conditions and provide public outreach regarding water conservation. Santa Monica is fortunate to meet the majority of current water needs by pumping local groundwater from City wells. However, it is critical that the City reduce its reliance on imported water and strive towards water self - sufficiency from local sources. The City began implementation of the Water Shortage Response Plan in 2015. It sets water use allowances at 20% below 2013 usage for all customers to help weather the drought and further the City's goal of being water independent by 2020. Funds have been allocated for conservation programs and incentives, greater use of recycled water, and strategies to increase local groundwater production. Hydrology in the western United States and the quantity of groundwater supplies are subject to cyclical changes, changes in climate and rainfall and levels of use. Neither the Authority nor the City can make any assurance as to the reliability or adequacy of future supplies to meet future demands. Substitution and Removal of Property The Authority and the City may amend the Lease Agreement to substitute alternate real properly for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and summarized below. After a substitution or release, the portion of the Property for which the substitution or release has been effected shall be released from the leasehold encumbrance of the Lease Agreement. See "SECURITY FOR AND SOURCES OF PAYMENT FOR THE BONDS—Substitution and Removal of Property" herein. Although the Lease Agreement requires, among other things, that the Property, as constituted after such substitution or release, has an annual fair rental value greater than or equal to 105% of the maximum Base Rental Payments payable by the City in any Rental Period, such a replacement or release could have an adverse impact on the security for the Bonds, particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or release. See APPENDIX C— "DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Substitution or Release of the Property." Limited Recourse on Default; No Acceleration of Base Rental Failure by the City to make Base Rental Payments or other payments required to be made under the Lease Agreement, or failure to observe and perform any other terms, covenants or conditions contained in the Lease Agreement or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, constitute events of default under the Lease Agreement and permit the Trustee or the Authority to pursue any and all remedies available. In the event of a default, notwithstanding anything in the Lease OHSUSA:761799065.5 52 40233 -10 Agreement or in the Indenture to the contrary, there shall be no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable, nor shall the Authority or the Trustee have any right to re -enter or re -let the Property except as described in the Lease Agreement. The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Property, the Trustee, as assignee of the Authority, may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City. Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. Due to the specialized nature of the Property or any property substituted therefor pursuant to the Lease Agreement, no assurance can be given that the Trustee will be able to re- let the Property so as to provide rental income sufficient to make all payments of principal of, and premium, if any, and interest on the Bonds when due, and the Trustee is not empowered to sell the Property for the benefit of the Owners of the Bonds. Any suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" herein and APPENDIX C ------ "DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Default." Possible Insufficiency of Insurance Proceeds The Lease Agreement obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Property in the event of damage, destruction or title defects, subject to certain exceptions. The Authority and the City make no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant to the Lease Agreement and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Bonds when due. In addition, certain risks, such as earthquakes and floods, are not covered by the insurance required under the Lease Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Insurance" herein. Limitations on Remedies The rights of the Owners of the Bonds are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the Owners of the Bonds, and the obligations incurred by the City, may become subject to the federal bankruptcy code (Title 11, United States Code) (the `Bankruptcy Code ") and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the U.S. Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings, or the exercise of powers by the Federal or State government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings for public agencies such as the City, OHSUSA:761799065.5 53 40233 -10 there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement, and from taking any steps to collect amounts due from the City under the Lease Agreement. Loss of Tax Exemption As discussed under the heading "TAX MATTERS," the interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Bonds, as a result of acts or omissions of the Authority or the City in violation of its covenants in the Indenture and the Lease Agreement. Should such an event of taxability occur, the Bonds would not be subject to a special redemption and would remain Outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the California Constitution Section 1(a) of Article XIIIA of the California Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by each county and apportioned among the county and other public agencies and funds according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (a) indebtedness approved by the voters prior to July 1, 1978, (b) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two- thirds of the votes cast by the voters voting on the proposition, or (c) bonded indebtedness incurred by a school district or a community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Section 2 of 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." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year or to reflect a reduction in the consumer price index or comparable data for the area under the taxing jurisdiction, or reduced in the event of declining property values caused by substantial damage, destruction, or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. In addition, legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Prior to Fiscal Year 1981 -82, assessed valuations were reported at 25% of the full value of the property. In conformity with this OHSUSA:761799065.5 54 40233 -10 procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. On June 3, 1986, California voters approved an amendment to Article XIIIA, which added an additional exemption to the 1% tax limitation imposed by Article XIIIA. Under this amendment to Article XIIIA, local governments and school districts may increase the property tax rate above 1% for the period necessary to retire new general obligation bonds, if two- thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property. In the June 1990 election, the voters of the State approved amendments to Article XIIIA permitting the State Legislature to extend the replacement dwelling provisions applicable to persons over 55 to severely disabled homeowners for a replacement dwelling purchased or newly constructed on or after June 5, 1990, and to exclude from the definition of "new construction" triggering reassessment improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election, the voters of the State approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of "new construction" seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990. Since 1990, the voters have approved several other minor exemptions from the reassessment provisions of Article XIIIA. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each Agency's allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. In a Minute Order issued on November 2, 2001 in County of Orange v. Orange County Assessment Appeals Board No. 3, case no. OOCCO3385, the Orange County Superior Court held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including Los Angeles County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. The Orange County Superior Court has not ruled on a motion to restate the complaint as a class action, which could have the effect of extending this ruling to other similar cases. The City is unable to predict at this time the outcome of this litigation and what effect, if any, it might have on assessed values in the City or the availability of revenue sources which may be provided by the State to replace lost property tax revenues. Article XHIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, which added Article XIII B to the California Constitution. In June 1990, Article XIII B was amended by the voters through their approval of Proposition 111. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of OBSUSA:761799065.5 55 40233 -10 the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978 -79 fiscal year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to the governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the California Constitution limit. Decreases are required where responsibility for providing services is transferred from the governmental entity. Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local goverment, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of comas or the federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues, and (iii) certain State subventions received by local governments. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City's option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( "K -14 ") districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two -year periods. Any excess of the aggregate "proceeds of taxes" received by the City over such two -year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter - approved change can only be effective for a maximum of four years. When preparing the Fiscal Year 2013 -2015 Biennial Budget, the City calculated its appropriations limit at $1,541,052,717, with appropriations subject to the limit estimated at $188,403,177 for Fiscal Year 2013 -14 and its appropriations limit at $1,639,238,117, with appropriations subject to the limit estimated at $189,232,539 for Fiscal Year 2014 -15. The City's appropriations have never exceeded the limitation on appropriations under Article XIIIB of the California Constitution. The impact of the appropriations limit on the City's financial needs in the future is unknown. OHSUSA:761799065.5 56 40233 -10 Articles XIIIC and XIIID of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the California Constitution, which contain a number of 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 certain provisions of Proposition 218 will ultimately be determined by the courts with respect to some of the matters discussed below. It is not possible at this time to predict with certainty the future impact of such interpretations. The provisions of Proposition 218, as so interpreted and applied, may affect the City's ability to meet certain obligations. Proposition 218 (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. Further, any general purpose tax which the City imposed, extended or increased, without voter approval, after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election which must be held within two years of November 5, 1996, The City has not so imposed, extended or increased any such taxes which are currently in effect. Article XIIIC also expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees and charges were imposed. Article XIIIC expands the initiative power to include reducing or repealing assessments, fees, and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996 and absent other legal authority could result in the retroactive reduction in any existing taxes, assessments, or fees and charges. No assurance can be given that the voters of the City will not, in the future, approve initiatives which reduce or repeal, or prohibit the future imposition or increase of, local taxes, assessments, fees or charges. 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. Proposition 218 (Article XIIID) also added several new provisions relating to how local agencies may levy and maintain "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 the assessment must confer a "special benefit," as defined in Article XIIID, over and above any general benefits conferred, and (iii) a majority protest procedure 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. "Assessment" in Article XIIID is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property. While this definition applies to landscape and maintenance assessments for open space areas, street medians, street lights and parks, the City currently has no landscape and maintenance assessments for open space areas, street medians, street lights and parks. In addition, Proposition 218 (Article XIIID) added several provisions affecting "fees" and "charges," defined for purposes of Article XIIID to mean "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a [local government] upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." All new and existing property related fees and charges must conform to requirements prohibiting, among other things, OHSUSA:761799065.5 57 40233 -10 fees and charges which (i) generate revenues exceeding the funds required to provide the property related service, (ii) are used for any purpose other than those for which the fees and charges are imposed, (iii) are for a service not actually used by, or immediately available to, the owner of the property in question, or (iv) 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. Depending on the interpretation of what constitutes a "property related fee,' under Article XIIID, there could be future restrictions on the ability of the City's General Fund to charge its enterprise funds for various services provided. Further, before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The City must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the City may not impose or increase the fee or charge. Moreover, except for fees or charges for wastewater, water and refuse collection services, or fees for electrical and gas service, which are not treated as "property related" for purposes of Article XIIID, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two- thirds voter approval by the electorate residing in the affected area. Proposition 218 (Article XIIIC) also removes many of the limitations on the initiative power in matters of reducing or repealing any local tax, assessment, fee or charge. 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. "Assessments," "fees" and "charges" are not defined in Article XIIIC, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIIIC as for Article XIIID described above. If not, the scope of the initiative power under Article XIIIC potentially could include any General Fund local tax, assessment, or fee not received from or imposed by the federal or State government or derived from investment income. The City does not levy any property related "fees" or "charges" which it considers subject to challenge under Proposition 218 (Article XIIIC). Tiered Municipal Water Rate Structures After Capistrano Taxpayers Association Case In April 2014, the Court of Appeal of the State of California, Fourth Appellate District, issued a published decision (Capistrano Taxpayers Association v. City of San Juan Capistrano) which may impact property based fees for service which are subject to Proposition 218. The decision has captured attention particularly as it may impact consideration for water rate structures, whether in place or under consideration, intended to address and induce conservation among end -users of water. The ruling in the Capistrano case addresses two elements of Proposition 218; the use of tiered municipal water rate structures, which are commonly established to create an economic incentive for conservation and efficiency and, second, a fee imposed on all water customers to pay for a recycled water system. With tiered rates, the intended result is that with the more water that any individual household or business uses, the more paid for each additional increment or "tier" of water, with successive tiers imposing a greater premium on water. Such rates are intended to send a price signal that incentivizes conservation. Proposition 218 requires that all taxes and fees imposed by a public agency must not be any greater than the "cost of service" to the individual. Litigants in the Capistrano case argued that Proposition 218 requires public water agencies to calculate actual costs of providing water at various OHSUSA:761799065.5 58 40233 -10 levels of tiered usage. The court agreed. The court acknowledged the importance of conservation, but reasoned that agencies must achieve that goal without violating the required cost basis under Proposition 218. With respect to the fee component of a recycled water system, the court held that "a service" cannot be read to differentiate between recycled water and traditional potable water. Absent further clarification on the legality of tiered water rates, this ruling would present significant challenges for water utilities in California. Statutory Spending Limitations A statutory initiative ( "Proposition 62 ") was adopted by the voters of the State at the November 4, 1986 General Election which (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two- thirds vote o ) governmental agency's legislative body and by a majority of the electorate of the governmental entity, b requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two- thirds vote of the voters within the jurisdiction, (c) restricts the use of revenues from a special tax to the purposes or for the servicefor }which property the special tax is imposed, (d) prohibits the imposition of ad valorem taxes on real b local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the California Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal Ath 220; 45 Cal.Rptr.2d 207 (1995). Proposition 62 applies to the imposition of any taxes or the effecting of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, 1996. See "— Articles XIIIC and XIIID of the California Constitution" above. In the opinion of the City Attorney, the provisions of Proposition 62 do not apply to charter cities, although this position is being challenged by various groups, and may be the subject of future litigation. If ultimately found valid and applicable to charter cities, however, Proposition 62 could affect the ability of the City to continue the imposition of certain taxes, such as utility user's taxes, sales taxes and transient occupancy taxes, and may further restrict the City's ability to raise revenue. Budget Initiatives Approved in 2010 At the State general election on November 2, 2010, three initiative measures that affect State and local fiscal affairs were approved by the voters. Proposition 22 eliminates the State's ability to borrow or shift local revenues and certain State revenues that fund transportation programs. It restricts the State's authority over a broad range of tax revenues, including property