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SR 05-08-2018 9A City Council Public Financing Authority Report City Council Meeting: May 8, 2018 Agenda Item: 9.A 1 of 6 To: Public Financing Authority, Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Public Hearing and Issuance of Lease Revenue Bonds, Series 2018 to Finance Fire Station No. 1 Recommended Action Staff recommends that the City Council: 1. Hold a public hearing, receive public comment, and adopt the attached Resolution Authorizing Issuance of Series 2018 Bonds (Attachment A), and approve the related documents required for the Issuance of Lease Revenue Bonds, Series 2018 (Attachments C, D, E, F, G and H). Staff recommends that the Public Financing Authority: 1. Hold a public hearing, receive public comment, and adopt the attached Resolution Authorizing Issuance of Series 2018 Bonds (Attachment B), and approve the related documents required for the Issuance of Lease Revenue Bonds, Series 2018 (Attachments C, D, E, F, G and H). Executive Summary After extensive planning and public approval milestones, construction is set to commence on a replacement for the City’s downtown fire station which does not meet current seismic and other contemporary operating standards. Staff recommends that the City Council and Public Financing Authority (PFA) approve documents required for the issuance of Lease Revenue Bonds, Series 2018 to finance Fire Station No. 1 and a Fire Training Facility at the City Yards. The determination to issue lease revenue bonds is made based on the City’s intent to distribute the cost of building an essential facility over its useful life, the City’s access to low-cost financing, and the City’s low level of existing debt. The Bonds will be secured by a lease agreement between the City and the PFA that will include the right to use the City’s Public Safety Facility during Fire Station No. 1 construction, following which lease payments will be for Fire Station No. 1 use and occupancy only. Bond proceeds will also cover bond issuance costs. The proposed 2 of 6 Series 2018 bonds will be for a maximum principal amount of $38,000,000, with a final maturity date of July 1, 2048 and a maximum true interest cost of 5.00%. Background The FY 2016-18 Capital Improvement Program Budget includes $41.6 million for Fire Station No. 1 and the Proposed FY 2018-20 Capital Improvement Program Budget will include $2.2 million for the Fire Training Facility. On March 27, 2018 (Attachment I), Council authorized the City Manager to negotiate and execute a contract with Bernards Bros., Inc. in the amount of $29.2 million for construction of Fire Station No. 1. Additionally, the Fire Station No. 1 project will include approximately $12.4 million in direct owner costs for technology equipment, testing and inspections, construction management services, permits, fees, furniture, fixtures and equipment, LEED certification costs, and project contingency. The cost of the Fire Training Facility is estimated to be approximately $2.2 million. Discussion Staff is recommending that the City issue lease revenue bonds in an amount not to exceed $38.0 million to fund the Fire Station No. 1 and Fire Training Facility projects. The remaining costs will be paid for by $6.5 million in reserves previously set aside for the projects. When determining whether to issue bonds to cover this capital cost, the City has considered a number of factors. First, the City’s adopted financial policies assert the prudence of using debt financing to distribute the cost of a facility over its useful life. Also, owing to its sound financial health and resulting high credit ratings, the City is able to benefit from low-cost financing. This allows for greater flexibility in allocating existing resources. Finally, the City is able to take advantage of favorable conditions in the municipal bond market due to its very low level of debt. With regard to the last factor, the City’s indebtedness is limited by Article VI of the City Charter, which states that the bonded indebtedness of the City may not exceed the sum of 10% of the total assessed valuation of property within the City. With this bond issuance, staff estimates that this indicator would reach 0.50%. 3 of 6 A breakdown of the total costs of the projects to be funded by the Bonds is shown in the table below. Description Fire Station No. 1 (in millions) Fire Training Facility TI (in millions) Total (in millions) Design Contract N/A* $ 0.2 $ 0.2 Construction $ 29.2 $ 1.4 $ 30.6 Direct Owner Costs $ 12.4 $ 0.6 $ 13.0 $ 41.6 $ 2.2 $ 43.8 *Not included in bond issuance; approximately $2.0 million in General Funds was included in prior CIP Budgets for Fire Station 1 Design. The bonds would be secured by a lease agreement between the City as lessee and the Santa Monica Public Financing Authority (PFA) as lessor. The lease agreement is based on use of the Public Safety Facility during Fire Station No. 1 construction. Once Fire Station No. 1 is completed and occupied by the City, expected early in 2020, the Public Safety Facility will be removed from security for the lease and payments will be solely for Fire Station No. 1 use and occupancy. This arrangement means that the City will not need to include interest due on the bonds during construction in the bond amount (capitalized interest). Staff is proposing to sell the Series 2018 Bonds through a negotiated sale whereby the bond underwriter is predetermined and the Bond interest rates are set through a process of negotiation. A negotiated sale, as compared to an open competitive bid, is the best way to ensure the bond underwriter is in compliance with the City’s banking services Resolution (Resolution No. 11025). Upon Council approval of the Series 2018 Bond issuance, the City’s financial advisor will assist staff in determining the fair market value for the Bond interest rates. To select a bond underwriter, the City’s financial advisor distributed a Request for Qualifications (“RFQ”) to 12 commercial and investment banking institutions active in the California tax-exempt bond market. The RFQ required respondents to certify the 4 of 6 firm was in compliance with the City’s banking services Resolution. Nine firms responded to the RFQ. The financial advisor rated the firms based on a combination of factors including their recommended approach to the bond sale, relevant experience with similar financings, methodology to execute the bond sale, compensation, and compliance with City social responsibility guidelines per Resolution 11025. The recommendations were then presented to Finance Department staff who made the final selection of Stifel, Nicolaus & Co. as lead manager and UBS as co-manager. The lead manager serves as the representative of the underwriting group and manages the process of soliciting orders for the bonds from individual and institutional investors. The co-manager assumes underwriting liability and consults with the lead manager prior to and during the financing process. In preparation for issuance of the bonds, credit ratings were requested from three credit rating agencies that currently maintain credit ratings on the City and Authority bonds . The credit rating agencies – Fitch Ratings, Moody’s Investors Service, and Standard & Poors. Staff anticipates the credit rating agencies will assign the highest possible lease revenue bond ratings to the bonds (AA+, Aa1, and AA+, respectively) and aff irm the City’s AAA/Aaa/AAA general obligation bond credit ratings. The attached resolutions and documents permit the City and PFA to proceed with all steps necessary for the issuance of the Series 2018 Bonds. The resolutions approve the attached documents and authorize their execution and delivery by the specified agency’s officials and employees. The resolutions also approve the preparation, execution, and delivery of a Final Official Statement; the execution and delivery of any additional documents and 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 2018 Bonds. The resolutions authorize the issuance of the Series 2018 Bonds with a maximum principal amount of $38,000,000 with a final maturity date of July 1, 2048 and a maximum true interest cost of 5.00%. This May 8, 2018 meeting serves as a public hearing relating to the public benefits of financing the Fire Station No. 1 and Fire Training Facility improvements through the 5 of 6 PFA. Staff published this public hearing notice in the Santa Monica Daily Press on April 26, 2018; at least five days prior to the hearing date as the Joint Exercise of Powers Agreement (JPA) law requires. Financial Impacts & Budget Actions Approving the recommended actions will result in the PFA issuing up to $38,000,000 in tax-exempt Lease Revenue Bonds. The estimated annual debt service, to be paid from the City’s annual base rental payments pursuant to the Lease Agreement, would be approximately $1.7 million (interest only) through fiscal year 2020 and rise to approximately $2.3 million between fiscal years 2021 and 2048. The FY 2016-18 Capital Improvement Program Budget includes $41.6 million for design and construction of Fire Station No. 1 in account C014063.589000 and the Proposed FY 2018-20 Capital Improvement Program Budget will include $2.2 million for the Fire Training Facility. Other accounts required to record transactions related to the bond issuance and debt service payments are listed in the table below. Any necessary budget changes will be made as part of the Year-End Budget Review in October 2018 after the bonds are issued and exact amounts are known. Account Amount Other Financing Sources (proceeds from the sale of the Series 2018 Bonds, net of any original issue discount or premium) 01990.601001 $35,000,000 Other Financing Uses – Original issue Discount/Premium 01990.602001 $2,600,000 Series 2018 Bond Issue Costs (costs of issuance, underwriter’s discount and bond insurance) 01274.567250 $400,000 Fire Station #1 lease payment (debt service on Series 2018 Series Bonds (first year is interest only) 01274.567251 $1,720,000 6 of 6 Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. Resolution Authorizing Issuance of Series 2018 Bonds (CCS) B. Resolution Authorizing Issuance of Series 2018 Bonds (PFA) C. Ground Lease D. Lease Agreement E. Indenture F. Continuing Disclosure Certificate G. Preliminary Official Statement H. Bond Purchase Agreement I. March 27, 2018 Staff Report (Weblink) 4141-9892-4562.3 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 27383 OF THE CALIFORNIA GOVERNMENT CODE. GROUND LEASE by and between CITY OF SANTA MONICA and SANTA MONICA PUBLIC FINANCING AUTHORITY Dated as of __________ 1, 2018 Attachment C 4141-9892-4562.3 GROUND LEASE THIS GROUND LEASE (this “Ground Lease”), executed and entered into as of __________ 1, 2018, 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, the City desires to finance a portion of the costs of the construction, installation and acquisition of certain capital improvements constituting a fire station, fire training facilities and related improvements (the “Project”); WHEREAS, the Authority desires to assist the City with such financing; WHEREAS, in order to finance 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 the Lease Agreement, dated as of the date hereof (the “Lease Agreement”); WHEREAS, the Property is more particularly described in Exhibit A attached hereto; WHEREAS, in order to provide the funds necessary to finance the Project, the Authority is issuing its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project), in the aggregate principal amount of $__________, payable from the base rental payments to be made by the City pursuant to the 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 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: 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. 2 4141-9892-4562.3 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 financing the Project. 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. 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, 3 4141-9892-4562.3 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 as follows: (a) the City has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution of this Ground Lease; (b) except for Permitted Encumbrances, the Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Property for governmental purposes as contemplated by the City; (c) all taxes, assessments or impositions of any kind with respect to the Property, except current taxes, have been paid in full; and (d) the Property is necessary to the City in order for the City to perform its governmental functions. Section 4.07. Representations of the Authority. The Authority represents and warrants 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, 4 4141-9892-4562.3 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. ARTICLE VI IMPROVEMENTS Title to all improvements made on the Property during the term hereof shall vest in the City. 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, 20__, unless such term is extended or sooner terminated as hereinafter provided; provided, however, that, so long as no Event of Default shall have occurred and be continuing under the Lease Agreement, the term of this Ground Lease with respect to the Public Safety Facility Property shall terminate on the Public Safety Facility Property Lease Term Termination Date, unless such term is sooner terminated as hereinafter provided, and, from and after the Public Safety Facility Property Lease Term Termination Date (a) the description of the Public Safety Facility Property set forth in Exhibit A hereto shall be deemed to have been deleted therefrom and the term “Property” shall, for all purposes hereof, be deemed not to include the Public Safety Facility Property, and (b) all right, title and interest in and to the Public Safety Facility Property shall vest in the City (in connection with which, the Authority shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record). Section 7.02. Extension; Early Termination. If, on July 1, 20__, the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of this Ground Lease shall be automatically extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, except that the term of this Ground Lease shall in no event be extended more than ten years. If, prior to July 1, 20__, 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. 5 4141-9892-4562.3 ARTICLE VIII MISCELLANEOUS 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 certain of 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. 6 4141-9892-4562.3 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. CITY OF SANTA MONICA By: ATTEST: ____________________________________ Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: Lane Dilg, City Attorney SANTA MONICA PUBLIC FINANCING AUTHORITY By: ATTEST: ____________________________________ Denise Anderson-Warren, Secretary APPROVED AS TO FORM: Lane Dilg, Authority Counsel A-1 4141-9892-4562.3 EXHIBIT A DESCRIPTION OF THE PROPERTY Fire Station Property All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: [To insert description for fire station property located at 1337-45 7th Street, Santa Monica, California] A-2 4141-9892-4562.3 Public Safety Facility Property* All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: That portion of the Rancho San Vicente Y Santa Monica, in the City of Santa Monica, County of Los Angeles, State of California, as shown on the map recorded in Book 3, Pages 30 and 31 of Patents, in the office of the County Recorder of said County, described as follows: Beginning at the intersection of the Southerly right of way line of the Santa Monica Freeway and the Southwesterly right of way line of Fourth Street as said intersection is shown on the State of California, Division of Highways, Right of Way Record Map No. 07-LA-I(10) PM 35.1 (File No. F 2061-2) on file with the California Department of Transportation District 7 (Los Angeles County) office, said intersection being the Northwesterly terminus of that certain course in said Southwesterly right of way line of Fourth Street shown as having a bearing and distance of "N. 44°08'58" W. 104.12'" on said Right of Way Record Map; thence along said Southwesterly right of way line of Fourth Street South 44°08'58" East 104.12 feet to the most Northerly corner of that certain property as described in the deed to the State of California as recorded July 1, 1965 in Book D2961, Page 503 of Official Records, in the office of said County Recorder; thence leaving said Southwesterly line of Fourth Street South 45°51'02" West 8.00 feet along the Northwesterly line of said property to the Southwesterly line of said property; thence South 44°08'58" East 86.45 feet along last said Southwesterly line to the beginning of a non-tangent curve concave Northwesterly having a radius of 25.00 feet, a radial of said curve to said point bears South 60°29'29" East; thence leaving last said Southwesterly line, Southwesterly 9.74 feet along said curve through a central angle of 22°19'04"; thence South 51°49'35" West 123.94 feet to the beginning of a curve concave Northerly having a radius of 25.00 feet; thence Southwesterly, Westerly and Northwesterly 36.64 feet along said curve through a central angle of 83°58'44"; thence North 44°11'41" West 305.21 feet to said Southerly right of way line of the Santa Monica Freeway; thence along said Southerly right of way line, the following courses: North 87°41'59" East 103.55 feet and North 89°30'11" East 119.42 feet to the point of beginning. Containing an area of 0.963 acres, more or less. * The Ground Lease provides that, so long as no Event of Default shall have occurred and be continuing under the Lease Agreement, the term of the Ground Lease with respect to the Public Safety Facility Property shall terminate on the Public Safety Facility Property Lease Term Termination Date , unless such term is sooner terminated as provided in the Ground Lease, and, from and after the Public Safety Facility Property Lease Term Termination Date (a) the description of the Public Safety Facility Property set forth herein shall be deemed to have been deleted herefrom and the term “Property” shall, for all purposes of the Ground Lease, be deemed not to include the Public Safety Facility Property, and (b) all right, title and interest in and to the Public Safety Facility Property shall vest in the City. A-3 4141-9892-4562.3 Subject to covenants, conditions, reservation; restrictions, rights of way and easements, if any, of record. 4141-9892-4562.3 STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On _____________, 2018, 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 [SEAL] A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. 4141-9892-4562.3 STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On _____________, 2018, 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 [SEAL] A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. 4141-9892-4562.3 CERTIFICATE OF ACCEPTANCE In accordance with Section 27281 of the California Government Code, this is to certify that the interest in the real property conveyed by the Ground Lease, dated as of __________ 1, 2018, by and between the City of Santa Monica, a municipal corporation and chartered city organized and existing under and by virtue of the laws of the State of California (the “City”), and the Santa Monica Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), from the City to the Authority, is hereby accepted by the undersigned on behalf of the Authority pursuant to authority conferred by resolution of the Board of Directors of the Authority adopted on May 8, 2018, and the Authority consents to recordation thereof by its duly authorized officer. Dated: __________, 2018 SANTA MONICA PUBLIC FINANCING AUTHORITY By: ________________________________ 4131-0519-4002.3 LEASE AGREEMENT by and between CITY OF SANTA MONICA and SANTA MONICA PUBLIC FINANCING AUTHORITY Dated as of __________ 1, 2018 Attachment D TABLE OF CONTENTS Page i 4131-0519-4002.3 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 Section 3.08. Prepayment .......................................................................................... 