taxes allocated to cities (including the City), counties, special districts and redevelopment agencies, the VLF, State excise taxes on gasoline and diesel fuel, the State sales tax on diesel fuel, and the former State sales tax on gasoline. It also makes a number of significant other changes, including restricting the State's ability to use motor vehicle fuel tax revenues to pay debt service on voter- approved transportation bonds. OHSUSA:761799065.5 59 40233 -10 Proposition 25 reduces the legislative vote requirement for passage of the annual State budget and certain related trailer bills from two- thirds to a simple majority. The reduced vote requirement does not apply to measures that increase State tax revenues, which will continue to require a two- thirds vote. It also requires members of the legislature to permanently forfeit their pay and reimbursement for travel and living expenses for each day after June 15 that a budget is not passed. It does not change the ability of the Governor to eliminate or reduce any appropriation using a line -item veto. Proposition 26 imposes a two- thirds voter approval requirement for the imposition of certain fees and charges by the State. It would also impose a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two- thirds voter approval requirement with respect to fees and charges for special purposes. The initiative, according to its supporters, is intended to prevent the circumvention of tax limitations imposed by the voters pursuant to Proposition 13, approved in 1978, and other measures through the use of non -tax fees and charges. Proposition 26 expressly excludes from its scope "a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable cost to the local government of providing the service or product to the payor." The City believes that the initiative is not intended to and would not apply to fees for utility services charged by local governments such as the City; however, the City is unable to predict whether Proposition 26 will be interpreted by the courts to apply to the provision of utility services by local governments such as the City. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XHID and Proposition 62 were each adopted as measures that qualified for the ballot pursuant to California's constitutional initiative process. From time to time other initiative measures could be adopted, affecting the ability of the City to increase revenues and to increase appropriations. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based on an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code ") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity a series of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight -line interpolations between compounding dates). The accruing original issue discount is added to OHSUSA:761799065.5 60 40233 -10 the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( "Premium Bonds ") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax - exempt interest received, and a Beneficial Owner's basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from State income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, the Obama Administration's budget proposals in recent years have proposed legislation that would limit the exclusion from gross income of interest on the Bonds to some extent for high- income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment OHSUSA:761799065.5 61 40233 -10 of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( "IRS ") or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. Under the Master Resolution the Authority has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the Beneficial Owners regarding the tax - exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax - exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues, may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or Beneficial Owners to incur significant expense. CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix F hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel, will provide certain other legal services for the Authority and the City. Orrick, Herrington & Sutcliffe LLP will receive compensation from the City contingent upon the sale and delivery of the Bonds. Certain legal matters will be passed on for the Authority and the City by the City Attorney of the City. ABSENCE OF LITIGATION There is no action, suit or proceeding known to be pending or threatened either restraining or enjoining the execution or delivery of the Bonds, the Lease Agreement or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing. In the opinion of the City and the City Attorney, there are no lawsuits or claims pending against the City which will materially affect the City's finances so as to impair its ability to pay Base Rental Payments when due. VERIFICATION OF MATHEMATICAL COMPUTATIONS The Verification Agent, The Arbitrage Group, Inc., will verify as to the Escrow Agreement, the mathematical accuracy as of the date of issuance of the Bonds of the computations contained in the provided schedules to determine that the anticipated receipts from the investment of cash and direct obligations of the United States shall be sufficient to pay in full, when due, the principal, interest and call premium payment requirements, if any, of the Prior Bonds. The report of The Arbitrage Group, Inc. will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. oxsusA:761799065.5 62 40233 -10 PURCHASE AND REOFFERING (the "Original Purchaser ") has purchased the Bonds from the City at a competitive sale at an aggregate purchase price of $ (representing the aggregate principal amount of the Bonds, plus a premium of $, less a purchaser discount of $). The public offering prices may be changed from time to time by the Original Purchaser. The Original Purchaser may offer and sell Bonds to certain dealers and others at prices lower than the offering prices shown on the inside cover page hereof. RATINGS Fitch Ratings, Moody's Investors Service, Inc. and Standard and Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, respectively, have assigned ratings of " I'll " and "_" to the Bonds. 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 Ratings, One State Street Plaza, New York, New York 10004; Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; and Standard & Poor's, 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. FINANCIAL ADVISOR Public Resources Advisory Group, Los Angeles, California, sewed as Financial Advisor (the "Financial Advisor ") to the Authority and the City with respect to the issuance of the Bonds. The Financial Advisor has not been engaged, nor has it undertaken, to audit, authenticate or otherwise verify the information set forth in this Official Statement with respect to accuracy and completeness of disclosure of such information. The Financial Advisor will receive compensation contingent upon the sale and delivery of the Bonds. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Owners of the Bonds to provide annually certain financial information and operating data relating to the Bonds and the City (the "Annual Report") and, in a timely manner, notice of certain material events. For a complete listing of items of information which will be provided in the Annual Report, see APPENDIX E — "FORM OF CONTINUING DISCLOSURE CERTIFICATE." Such information is to be provided by the City not later than nine (9) months after the end of the City's fiscal year (which currently would be March 31), commencing with the report for the 2014 -15 Fiscal Year. Initially, pursuant to the Continuing Disclosure Certificate, the Annual Report will be filed by City through the Electronic Municipal Market Access (EMMA) website of the MSRB, or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to S.E.C. Rule 15c2- 12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended ( "Rule 15c2 -12 "). These covenants have been made in order to assist the Original Purchaser in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5). In 2012, the City failed to file the annual report and audited financial statements as required with respect to the Authority's Lease Revenue Bonds, Series 2011A and Lease Revenue Refunding Bonds, Series 2011B. In 2013, the City failed to file the annual report as required with respect to the City of Santa Monica Wastewater Enterprise Refunding Revenue Bonds (Hyperion Project) 2005 Series A OHSUSA:761799065.5 63 40233 -10 (which bonds are no longer outstanding). The City has made the necessary filings to address the deficiencies identified above. In addition, certain filings of event notices with respect to certain rating changes resulting from, among other things, insurer downgrades and recalibration of ratings by the rating agencies, were not filed on a timely basis by the City pursuant to Rule 15c2 -12. Currently, the City believes that it is in material compliance with its continuing disclosure undertakings under the Rule for the last five years. MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture, the Lease Agreement and other documents are available, upon request, and upon payment to the City of a charge for copying, mailing and handling, from the City Clerk at the City of Santa Monica, 1717 4th Street, Suite 250, Santa Monica, California 90401. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the City and the purchasers or Owners of any of the Bonds. OHSUSA:761799065.5 64 40233 -10 The execution and delivery of this Official Statement have been duly authorized by the Authority and the City. SANTA MONICA PUBLIC FINANCING AUTHORITY Executive Secretary CITY OF SANTA MONICA M Finance Director OHSUSA:761799065.5 65 40233 -10 APPENDIX A GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA Information contained herein is presented as general background data. The Bonds are payable solely from Base Rental Payments to be made by 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 "SEC URITYAND SOURCES OF PAYMENT 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, 2014, had an estimated residential population of 92,185 making it the 19th largest of the 88 cities in Los Angeles County. 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 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. OHSUSA:761799065.5 A -1 40233 -10 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 88,100 1990 87,000 2000 84,084 2005 88,692 2006 88,181 2007 87,860 2008 88,170 2009 89,295 2010 89,494 2011 90,076 2012 90,416 2013 91,203 2014 92,229 2015 93,283 Source: 1970 -2000 data from US Census Bureau; 2001 -2015 data from State of California Department of Finance. City Enterprise Operations Santa Monica operates an airport, bus line, cemetery and pier. 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 City operates 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. In Fiscal Year 2013 -14, the City's 201 fixed route buses carried more than 20 million revenue passengers, while traveling approximately 5 million miles. 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 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 OHSUSA:761799065.5 A -2 40233 -10 from the Metropolitan Water District of Southern California. The City's modern, automated system delivers over 12 million gallons per day to approximately 17,760 water accounts. 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). 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, 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 reopened in 2011 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 Parking Structure 6, Tongva Park and the Pico Branch Library. 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 2013 -14 are: New Motor Vehicle Dealers, 16% of the City's sales tax revenue; Casual Dining, 9.9% of the City's sales tax revenue; and Family Apparel, 8% of the City's sales tax revenue. When grouped into major business groups, General Consumer Goods provide 36% 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. OHSUSA:761799065.5 A -3 40233 -10 The City's business climate has improved since the end of the recent economic recession. Taxable sales for 2014 were 3.7% higher than in 2013. Office vacancy rates for the first quarter of calendar year 2015 were 8 %, the third lowest in the west Los Angeles area. 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 2014 were 85.4 %, up from 85.3% in 2013. Average room rates for the same period were $329.99, a 8.8% increase over the prior year. 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. 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, 2014 Company City of Santa Monica Santa Monica -UCLA Hospital Santa Monica College Saint John's Hospital Medical Center Santa Monica - Malibu Unified School District Activision Blizzard Inc. The Rand Corporation Universal Music Group Riot Games Lion's Gate Entertainment Corporation Total jobs provided by principal employers Average Total jobs in Santa Monica Principal Employers As Percent Of Total Jobs Number of Employees 2,559 2,113 1,851 1,790 1,657 899 817 787 712 608 13,793 82,578 16.70% Source: City of Santa Monica Economic Development Division, Housing and Economic Development Department. 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 March 2015 unemployment rate was 6.1%, reflecting the ongoing current difficult economic environment. OHSUSA:761799065.5 A -4 40233 -10 Annual Average Unemployment Rates For Years 2003 through 2014 (1) Data not available. Source: State of California, Employment Development Department, Labor Market Information Division and U.S. Department of Labor, Bureau of Labor Statistics. Per Capita Income The following table summarizes per capita personal income for the Los Angeles -Long Beach - Anaheim Statistical Area, California and the United States for the years 2005 through 2014: Year City of City of County of State of $39,003 Year Santa Monica Los Angeles Los 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 5.4 4.6 2008 6.1 8.3 7.5 7.2 5.8 2009 9.6 12.8 11.6 11.3 9.3 2010 10.7 13.2 12.5 12.2 9.6 2011 10.5 12.9 12.2 11.7 8.9 2012 9.3 11.5 10.9 10.4 8.1 2013 8.3 10.3 9.8 8.9 7.4 2014 0) 0) 8.3 7.5 6.2 (1) Data not available. Source: State of California, Employment Development Department, Labor Market Information Division and U.S. Department of Labor, Bureau of Labor Statistics. Per Capita Income The following table summarizes per capita personal income for the Los Angeles -Long Beach - Anaheim Statistical Area, California and the United States for the years 2005 through 2014: Year Los Angeles -Long Beach - Anaheim Statistical Area California United States 2005 $39,003 $38,964 $35,888 2006 42,123 41,623 38,127 2007 43,491 43,152 39,804 2008 44,396 43,608 40,873 2009 42,376 41,587 39,379 2010 42,694 42,282 40,144 2011 44,897 44,749 42,332 2012 47,743 47,505 44,200 2013 48,425 48,434 44,765 2014 (1) 50,109 46,129 (t) Data not available. 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. OHSUSA:761799065.5 A -5 40233 -10 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 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. A new bikeshare program, with 500 bicycles and 25 -35 stations Citywide, will be implemented in Fiscal Year 2015 -16. The City continues to have a profound effect on the development of art and culture in this county. 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. The planned Expo Light Rail Phase 2 project between Culver City and Santa Monica is a significant transit alternative that will connect to the regional rail system and provide new transit options for Santa Monica residents, employees, and visitors. The project will provide relief for the tremendous and growing congestion on the I -10 /Santa Monica Freeway, one of the busiest Navel corridors in the county. City staff is currently working to ensure rail line and stations are integrated into streets, neighborhoods and districts, provide high - quality service, and connect to major destinations. Phase 2 construction began in 2012 and service is anticipated to commence in 2016. OHSUSA:761799065.5 A -6 40233 -10 Tongva Park and Ken Genser Square, opened in October 2013 created 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, these new parks provide a critical link between the Civic Center, Palisades Park, the Pier and downtown. The Pico Library, opened in June 2014, is an 8,300 square foot neighborhood library in the Pico neighborhood at Virginia Avenue Park enhancing existing park amenities, including the weekly Farmers Market, Community Center, Teen Center, and Park Center Building. Parking Structure 6 was completed in December 2013. The new structure, with over 700 spaces, doubled the spaces offered in the previous structure. The facility has three subterranean and eight above- ground parking levels. The design includes space for up to 90 bicycles in racks and 19 motorcycles, and approximately 7,000 square feet of retail space fronting on 2nd Sheet. The overall design of this structure is unique in that the pedestrian experience continues up along the entire building face, where patrons would ascend and descend on an exterior diagonal stair that weaves in and out of the plane of the fagade. This increases public safety by its high visibility and offers patrons unique ocean views. The Village Santa Monica, also completed in 2014, is a mixed - income, mixed -use community in the heart of Santa Monica's Civic Center revitalization area. This unique public /private partnership leverages City -owned land to provide for important public benefits. The 3.7 acre site has 160 affordable rental residences, 164 market -rate condominium residences, a pedestrian - oriented "Living Street" with arts, retail and restaurant activities, public open space, public art and an extension of Olympic Drive. Environmentally sustainable features include LEED Silver Certified design, alternative energy programs, bicycle stalls, shared parking and financial contributions to the City's transit programs. Community space for residents includes a computer lab, family garden, barbeque area and outdoor and indoor children's play areas. The affordable units were funded by a $19.4 million loan fi•om the City utilizing proceeds related to the land lease of the property. The California Incline Bridge Replacement project will reconstruct the California Incline roadway /structures with a new bridge and roadway adjacent to Palisades Bluffs. The widened bridge will improve access for pedestrians as well as bicyclists and will meet current seismic codes and design standards. This project will also enhance the stability of the bluff above the roadway and bridge. The project will utilize Special Revenue Source funding and federal Highway Bridge Program and Transportation Equity Act (TEA -21) funds. Water funds will be used to replace the existing 100 -year old water line under the roadway section of the project. The project is expected to start construction in March 2015 and be completed in May 2016. The Colorado Esplanade is a multi -modal streetscape and circulation infrastructure project that fully integrates the downtown Light Rail station by providing optimal access for pedestrians, bicycles and vehicles in and around the station area. The project also implements the Civic Center Specific Plan circulation improvements for Main/Second Street. The improvements will integrate the Civic Center, Downtown, and Pier /Oceanfront districts, and create