9 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS ........ 11 Section 4.01. Quiet Enjoyment ................................................................................ 11 Section 4.02. Net-Net-Net Lease ............................................................................. 11 Section 4.03. Right of Entry .................................................................................... 11 Section 4.04. Maintenance and Utilities .................................................................. 11 Section 4.05. Additions to Property ......................................................................... 11 Section 4.06. Installation of City’s Equipment ........................................................ 11 Section 4.07. Mechanics’, Etc. Liens ....................................................................... 12 Section 4.08. Other Liens......................................................................................... 12 ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN ............................ 13 Section 5.01. Public Liability and Property Damage Insurance; Workers’ Compensation Insurance .................................................................... 13 Section 5.02. Title Insurance ................................................................................... 14 Section 5.03. Additional Insurance Provision; Form of Policies ............................. 14 Section 5.04. Self-Insurance .................................................................................... 14 Section 5.05. Damage or Destruction ...................................................................... 14 Section 5.06. Title Insurance ................................................................................... 15 TABLE OF CONTENTS (continued) Page ii 4131-0519-4002.3 Section 5.07. Eminent Domain ................................................................................ 16 ARTICLE VI REPRESENTATIONS; COVENANTS ........................................................ 17 Section 6.01. Representations of the City ................................................................ 17 Section 6.02. Representation of the Authority ......................................................... 17 Section 6.03. Recordation ........................................................................................ 17 Section 6.04. Use of the Property ............................................................................ 17 Section 6.05. Other Liens......................................................................................... 17 Section 6.06. Taxes .................................................................................................. 18 Section 6.07. No Liability; Indemnification ............................................................ 18 Section 6.08. Further Assurances............................................................................. 19 ARTICLE VII DEFAULTS AND REMEDIES .................................................................... 20 Section 7.01. Events of Defaults and Remedies ...................................................... 20 Section 7.02. Waiver ................................................................................................ 23 ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE .................................................................. 24 Section 8.01. Amendments ...................................................................................... 24 Section 8.02. Assignment and Subleasing ............................................................... 24 Section 8.03. Substitution or Release of the Property ............................................. 25 ARTICLE IX MISCELLANEOUS ...................................................................................... 27 Section 9.01. Assignment to Trustee ....................................................................... 27 Section 9.02. Validity and Severability ................................................................... 27 Section 9.03. Notices ............................................................................................... 27 Section 9.04. Interpretation ...................................................................................... 28 Section 9.05. Section Headings ............................................................................... 28 Section 9.06. Governing Laws ................................................................................. 28 Section 9.07. Execution in Counterparts.................................................................. 28 EXHIBIT A DESCRIPTION OF THE PROPERTY ....................................................... A-1 EXHIBIT B DESCRIPTION OF THE PROJECT ........................................................... B-1 4131-0519-4002.3 LEASE AGREEMENT THIS LEASE AGREEMENT (this “Lease Agreement”), dated as of __________ 1, 2018, 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, the City desires to finance a portion of the costs of the construction, installation and acquisition of certain capital improvements constituting a fire station, fire training facilities and related improvements (the “Project”); WHEREAS, the Authority desires to assist the City with such financing; WHEREAS, in order to finance 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, the Property is more particularly described in Exhibit A attached hereto; WHEREAS, in order to provide the funds necessary to finance the Project, the Authority is issuing its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station 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: 2 4131-0519-4002.3 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 Bonds, Series 2018 (Downtown Fire Station 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 __________, 2018. “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. “Fire Station Project” means the construction, installation and acquisition of certain capital improvements constituting a fire station and related improvements, as described under the 3 4131-0519-4002.3 caption “Fire Station Project” in Exhibit B hereto, a portion of the costs of which are to be financed with proceeds of the Bonds. “Fire Station Project Facilities” means the fire station and related improvements, as described under the caption “Fire Station Project” in Exhibit B hereto, to be constructed, installed and acquired as part of the Fire Station Project. “Fire Training Facilities Project” means the construction, installation and acquisition of certain capital improvements constituting fire training facilities and related improvements, as described under the caption “Fire Training Facilities Project” in Exhibit B hereto, a portion of the costs of which are to be financed with proceeds of the Bonds. “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, 2018, 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, 2018, by and among the Authority, the City and The Bank of New York Mellon Trust Company, 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, 2019]. “Lease Agreement” means this Lease Agreement, dated as of __________ 1, 2018, 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, reservation s, covenants, conditions or restrictions established following the Delivery Date which the City 4 4131-0519-4002.3 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. “Project” means, collectively, the Fire Station Project and the Fire Training Facilities Project. “Property” means the real property described in Exhibit A hereto and any improvements thereto, subject to the provisions of Section 2.02 hereof relating to the termination of the term of this Lease Agreement with respect to portions of such real property. “Public Safety Facility Property” means the property described under the caption “Public Safety Facility Property” in Exhibit A hereto. “Public Safety Facility Property Lease Term Termination Date” means the date on which a Written Certificate of the City is filed with the Trustee stating (a) that the construction, installation and acquisition of the Fire Station Project has been completed, and (b) that the City has use and occupancy of the Fire Station Project Facilities. “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, 2018] and, thereafter, the twelve-month period commencing on July 1 of each year during the term of this Lease Agreement. “Scheduled Termination Date” means July 1, 20__. “State” means the State of California. “Trustee” means The Bank of New York Mellon Trust Company, 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. 5 4131-0519-4002.3 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; provided, however, that, so long as no Event of Default shall have occurred and be continuing under this Lease Agreement, the term of this Lease Agreement with respect to the Public Safety Facility Property shall terminate on the Public Safety Facility Property Lease Term Termination Date, unless such term is sooner terminated as hereinafter provided, and, from and after the Public Safety Facility Property Lease Term Termination Date (i) the description of the Public Safety Facility Property set forth in Exhibit A hereto shall be deemed to have been deleted therefrom and the term “Property” shall, for all purposes hereof, be deemed not to include the Public Safety Facility Property, and (ii) all right, title and interest in and to the Public Safety Facility Property shall vest in the City (in connection with which, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record). When the construction, installation and acquisition of the Fire Station Project has been completed and the City has use and occupancy of the Fire Station Project Facilities, the City shall file a Written Certificate of the City with the Trustee stating (A) that the construction, installation and acquisition of the Fire Station Project has been completed, and (B) that the City has use and occupancy of the Fire Station Project Facilities. (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, 6 4131-0519-4002.3 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 expiration, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. 7 4131-0519-4002.3 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 payabl e 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. 8 4131-0519-4002.3 (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, and that the Fair Rental Value of the Property as of the Public Safety Facility Property Lease Term Termination Date, upon termination of the term of this Lease Agreement with respect to the Public Safety Facility Property, will be not less than said amount. 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 disput e. 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 9 4131-0519-4002.3 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 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. Section 3.08. Prepayment. (a) The City may prepay all or a portion of the Base Rental Payments which are payable on or after July 1, 20__, from any source of available funds, on any date on or after July 1, 20__, by paying (i) all or a portion, as elected by the City, of the principal components of such Base Rental Payments, and (ii) the accrued but unpaid interest component of such Base Rental Payments to be prepaid to the date of such prepayment. (b) The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Indenture sufficient to make such Base Rental Payments when due or to make such Base Rental payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to subsection (a) of this Section, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. (c) If less than all of the Base Rental Payments are prepaid pursuant to this Section then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the principal and interest components of the Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of Base Rental Payments , the Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the Cit y shall not be entitled to any reimbursement of such Base Rental Payments. (d) If all of the Base Rental Payments are prepaid in accordance with the provisions of this Lease Agreement then, as of the date of such prepayment pursuant to subsection (a) of this Section, or deposit pursuant to subsection (b) of this Section, the term of this Lease Agreement shall be terminated. (e) Prepayments of Base Rental Payments made pursuant to this Section shall be applied to the redemption of Bonds as provided in Section 4.02 of the Indenture. 10 4131-0519-4002.3 (f) Before making any prepayment pursuant to this Article, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 days prior to the prepayment date, unless such notice shall be waived by the Authority and the Trustee. 11 4131-0519-4002.3 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS Section 4.01. Quiet Enjoyment. The Authority hereby covenants and agrees that it will not take any action to prevent the City, so long as the City is keeping and performing the covenants and agreements herein contained, from having quiet and peaceable possession and enjoyment of the Property during the term hereof. 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 restore 12 4131-0519-4002.3 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, improvem ents, 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. 13 4131-0519-4002.3 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 professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. 14 4131-0519-4002.3 Section 5.02. Title Insurance. The City shall provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the 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 an y adjustment, compromise or settlement of any loss agreed to by the City. (b) The City shall cause to be delivered to the Trustee, on or before August 15 of each year, commencing August 15, 2018, 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. 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 15 4131-0519-4002.3 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 Ci ty 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 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. 16 4131-0519-4002.3 (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. 17 4131-0519-4002.3 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. 18 4131-0519-4002.3 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 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. 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 from any work done in or about the Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restri ctions, 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. 19 4131-0519-4002.3 (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. 20 4131-0519-4002.3 ARTICLE VII DEFAULTS AND REMEDIES 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 Truste e, 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, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, (ii) except as otherwise provided in Article VIII hereof, 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, (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, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, such failure or event shall constitute an 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 21 4131-0519-4002.3 entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of 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 this Lease Agreement shall vest in the Authority to be effected in the 22 4131-0519-4002.3 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 Authorit y 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. 23 4131-0519-4002.3 (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. 24 4131-0519-4002.3 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 Rent al 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 nor 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 25 4131-0519-4002.3 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; provided, however, that such conditions shall not apply to a release of the portion of the Property described under the caption “Public Safety Facility Project” in Exhibit A hereto in connection with the termination of the term of this Lease Agreement with respect to such portion of the Property pursuant to Section 2.02 hereof: (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 or ALTA 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; 26 4131-0519-4002.3 (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; (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. 27 4131-0519-4002.3 ARTICLE IX MISCELLANEOUS Section 9.01. Assignment to 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), certain 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: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director If to the Authority: Santa Monica Public Financing Authority c/o City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director 28 4131-0519-4002.3 If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 400 South Hope Street, Suite 500 Los Angeles, California 90071 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. 29 4131-0519-4002.3 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 By: ATTEST: ____________________________________ Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: Lane Dilg, City Attorney SANTA MONICA PUBLIC FINANCING AUTHORITY By: ATTEST: ____________________________________ Denise Anderson-Warren, Secretary APPROVED AS TO FORM: Lane Dilg, Authority Counsel 4131-0519-4002.3 EXHIBIT A DESCRIPTION OF THE PROPERTY Fire Station Property All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: [To insert description for fire station property located at 1337-45 7th Street, Santa Monica, California] 2 4131-0519-4002.3 Public Safety Facility Property* All that real property situated in the County of Los Angeles, State of California, described as follows, and any improvements thereto: That portion of the Rancho San Vicente Y Santa Monica, in the City of Santa Monica, County of Los Angeles, State of California, as shown on the map recorded in Book 3, Pages 30 and 31 of Patents, in the office of the County Recorder of said County, described as follows: Beginning at the intersection of the Southerly right of way line of the Santa Monica Freeway and the Southwesterly right of way line of Fourth Street as said intersection is shown on the State of California, Division of Highways, Right of Way Record Map No. 07-LA-I(10) PM 35.1 (File No. F 2061-2) on file with the California Department of Transportation District 7 (Los Angeles County) office, said intersection being the Northwesterly terminus of that certain course in said Southwesterly right of way line of Fourth Street shown as having a bearing and distance of "N. 44°08'58" W. 104.12'" on said Right of Way Record Map; thence along said Southwesterly right of way line of Fourth Street South 44°08'58" East 104.12 feet to the most Northerly corner of that certain property as described in the deed to the State of California as recorded July 1, 1965 in Book D2961, Page 503 of Official Records, in the office of said County Recorder; thence leaving said Southwesterly line of Fourth Street South 45°51'02" West 8.00 feet along the Northwesterly line of said property to the Southwesterly line of said property; thence South 44°08'58" East 86.45 feet along last said Southwesterly line to the beginning of a non-tangent curve concave Northwesterly having a radius of 25.00 feet, a radial of said curve to said point bears South 60°29'29" East; thence leaving last said Southwesterly line, Southwesterly 9.74 feet along said curve through a central angle of 22°19'04"; thence South 51°49'35" West 123.94 feet to the beginning of a curve concave Northerly having a radius of 25.00 feet; thence Southwesterly, Westerly and Northwesterly 36.64 feet along said curve through a central angle of 83°58'44"; thence North 44°11'41" West 305.21 