a gateway to Downtown Santa Monica. Funds will include improvements for vehicles, pedestrians, bikes and transit. $5.7 million will be funded out of the General Fund and $3.2 million, will be funded through a Metro Pedestrian Improvement Grant. The project started construction in January 2015 and is expected to be completed in December 2015. The EXPO Maintenance Yard Buffer Park will create a 2.35 acre neighborhood park located within a buffer zone between the EXPO Maintenance Facility and the neighboring residential area. The project utilized funding from the General Fund, California Department of Housing and Community Development Housing - Related Parks (HRP) Grant, Prop A Local Return Rail Reserve and park OHSUSA:761799065.5 A -7 40233 -10 mitigation funds. The project is expected to start construction in summer 2015 and be completed in summer 2016. Building Permit Activity The following table shows the number and value of building permits issued in the City during 2007 through December 2014. City of Santa Monica Building Construction For 2007 through 2014* Year Residential Number of Units Residential Construction Value Nonresidential 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 330 73,927,217 134,020,439 2012 707 168,033,095 85,619,250 2013 80 21,186,026 73,085,229 2014 111 48,443,739 97,573,890 * Through December 2014. Source: Construction Industry Research Board, 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 telecommunication service. Over 100 telecommunications companies provide long - distance and wireless service. The City provides water and wastewater service. OHSUSA:761799065.5 A -8 40233 -10 APPENDIX B EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 OHSUSA:761799065.5 B -1 40233 -10 APPENDIX C AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS OHSUSA:761799065.5 C -1 40233 -10 APPENDIX D BOOK -ENTRY -ONLY SYSTEM The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of principal of and interest on Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds, and other Bonds - related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the City and the Authority each believes to be reliable, but the City and the Authority take no responsibility for the completeness or accuracy thereof. The Depository Trust Company ( "DTC "), New York, NY, will act as securities depository for the Bonds. The Bonds will be authenticated and issued as fully - registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered bond certificate for each maturity of the Bonds will be authenticated and issued for the Bonds in the aggregate principal amount of such 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 `blearing corporation" within the meaning of the New York Uniform Commercial Code, and a `blearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S, and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has a Standard & Poor's rating of AA +, The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such website is not incorporated herein by such reference or otherwise. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (`Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation fi•om DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. OHSUSA:761799065.5 D -I 40233 -10 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as prepayments, tenders, defaults, and proposed amendments to the Indenture and Lease Agreement. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them, Prepayment notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's NM Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "sheet 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 prepayment proceeds, distributions, and dividend payments to Cede & C o. (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. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC. OHSUSA:761799065.5 D -2 40233 -10 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this "Disclosure Certificate "), dated as of 1, 2015, is executed and delivered by the City of Santa Monica (the "City"), WHEREAS, pursuant to the Indenture, dated as of 1, 2015 (the "Indenture "), by and among the Santa Monica Public Financing Authority (the "Authority"), the City and MUFG Union Bank, N.A., as trustee (the "Trustee "), the Authority has issued $ aggregate principal amount of the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds "); WHEREAS, the Bonds are payable from the base rental payments to be made by the City under the Lease Agreement, dated as of 1, 2015, by and between the City, as lessee, and the Authority, as lessor; and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners (capitalized undefined terms used herein have the meanings ascribed thereto in Section 1 hereof) and Beneficial Owners of the Bonds, and in order to assist the Participating Underwriters in complying with the Rule; NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 hereof. "Annual Report Date" means the date in each year that is nine months after the end of the City's fiscal year, which date, as of the date of this Disclosure Certificate, is April 1. "Beneficial Owner" means any person that 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). "Dissemination Agent" means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" means any of the events listed in Section 4(a) or (b) hereof. "MSRB" means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http: / /emma.msrb.org. "Official Statement" means the Official Statement, dated _, 2015 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. OHSUSA:761799065.5 E -I 40233 -10 "Owner" means the person in whose name any Bond shall be registered. "Participating Underwriters" means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Rule" means Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to provide to the MSRB an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2014 -15 fiscal year. The Annual Report may include by reference other information as provided in Section 3 hereof; provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City's fiscal year changes, it shall, or it shall instruct the Dissemination Agent to, give notice of such change in a filing with the MSRB. (b) Not later than 15 Business Days prior to the date specified in subsection (a), the City shall provide the Annual Report to the Dissemination Agent, if any. The Dissemination Agent shall (i) file any Annual Report received by it with the MSRB, as provided herein, and (ii) file a report with the City certifying that the Annual Report has been filed with the MSRB pursuant to this Disclosure Certificate, stating the date it was so filed. (c) If the City is unable to file, or cause the Dissemination Agent to file, an Annual Report with the MSRB by the date required in subsection (a) of this Section, the City shall, in a timely manner, file or cause to be filed with the MSRB, a notice in substantially the form attached as Exhibit A. Section 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) Audited financial statements of the City for the preceding fiscal year, prepared in accordance with the generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 2(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited financial statements of the City, the Annual Report shall also include the following: G) The principal amount of Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and (ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the January 2 next preceding the Annual Report Date. (c) To the extent not included in the audited financial statements of the City, the Annual Report shall also include the following items, providing financial and operating data substantially similar to that provided in the corresponding tables and charts in the Official Statement: OHSUSA:761799065.5 E -2 40233 -10 (i) [City Principal Property Taxpayers; (ii) City Assessed Value of Taxable Property; (iii) City Assessed Valuations, Property Tax Rates, Secured Levies and Collection and Delinquencies; (iv) City Tax Revenues by Source; (v) City Assessed Value, Debt Limit and Ratio of Bonded Debt to Assessed Value and Per Capita; (vi) City General Fund Balance Sheet; (viii) City General Fund Summary of Revenues and Expenditures; (viii) City Direct and Overlapping Debt; (ix) Information under "Retirement System "; and (x) Summary of City's current fiscal year's investments, including types and amounts of investments, return on investments, average yield of investments and market value of investments.] In addition to any of the information expressly required to be provided under paragraphs (a), (b) and (c), above, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been made available to the public on the MSRB website. The City shall clearly identify each such other document so included by reference. Section 4. Reporting of Listed Events. (a) Pursuant to the provisions of this Section, 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 later than ten business days after the occurrence of the event: G) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) tender offers; (vii) defeasances; OHSUSA:761799065.5 E -3 40233 -10 (viii) rating changes; or (ix) bankruptcy, insolvency, receivership or similar event of the City. For purposes of the event identified in paragraph (ix), 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 coma 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, 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, in a timely manner not later than ten business days after the occurrence of the event: (i) unless described in paragraph (v) of subsection (a) of this Section, 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; (ii) modifications to rights of Owners; (iii) optional, unscheduled or contingent bond calls; (iv) release, substitution or sale of property securing repayment of the Bonds; (v) non - payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and (vii) appointment of a successor or additional Paying Agent or the change of name of a Paying Agent. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the City shall determine if such event would be material under applicable Federal securities laws. (d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under applicable Federal securities laws, the City shall file, or shall cause the Dissemination Agent to file, within ten business days of such occurrence, a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (vii) of subsection (a) of this Section and (iii) of subsection (b) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. oxsusA:7617990e5.5 E -4 40233 -10 Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Section 6. Termination of Reporting 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, or cause the Dissemination to give, notice of such termination in a filing with the MSRB. 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 shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the City. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 2(a), Section 3 or Section 4(a) or (b) hereof, 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 undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment or waiver 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 a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure 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 required to be filed pursuant to this Disclosure Certificate, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any OHSUSA:76I799065.5 E_5 40233 -10 Annual Report or notice 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 required to be filed pursuant to this Disclosure Certificate. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner 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; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. City Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: CITY OF SANTA MONICA go ATTEST: Sarah P. Gorman, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney OHSUSA:761799065.5 E -6 40233 -10 Director of Finance EXHIBIT A FORM OF NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Santa Monica Public Financing Authority Name of Issue: Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015(Civic Center Parking Project) Date of Issuance: , 2015 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the "City ") has not provided an Annual Report with respect to the above -named Bonds as required by Section 2 of the Continuing Disclosure Certificate, dated as of 1, 2015, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by .] Dated: OHSUSA:761799065.5 E -7 40233 -10 CITY OF SANTA MONICA 10 APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Bonds, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially the following form: OHSUSA:761799065.5 F -1 40233 -10 Attachment E Notice of Intention to Sell Bonds NOTICE OF INTENTION TO SELL $26,800,000* SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2015 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the "City ") intends to receive sealed and electronic bids until 9:00 a.m., PDT, on Wednesday, June 24, 2015 through the use of an electronic bidding service offered by Parity Electronic Bid Submission System ( "PARITY ") of Ipreo LLC at www.newissuehome.i - deal.com, for the purchase of all, but not less than all, of $26,800,000* principal amount of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (the "Bonds ") as further described in the related Notice Inviting Bids (the "Notice Inviting Bids "). All bids must be submitted electronically via PARITY pursuant to the procedures described in the Notice Inviting Bids, and all bids so submitted 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 the Notice Inviting Bids. No bid received after the deadline for receipt of bids shall be considered unless the City has postponed the sale as provided in the Notice Inviting Bids. The City reserves the right to cancel, postpone or reschedule the sale of the Bonds as more fully described under the heading "Right to Cancel, Postpone, or Reschedule Sale" in the Notice Inviting Bids. NOTICE IS HEREBY FURTHER GIVEN that copies of the Notice Inviting Bids and the Preliminary Official Statement delivered in connection with the sale of the Bonds may be obtained from the offices of the City's financial advisor: Public Resources Advisory Group, 11500 West Olympic Blvd., Suite 502, Los Angeles, California 90065, Telephone: 310 -477- 8487. Additionally, copies of the Notice Inviting Bids and the Preliminary Official Statement will be posted to www.munios.com. Bidders must read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. Dated: June , 2015 CITY OF SANTA MONICA Interim City Manager *Preliminary, subject to change as set forth in the Notice Inviting Bids. 0HSUSA:7622092961 Attachment F Notice Inviting Bids NOTICE INVITING BIDS $26,800,000 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2015 (CIVIC CENTER PARHING PROJECT) NOTICE IS HEREBY GIVEN that electronic (as explained below) unconditioned proposals will be received to and including the hour of 9:00 a.m., PDT, on June 24, 2015, 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 $26,800,000" principal amount of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking 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 Bids (the "Notice Inviting Bids "), the terms of this Notice Inviting Bids 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: Ichoi @pragadvisors.com (the "Financial Advisor "). The Notice Inviting Bids 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 Authority 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. Terms of the Bonds: The Authority 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 Notice Inviting Bids 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 are being issued to provide funds to (i) currently refund and redeem the Authority's Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) and (ii) pay the costs incurred in connection with the issuance of the Bonds. 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 6% per annum, with interest payable on January 1, 2016 and semiannually on January 1 and July I of each year during the term of each of the Bonds. The Bonds mature on July 1 in each of the years 2016 to 2033 inclusive, as follows: Preliminary, subject to change. 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. Following the determination of the successful bidder, 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 aggregate principal amount and result in approximately level debt service on a Fiscal Year basis. 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 102% or greater than 110% 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 (4 %) 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 July 9, 2015 (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, 2016 on the 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. Prelindnaij+ subject to change. PRINCIPAL PRINCIPAL JULY 1 AMOUNT" JULY 1 AMOUNT` 2016 $1,110,000 2025 $1,500,000 2017 1,130,000 2026 1,560,000 2018 1,165,000 2027 1,605,000 2019 1,210,000 2028 1,655,000 2020 1,255,000 2029 1,700,000 2021 1,310,000 2030 1,750,000 2022 1,380,000 2031 1,800,000 2023 1,425,000 2032 1,860,000 2024 1,450,000 2033 1,935,000 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. Following the determination of the successful bidder, 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 aggregate principal amount and result in approximately level debt service on a Fiscal Year basis. 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 102% or greater than 110% 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 (4 %) 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 July 9, 2015 (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, 2016 on the 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. Prelindnaij+ subject to change. V. Term Bond Option Bids for the Bonds may contain a maturity schedule providing for any combination of serial and term bonds subject to mandatory redemption, so long as the amount of principal maturing or subject to mandatory redemption in each year conforms to the maturity schedule set forth above. VI. Optional Redemption: The Bonds maturing on and after July 1, 2026 are subject to redemption at the option of the Authority, in whole or in part, on or after July 1, 2025 at a price of par plus accrued interest to the redemption date. VII. 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. VIII. Security: The Bonds are payable as to both principal and interest solely from certain base rental payments (the "Base Rental Payments ") under and pursuant to the Lease Agreement, dated as of July 1, 2015, (the "Lease Agreement "), each by and between the City, as lessee, and the Authority, as lessor, all of which rights to receive such Base Rental Payments have been assigned by the Authority to the Trustee. The Bonds are payable from and secured by Base Rental Payments and Additional Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture. Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on parity with the Bonds. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFORE UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE OF CALIFORNIA IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE OF CALIFORNIA HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The foregoing obligations may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights. Reference is made to the Preliminary Official Statement and the Indenture for a more exact description of the security for 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 Bids. 