feet to said Southerly right of way line of the Santa Monica Freeway; thence along said Southerly right of way line, the following courses: North 87°41'59" East 103.55 feet and North 89°30'11" East 119.42 feet to the point of beginning. Containing an area of 0.963 acres, more or less. * The Lease Agreement provides that, so long as no Event of Default shall have occurred and be continuing under the Lease Agreement, the term of the Lease Agreement with respect to the Public Safety Facility Property shall terminate on the Public Safety Facility Property Lease Term Termination Date, unless such term is sooner terminated as provided in the Lease Agreement, and, from and after the Public Safety Facility Property Lease Term Termination Date (a) the description of the Public Safety Facility Property set forth herein shall be deemed to have been deleted herefrom and the term “Property” shall, for all purposes of the Lease Agreement, be deemed not to include the Public Safety Facility Property, and (b) all right, title and interest in and to the portion of the Public Safety Facility Property shall vest in the City. 2 4131-0519-4002.3 Subject to covenants, conditions, reservation; restrictions, rights of way and easements, if any, of record. B-1 4131-0519-4002.3 EXHIBIT B DESCRIPTION OF THE PROJECT Fire Station Project The Fire Station Project consists of the acquisition, construction and installation of a fire station to be referred to as Fire Station 1 (headquarters), including subterranean parking, apparatus bays, staff dormitories, offices and storage facilities for equipment and related improvements, to be constructed on 7th Street, across from the City’s Main Library, between Arizona Avenue and Santa Monica Boulevard. Fire Training Facilities Project The Fire Training Facilities Project consists of the acquisition, construction and installation of fire training facilities and related improvements, to be constructed at the site of the existing City fire facilities located at the City Yards, located at 2500 Michigan Avenue, near the intersection of 24th Street and Michigan Avenue. 4124-2814-1842.3 INDENTURE by and among SANTA MONICA PUBLIC FINANCING AUTHORITY and CITY OF SANTA MONICA and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE Dated as of __________ 1, 2018 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project) Attachment E TABLE OF CONTENTS Page i 4124-2814-1842.3 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 ............................................................................. 11 Section 2.06. Transfer and Exchange of Bonds ....................................................... 11 Section 2.07. Book-Entry System ............................................................................ 11 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ...................................... 13 Section 2.09. Temporary Bonds............................................................................... 14 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 Section 3.04. Project Fund ....................................................................................... 15 ARTICLE IV REDEMPTION OF BONDS ......................................................................... 17 Section 4.01. Extraordinary Redemption ................................................................. 17 Section 4.02. Optional Redemption ......................................................................... 17 Section 4.03. Mandatory Sinking Fund Redemption ............................................... 17 Section 4.04. Notice of Redemption ........................................................................ 18 Section 4.05. Selection of Bonds for Redemption ................................................... 19 Section 4.06. Partial Redemption of Bonds ............................................................. 19 Section 4.07. Effect of Notice of Redemption ......................................................... 19 ARTICLE V PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS .................... 20 Section 5.01. Pledge and Assignment ...................................................................... 20 Section 5.02. Payment Fund .................................................................................... 20 Section 5.03. Redemption Fund ............................................................................... 21 Section 5.04. Rebate Fund ....................................................................................... 21 Section 5.05. Investments ........................................................................................ 21 TABLE OF CONTENTS (continued) Page ii 4124-2814-1842.3 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 .................................................................................. 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 ............................................................... 30 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.................................. 35 Section 8.06. Preservation and Inspection of Documents........................................ 36 Section 8.07. Compensation and Indemnification of the Trustee ............................ 36 TABLE OF CONTENTS (continued) Page iii 4124-2814-1842.3 ARTICLE IX SUPPLEMENTAL INDENTURES .............................................................. 37 Section 9.01. Supplemental Indentures .................................................................... 37 Section 9.02. Effect of Supplemental Indenture ...................................................... 38 Section 9.03. Endorsement of Bonds; Preparation of New Bonds .......................... 38 Section 9.04. Amendment of Particular Bonds ........................................................ 38 ARTICLE X DEFEASANCE.............................................................................................. 39 Section 10.01. Discharge of Indenture ....................................................................... 39 Section 10.02. Bonds Deemed to Have Been Paid .................................................... 39 Section 10.03. Unclaimed Moneys ............................................................................ 40 ARTICLE XI MISCELLANEOUS ...................................................................................... 42 Section 11.01. Successor Deemed Included in all References to Predecessor .......... 42 Section 11.02. Limitation of Rights ........................................................................... 42 Section 11.03. Destruction of Bonds ......................................................................... 42 Section 11.04. Severability of Invalid Provisions ...................................................... 42 Section 11.05. Notices ............................................................................................... 42 Section 11.06. Evidence of Rights of Owners ........................................................... 43 Section 11.07. Disqualified Bonds............................................................................. 43 Section 11.08. Money Held for Particular Bonds ...................................................... 44 Section 11.09. Funds and Accounts ........................................................................... 44 Section 11.10. Business Days .................................................................................... 44 Section 11.11. Waiver of Personal Liability .............................................................. 44 Section 11.12. Interpretation ...................................................................................... 45 Section 11.13. Conclusive Evidence of Regularity ................................................... 45 Section 11.14. Partial Invalidity................................................................................. 45 Section 11.15. Governing Laws ................................................................................. 45 Section 11.16. Execution in Counterparts.................................................................. 45 EXHIBIT A PERMITTED INVESTMENTS .................................................................. A-1 EXHIBIT B FORM OF BOND ........................................................................................ B-1 4124-2814-1842.3 INDENTURE THIS INDENTURE (this “Indenture”), dated as of __________ 1, 2018, 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 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized and existing under the laws of the United States of America, as Trustee (the “Trustee”). W I T N E S S E T H: WHEREAS, the City desires to finance a portion of the costs of the construction, installation and acquisition of certain capital improvements constituting a fire station, fire training facilities and related improvements (the “Project”); WHEREAS, the Authority desires to assist the City with such financing; WHEREAS, in order to finance 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 finance the Project, the Authority and the City desire to provide for the issuance of Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station 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 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. 2 4124-2814-1842.3 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: 3 4124-2814-1842.3 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, 2018]. “Bonds” means the Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project), issued hereunder. 4 4124-2814-1842.3 “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 & 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 __________, 2018. “Code” means the Internal Revenue Code of 1986. “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated as of __________ 1, 2018, 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 final 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. 