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 Bids. Bids shall be received until 9:00 A.M., PDT, on June 24, 2015, 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 Bids, the terms of this Notice Inviting Bids 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: I. 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 Bids 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 Bids. For proposes 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 Bids. 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. m 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 Bids. 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. 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). XIIL Bid Award Deposit: Not later than 12:00 p.m. PDT, on June 25, 2015, 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: Name of Account: City of Santa Monica Routing Number: Account Number: Ref: David Carr — Bid Award Deposit for 2015 Bonds 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, Orrick Herrington & Sutcliffe LLP. 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. 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 Authority a certificate specifying price and yield information for each maturity of the Bonds, the aggregate production, the amount to be retained by the bidder as compensation (i.e., the underwriter's discount), and such other information as is reasonably requested by Bond Counsel. 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. Additionally, by making a bid for the Bonds, the winning bidder agrees (a) to provide all information necessary to complete the Official Statement; (b) to disseminate to all members of the underwriting syndicate copies of the Official Statement, including any supplements prepared by the Authority; (c) to promptly file a copy of the final Official Statement, including any supplements prepared by the Authority, with the Municipal Securities Rulemaking Board's ( "MSRB ") Electronic Municipal Market Access system; and (d) to take any and all other actions necessary to comply with applicable Securities and Exchange Commission and MSRB rules governing the offering, sale and delivery of the Bonds to ultimate purchasers. Before delivery of the Bonds, the winning bidder shall furnish to the Authority a written statement in form and substance acceptable to Bond Counsel (a) stating the initial reoffering price of each maturity of the Bonds to the general public; (b) certifying that a bona fide offering of all of the Bonds has been made to the public (excluding bond houses, brokers, and other intermediaries) at the initial reoffering price of each maturity; (c) stating that the winning bidder reasonably expected to sell all of the Bonds of each maturity at the initial reoffering price of each maturity; (d) stating the prices at which at least 10% of each maturity of the Bonds were first sold to the public (excluding bond houses, brokers, and other intermediaries) prior to the sale of any Bonds of each maturity at other prices; and (e) certifying that the price at which each maturity of Bonds was sold did not exceed the fair market value of such maturity as of the sale date. 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. XX. Prompt Award 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. 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.munios.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. Within seven business days after the award of the Bonds and at least one business day prior to the delivery of the Bonds, the City will furnish to each Purchaser only an electronic copy of the Official Statement, including any supplements prepared by the City, in a portable document format (PDF) configured to allow the Official Statement to be saved, viewed, printed and retransmitted by electronic means. 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 the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) website, 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 150- 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 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 Indenture, this Notice Inviting Bids, the Bid Form and Preliminary Official Statement will be furnished to any potential bidder upon request made to the City's Financial Advisor at: Public Resources Advisory Group, 11500 West Olympic Blvd, Suite 502, Los Angeles, California 90064, (310) 477 -8487 or lchoi @pragadvisors.com. XXVIII. Right To Modify Or Amend: The City reserves the right to modify or amend this 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 as soon as practical 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 fifteen (15) 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: June [11], 2015 CITY OF SANTA MONICA M Interim City Manager Attachment G1 Resolution Authorizing Issuance of Series 2015 Bonds — Council Series Attachment G2 Resolution Authorizing Issuance of Series 2015 Bonds — Public Financing Authority Series Attachment H Escrow Agreement by and between SANTA MONICA 1• and Dated as of 1, 2015 Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) OHSUSA:762062774.2 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement'), dated as of 1, 2015, is by and between the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the "Authority "), and MUFG UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, as Prior Trustee (as defined herein) and as escrow bank (the "Escrow Bank "). WITNESSETH: WHEREAS, in order to provide the funds necessary to finance the construction, installation, reimbursement and acquisition of certain capital improvements constituting a public parking garage and related improvements (the "Project'), the City of Santa Monica (the "City ") and the Authority entered into a Lease Agreement, dated as of December 1, 2004 (the "Prior Lease Agreement'); WHEREAS, in order to provide funds necessary to finance the Project, the Authority issued its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2004 (Civic Center Parking Project) (the "Prior Bonds "), which are presently outstanding in the aggregate principal amount of $ , payable from the base rental payments to be made by the City pursuant to the Prior Lease Agreement; WHEREAS, the Prior Bonds were issued under the Indenture, dated as of December 1, 2004 (the "Prior Indenture "), by and among the Authority, the City of Santa Monica (the "City ") and Union Bank of California, N.A., as trustee; WHEREAS, MUFG Union Bank, N.A., is the successor trustee (the "Prior Trustee ") under the Prior Indenture; WHEREAS, the City desires to refinance the Project by exercising its option to prepay the base rental payments to be made by the City pursuant to the Prior Lease Agreement, thereby causing the Prior Bonds to be defeased and redeemed; WHEREAS, in order to provide a portion of the funds necessary to refinance the Project and redeem the Prior Bonds, the Authority has issued $ aggregate principal amount of its Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project) (the "Bonds "), pursuant to the Indenture, dated as of 1, 2015 (the "Indenture "), by and among the Authority, the City and MUFG Union Bank, N.A., as trustee (the "Trustee "); WHEREAS, the Authority has determined to apply a portion of the proceeds of the Bonds for the purpose of providing the funds necessary to redeem the outstanding Prior Bonds on July , 2015 (the "Redemption Date ") at a redemption price equal to 100% of the principal amount of the Prior Bonds being so redeemed (the "Redemption Price "), plus accrued interest thereon to the Redemption Date; OASUSA:762062774.2 1 WHEREAS, the Prior Bonds are subject to redemption on the Redemption Date and the Authority has determined to provide for the call for redemption on the Redemption Date of the Prior Bonds outstanding on the Redemption Date; NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Authority, the Escrow Bank and the Prior Trustee agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Prior Indenture. Section 2. The Escrow Fund. (a) There is hereby established a fund (the "Escrow Fund ") to be held as an irrevocably pledged escrow by the Escrow Bank, which the Escrow Bank shall keep separate and apart from all other funds of the Authority and the Escrow Bank and to be applied solely as provided. in this Escrow Agreement. Pending application as provided in this Escrow Agreement, amounts on deposit in the Escrow Fund are hereby pledged solely to the payment of (i) the interest on the Prior Bonds coming due on the Redemption Date, and (ii) the Redemption Price on the Redemption Date, which amounts shall be held in trust by the Escrow Bank for the Owners of the Prior Bonds. (b) The Escrow Bank, as Prior Trustee, is hereby instructed to liquidate the investments held in the funds and accounts established under the Prior Indenture. Upon the issuance of the Bonds, the Escrow Bank shall (a) deposit the amount of $ received from the proceeds of the sale of the Bonds to the Escrow Fund, and (b) deposit the amount of $ transferred fiom the amounts in the funds and accounts established under the Prior Indenture to the Escrow Fund, for a total deposit of $ to the Escrow Fund. (c) Upon the deposit of moneys pursuant to Section 2(b) hereof, the moneys on deposit in the Escrow Fund, as verified by an independent certified public accountant, will be at least equal to an amount sufficient to make the payments required by Section 4 hereof. Section 3. Use of Moneys. (a) The Escrow Bank hereby acknowledges deposit of the moneys described in Section 