5 4124-2814-1842.3 “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. “Electronic Means” means e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder. “Event of Default” means any event or circumstance specified in Section 7.01 hereof. “Ground Lease” means the Ground Lease, dated as of __________ 1, 2018, 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, 2018, by and among the Authority, the City and The Bank of New York Mellon Trust Company, 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, 2019]. “Lease Agreement” means the Lease Agreement, dated as of __________ 1, 2018, 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 7.01 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. 6 4124-2814-1842.3 “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; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the Authority and the City by the Trustee in writing. “Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority 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, or that have been paid without surrender thereof, 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 Underwriters” 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. 7 4124-2814-1842.3 “Project Costs” means all costs of acquiring, constructing and installing the Project, including but not limited to (a) all costs which the Authority or the City shall be required to pay to a seller or any other Person under the terms of any contract or contracts for the purchase of the Project, (b) all costs which the Authority or the City shall be required to pay a contractor or any other Person for the acquisition, construction and installation of the Project, (c) obligations of the Authority or the City incurred for services (including obligations payable to the Authority or the City for actual out-of-pocket expenses of the Authority or the City) in connection with the acquisition, construction and installation of the Project, including reimbursement to the Authority or the City for all advances and payments made in connection with the Project prior to or after delivery of the Bonds, (d) the actual out-of-pocket costs of the Authority or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the Project, including administrative expenses under the Lease Agreement and hereunder relating to the acquisition, construction and installation of the Project, and (e) any sums required to reimburse the Authority or the City for advances made by the Authority or the City for any of the above items or for any other costs incurred and for work done by the Authority or the City which are properly chargeable to the Project. “Project Fund” means the fund by that name established pursuant to Section 3.04 hereof. “Rebate Fund” means the fund by that name established pursuant to Section 5.04 hereof. “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, 2018] and, thereafter, the twelve-month period commencing on July 1 of each year during the term of the Lease Agreement. “S&P” means S&P Global Ratings, 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 8 4124-2814-1842.3 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. “Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of the United States of America, 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. 9 4124-2814-1842.3 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 Bonds, Series 2018 (Downtown Fire Station 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 (July 1) Principal Amount Interest 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 ch eck 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 10 4124-2814-1842.3 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 during regular business hours and upon reasonable notice; 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 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, duly executed in a form acceptable to 11 4124-2814-1842.3 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 wir e 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, for the purpose of 12 4124-2814-1842.3 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 such Owner’s 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 cer tificated 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 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 13 4124-2814-1842.3 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 l ost, 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 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 14 4124-2814-1842.3 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. 15 4124-2814-1842.3 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 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 by the Trustee as follows: (a) the Trustee shall deposit the amount of $__________in the Costs of Issuance Fund; and (b) the Trustee shall deposit the amount of $__________ in the Project Fund. 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 and instructions for such payment, (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 Project Fund and, upon making such transfer, the Costs of Issuance Fund shall be closed. Section 3.04. Project Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Project Fund.” On the Closing Date, the Trustee shall deposit in the Project Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b) The moneys in the Project Fund shall be used and withdrawn by the Trustee from time to time to pay the Project Costs upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made and instructions for such payment, (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 Project Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Project Fund, in each case together with a statement or invoice for each amount requested thereunder. (c) Upon the filing of a Written Certificate of the City stating (i) that the Project has been completed and that all costs of the Project have been paid, or (ii) that the Project has been 16 4124-2814-1842.3 substantially completed and that all remaining costs of the Project to be paid from the Project Fund have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaining in the Project Fund (less any such retention) is equal to or greater than $25,000, transfer the portion of such amount equal to the largest integral multiple of $5,000 that is not greater than such amount to the Redemption Fund, to be applied to the redemption of Bonds, and (B) after making the transfer, if any, required to be made pursuant to the preceding clause (A), transfer all of the amount remaining in the Project Fund (less any such retention) to the Interest Account, to be applied to the payment of interest on the Bonds. 17 4124-2814-1842.3 ARTICLE IV REDEMPTION OF BONDS 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. The Bonds maturing on or after July 1, 20__ shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after July 1, 20__, from and to the extent of prepaid Base Rental Payments paid pursuant to subsection (a) of Section 3.08 of the Lease Agreement, 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. 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 maturing July 1, 20__ 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) Principal Amount to be 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 the Bonds maturing on July 1, 20__ to be redeemed pursuant to this Section 4.03(a) 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 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 the Bonds maturing on July 1, 20__ to be redeemed pursuant to this Section 4.03(a) on any subsequent July 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on July 1, 20__ redeemed pursuant to Section 4.02 hereof. (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 18 4124-2814-1842.3 to the principal amount of the Bonds maturing July 1, 20__ 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) Principal Amount to be 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 the Bonds maturing on July 1, 20__ to be redeemed pursuant to this Section 4.03(b) 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 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 the Bonds maturing on July 1, 20__ to be redeemed pursuant to this Section 4.03(b) on any subsequent July 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on July 1, 20__ redeemed pursuant to Section 4.02 hereof. 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 at least 20 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 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 19 4124-2814-1842.3 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 4.02 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, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.06. 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 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. 20 4124-2814-1842.3 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 Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, 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 Pa yment 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 21 4124-2814-1842.3 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 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 hereof 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 requir ed 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 received by the Trustee no 22 4124-2814-1842.3 later than 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 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; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. (b) Subject to the provisions of Section 5.04 hereof, 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 or account 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. In determining the market value of Permitted Investments, the Trustee may use and rely upon generally recognized pricing information services, including brokers and dealers in securities, available to it. (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, at no additional cost, 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. 23 4124-2814-1842.3 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 such effect, or 24 4124-2814-1842.3 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. 25 4124-2814-1842.3 Section 6.06. Observance of Laws and Regulations. The Authority and the City 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 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. (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. Without limiting the generality of the foregoing, each of the Authority and the City shall comply with the 26 4124-2814-1842.3 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 the Participating Underwriters or the Owners of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon receipt of indemnification reasonably satisfactory to the Trustee, shall) or any Owner 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. 27 4124-2814-1842.3 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, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; (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, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; 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 or, at the written direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, shall 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 28 4124-2814-1842.3 vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.03 hereof. Section 7.03. Other Remedies. 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 incurred by the Trustee 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 29 4124-2814-1842.3 Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. 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. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.07. 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 Bond, 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 reasonably satisfactory to the Trustee 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 such Owner’s or Owners’ 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. 30 4124-2814-1842.3 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 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. 31 4124-2814-1842.3 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 occurred, 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, which is (or if such trust company, national banking association or bank is a member of a bank holding company system, its parent bank holding company is) (i) a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. 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 autho rized 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 t o 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 shal l 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 32 4124-2814-1842.3 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 t hereof, 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. 33 4124-2814-1842.3 (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. (j) 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. (l) 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. 34 4124-2814-1842.3 (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. (o) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. 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) The Trustee shall have the right to accept and act upon a Written Request of the City delivered using Electronic Means. If the City elects to deliver a Written Request of the City to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The City understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the City that purport to have been sent by an Authorized Representative of the City have been sent by such Authorized Representative. The City shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the City to the Trustee and that the City is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the City. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the City delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent written Written Request of the City. The City agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the City to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the City, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the City to the Trustee and that there may be more secure methods of transmitting Written Requests of the City than the method selected by the City, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the City provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the City that purports to have been sent by an Authorized Representative of the City delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (c) The Trustee shall have the right to accept and act upon a Written Request of the Authority delivered using Electronic Means. If the Authority elects to deliver a Written Request of the Authority to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The 35 4124-2814-1842.3 Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the Authority that purport to have been sent by an Authorized Representative of the Authority have been sent by such Authorized Representative. The Authority shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the Authority to the Trustee and that the Authority is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the Authority. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the Authority delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent written Written Request of the Authority. The Authority agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the Authority to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the Authority, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the Authority to the Trustee and that there may be more secure methods of transmitting Written Requests of the Authority than the method selected by the Authority, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the Authority provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the Authority that purports to have been sent by an Authorized Representative of the Authority delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (d) 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. (e) The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, including with respect to compliance herewith of amendments hereto or to the Lease Agreement or the Ground Lease, 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 36 4124-2814-1842.3 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. The City shall pay to the Trustee from time to time all reasonable compensation pursuant to a pre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre-approved fee letter and other disbursements pursuant to a pre- approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors and employees harmless against any costs, suits, judgments, damages, liabilities, claims, expenses, including legal fees and expenses, and liabilities which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the resignation or removal of the Trustee and the discharge and satisfaction of this Indenture. 37 4124-2814-1842.3 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 consents 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) in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder. (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 38 4124-2814-1842.3 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 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 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. 39 4124-2814-1842.3 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 pa y to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of this Indenture, the obligation of the City to indemnify the Trustee pursuant to Section 8.07 shall remain in effect and be binding upon the City. 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 40 4124-2814-1842.3 redemption date, said notice to be given in accordance with Section 4.04 hereof, (ii) there 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, together with the money, if any, deposited therewith, 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 term s 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 Owner 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 have caused to be delivered to the Authority, the City and the Trustee (i) 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 and the City, (ii) 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, which escrow agreement shall be in form and in 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 (iii) 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 and the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in this Indenture, this Indenture has been discharged in respect of such Bond 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 s atisfied, 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 Bond that remain unclaimed for two years after the date when such principal, premium or interest has become payable, if such moneys were held b y the Trustee at such date, or for two years after the date of 41 4124-2814-1842.3 deposit of such moneys if deposited with the Trustee after the date when such principal, premium 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 Owner of such Bond shall look only to the Authority for the payment of such principal, premium or interest. The Trustee shall hold any such moneys uninvested. 42 4124-2814-1842.3 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, 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. 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. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given 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 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Director of Finance 43 4124-2814-1842.3 If to the City: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Director of Finance If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 400 South Hope Street, 5th Floor Los Angeles, California 90071 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, up on 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 writin g. 