2(b) hereof and agrees to hold such moneys uninvested. (b) No moneys deposited with the Escrow Bank pursuant to this Escrow Agreement shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the Prior Bonds as provided in Section 4 hereof. (c) The Owners of the Prior Bonds shall have a first and exclusive lien on the moneys in the Escrow Fund until such moneys are used and applied as provided in this Escrow Agreement. Section 4. Payment of Prior Bonds. From the moneys held in the Escrow Fund, the Escrow Bank, as the Prior Trustee, shall apply such amounts as follows: (a) on the Redemption Date, the Escrow Bank, as the Prior Trustee, shall pay the accrued interest on the Prior Bonds in accordance with the terms of the Prior Indenture; and OHSUSA:762062774.2 2 (b) on the Redemption Date, the Escrow Bank, as the Prior Trustee, shall pay the Redemption Price of the Prior Bonds in accordance with the terms of the Prior Indenture. To the extent that the amount on deposit in the Escrow Fund on the Redemption Date is in excess of the amount necessary to make the required payments with respect to the Prior Bonds, as shown in the then applicable escrow verification of the nationally recognized firm of independent certified public accountants, such excess shall be transferred to the Trustee for deposit in the Interest Account established under the Indenture. Section 5. Notice from City Irrevocable Instructions to Mail Notice. (a) The Authority and Trustee each acknowledge that it has received written notice from the City under Section 7.02(f) of the Prior Lease Agreement. (b) The Authority has previously designated the Prior Bonds for prior redemption on the Redemption Date, and has previously instructed the Escrow Bank, as the Prior Trustee, to give, in accordance with Section 4.02 of the Prior Indenture, notice of redemption of the Prior Bonds. The Escrow Bank, as the Prior Trustee, represents that it has given such notice of redemption in accordance with the Prior Indenture. Section 6. Performance of Duties; Acknowledgement with Respect to Irrevocable Instructions. The Escrow Bank agrees to perform the duties set forth herein and agrees that the irrevocable instructions to the Escrow Bank, as the Prior Trustee, herein provided are in a form satisfactory to it. Section 7. Transfer of Amounts Remaining Under Prior Indenture. On the business day next succeeding the date the Escrow Bank transfers amounts to the Escrow Fund pursuant to Section 2 hereof, the Escrow Bank, as the Prior Trustee, shall transfer any amounts remaining in the funds and accounts established under the Prior Indenture to the Trustee for deposit in the Interest Account established under the Indenture. Section 8. No Authority to Make Investments. The Escrow Bank shall have no power or duty to invest any funds held under this Escrow Agreement. The Escrow Bank shall have no power or duty to transfer or otherwise dispose of the moneys held hereunder except as provided in this Escrow Agreement. Section 9. Indemni . To the extent permitted by law, the Authority hereby assumes liability for, and hereby agrees to indemnify, protect, save and keep harmless the Escrow Bank 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, expenses and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Bank at any time in any way relating to or arising out of the execution, delivery and performance of this Escrow 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 Bank in accordance with the provisions of this Escrow Agreement; provided, however, that the Authority shall not be required to indemnify the Escrow Bank against the Escrow Bank's own OHSUSA:762062774.2 3 negligence or willful misconduct or the negligence or willful misconduct of the Escrow Bank's respective successors, assigns, agents and employees or the material breach by the Escrow Bank of the terms of this Escrow Agreement. The indemnities contained in this Section shall survive the termination of this Escrow Agreement and the resignation or removal of the Escrow Bank. Section 10. Responsibilities of Escrow Bank. The Escrow Bank makes no representation as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the redemption of the Prior Bonds pursuant to the Prior Indenture or to the validity of this Escrow Agreement as to the Authority and, except as otherwise provided herein, the Escrow Bank shall incur no liability in respect thereof. The Escrow Bank shall not be liable in connection with the performance of its duties under this Escrow Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Escrow Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the Authority but who shall not be in -house counsel to the Escrow Bank, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of counsel of recognized standing in the field of law relating to municipal bonds) may be deemed to be conclusively established by a written certification of the Authority. Whenever the Escrow Bank shall deem it necessary or desirable that a matter specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of counsel of recognized standing in the field of law relating to municipal bonds be proved or established prior to taking, suffering, or omitting any such action, such matter may be established only by a certificate signed by a nationally recognized firm of certified public accountants or such opinion of counsel of recognized standing in the field of law relating to municipal bonds. The Escrow Bank undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Bank, The Escrow Bank shall not be responsible for any of the recitals or representations contained herein. Any bank, national banking association or trust company into which the Escrow Bank may be merged or converted or with which it may be consolidated or any bank, national banking association or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association or trust company to which the Escrow Bank may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Bank without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. OHSUSA:762062774.2 4 No provision of this Agreement shall require the Escrow Bank to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties hereunder, or in the exercise of its rights or powers. The Escrow Bank may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, appointed with due care, and shall not be responsible for any willful misconduct or negligence on the pant of any agent or attorney so appointed. Section 11. Resignation and Removal. The Escrow Bank may resign by giving written notice to the Authority, and upon receipt of such notice the Authority shall promptly appoint a successor Escrow Bank. If the Authority does not appoint a successor Escrow Bank within thirty days of receipt of such notice, the resigning Escrow Bank may petition a court of competent jurisdiction for the appointment of a successor Escrow Bank, which court may thereupon, upon such notice as it shall deem proper, appoint a successor Escrow Bank. Upon acceptance of appointment by a successor Escrow Bank, the resigning Escrow Bank shall transfer all moneys held by it in the Escrow Fund to such successor Escrow Bank and be discharged of any further obligation or responsibility hereunder. The Authority may remove the Escrow Bank at any time by giving written notice of such removal to the Escrow Bank, and thereupon shall appoint a successor Escrow Bank by an instrument in writing. Upon acceptance of appointment by a successor Escrow Bank, the removed Escrow Bank shall transfer all moneys held by it in the Escrow Fund to such successor Escrow Bank and be discharged of any further obligation or responsibility hereunder. Any successor Escrow Bank appointed under the provisions hereof shall be a trust company or bank having trust powers, having a corporate trust office in California, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this paragraph the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Section 12. Amendments. The Authority and the Escrow Bank may (but only with the consent of the Owners of all of the Prior Bonds) amend this Escrow Agreement or enter into agreements supplemental to this Escrow Agreement. Section 13. Term. This Escrow Agreement shall commence upon its execution and delivery and shall terminate on the date upon which the Prior Bonds have been paid in accordance with this Escrow Agreement. Section 14. Compensation. The Authority shall from time to time pay or cause to be paid to the Escrow Bank the agreed upon compensation for its services to be rendered hereunder, and reimburse the Escrow Bank for all of its reasonable advances in the exercise and performance of its duties hereunder; provided, however, that under no circumstances shall the Escrow Bank be entitled to any lien whatsoever on any moneys or obligations in the Escrow OHSUSA:762062774.2 5 Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Bank under this Escrow Agreement or otherwise. Section 15. Severability. If any one or more of the covenants or agreements provided in this Escrow Agreement on the part of the Authority or the Escrow Bank 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 Escrow Agreement. Section 16. Counterparts. This Escrow Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. Section 17. Governing Law. This Escrow Agreement shall be construed under the laws of the State of California. OHSUSA:762062774.2 IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date first above written. SANTA MONICA PUBLIC FINANCING AUTHORITY Lo ATTEST: Sarah P. Gorman, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel MUFG UNION BANK, N.A. I: OHSUSA:762062774.2 7 Authorized Officer Reference: Resolution No. 10881 (CCS) E19 10 (PEAS)