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 or her 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 actually known by the Trustee to be owned or held by or for the account of the Authority or the City or any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common 44 4124-2814-1842.3 control with, the Authority or the City, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided, however, that if 100% of the Bonds are so owned or held, such Bonds shall be deemed to be Outstanding. 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 or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority shall specify in a Written Certificate of the Authority delivered to the Trustee which Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the Authority. Upon request of the Trustee, the City shall specify in a Written Certificate of the City delivered to the Trustee which Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the City. 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. 45 4124-2814-1842.3 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. (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 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. 46 4124-2814-1842.3 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 By: ATTEST: ____________________________________ Denise Anderson-Warren, Secretary APPROVED AS TO FORM: Lane Dilg, Authority Counsel CITY OF SANTA MONICA By: ATTEST: ____________________________________ Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: Lane Dilg, City Attorney THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE By: Authorized Officer A-1 4124-2814-1842.3 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), Federal Farm Credit Bank (FFCB), 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, transfer agency, custodial 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 A-2 4124-2814-1842.3 maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (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/AA1” or general obligations of states with a rating of “A2/A” 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 approach); or (B) repay A-3 4124-2814-1842.3 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, b e 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. B-1 4124-2814-1842.3 EXHIBIT B FORM OF BOND No. R- ***$*** SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BOND SERIES 2018 (DOWNTOWN FIRE STATION PROJECT) INTEREST RATE MATURITY DATE DATED DATE CUSIP % July 1, 20__ __________, 2018 REGISTERED OWNER: PRINCIPAL AMOUNT: 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 [January 1, 2019] (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 Bonds, Series 2018 (Downtown Fire Station Project)” (the “Bonds”) in the aggregate principal amount of $__________. The Bonds are issued pursuant to the Indenture, dated as of __________ 1, 2018 (the “Indenture”), by and among the Authority (the “Authority”), the City of Santa Monica (the “City”) and The Bank of New York Mellon Trust Company, 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 event interest B-2 4124-2814-1842.3 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 provi ded 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 i n 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, 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 B-3 4124-2814-1842.3 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 By: ATTEST: Secretary B-4 4124-2814-1842.3 CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE By: Authorized Signatory B-5 4124-2814-1842.3 ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto __________________________________ whose address and social security or other tax identifying number is ____________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ______________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature 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. 4126-6616-8850.3 CONTINUING DISCLOSURE CERTIFICATE CITY OF SANTA MONICA Dated as of __________ 1, 2018 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project) Attachment F 4126-6616-8850.3 CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of __________ 1, 2018, is executed and delivered by the City of Santa Monica (the “City”). WHEREAS, pursuant to the Indenture, dated as of __________ 1, 2018 (the “Indenture”), by and among the Santa Monica Public Financing Authority (the “Authority”), the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), the Authority has issued $__________ aggregate principal amount of its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station 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, 2018, 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 and Beneficial Owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Disclosure Certificate have the meanings herein spec ified. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. “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. “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 __________, 2018 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. “Participating Underwriters” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. 2 4126-6616-8850.3 “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 l ater than the Annual Report Date, commencing with the report for the 2017-18 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: (i) The principal amount of Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and (ii) The balance in the Project Fund 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 3 4126-6616-8850.3 data (as of the end of the preceding fiscal year) substantially similar to that provided in the corresponding tables and charts in the Official Statement: (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; (vii) City General Fund Summary of Revenues and Expenditures; (viii) City Direct and Overlapping Debt; (ix) Information under the captions “CITY OF SANTA MONICA FINANCES – Retirement System” and “−Other Post Employment Benefits”; and (x) Summary of City’s current fiscal year’s investments as of the end of the second month next preceding the Annual Report Date, 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: (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; 4 4126-6616-8850.3 (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; (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 5 4126-6616-8850.3 (vii) appointment of a successor or additional Trustee or the change of name of a Trustee. (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 paragraph (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. 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 6 4126-6616-8850.3 (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 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. The City covenants that, if a Dissemination Agent other than the City has been appointed pursuant to Section 7 hereof, the City will indemnify and save such 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 such Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of such Dissemination Agent and payment of the Bonds. 7 4126-6616-8850.3 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 By: ATTEST: Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: Lane Dilg, City Attorney A-1 4126-6616-8850.3 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 Bonds, Series 2018 (Downtown Fire Station Project) Date of Issuance: __________, 2018 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, 2018, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by _____________.] Dated: _______________ CITY OF SANTA MONICA By: OH&S 4/26/18 Draft 4159-8549-8385.4 PRELIMINARY OFFICIAL STATEMENT DATED MAY __, 2018 NEW ISSUE – FULL BOOK-ENTRY RATINGS: Fitch: “___” Moody’s: “___” Standard & Poor’s: “___” (See “RATINGS” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and complianc e 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 and is e xempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS.” LOGO $________* SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2018 (DOWNTOWN FIRE STATION PROJECT) Dated: Date of Delivery Due: July 1, as shown on the inside cover page The Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station 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 ______ 1, 2018 (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 are being issued to provide funds to (i) finance the construction of a new City fire station, fire training facilities and related improvements as described herein (the “Project”) and (ii) pay the costs incurred in connection with the issuance of the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE” 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 1 and July 1 of each year, commencing on January 1, 2019. 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 The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Bonds. See APPENDIX D – “BOOK-ENTRY ONLY SYSTEM” herein. The Bonds are subject to optional redemption, sinking fund redemption and 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 will be offered when, as and if issued and received by the Underwriters, subject to the approval as to their validity 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 Authority and the City by the City Attorney of the City and by Orrick, Herrington & Sutcliffe LLP, Los Angeles California, as Disclosur e Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California . Public Resources Advisory Group has served as municipal advisor to the City in connection with the issuance of the Bonds. It is anticipated that the Bonds in definitive form will be available for delivery through the facilities of DTC on or about June __, 2018. Stifel [UBS] Dated May __, 2018 *Preliminary, subject to change. Attachment G OH&S 4/26/18 Draft 4159-8549-8385.4 MATURITY SCHEDULE (Base CUSIP No.† 802437) $_________ Serial Bonds Maturity Date (July 1) Principal Amount Interest Rate Yield CUSIP suffix† $_________ ____% Term Bonds due July 1, 20__ - Yield: ____% CUSIP suffix† ____ $_________ ____% Term Bonds due July 1, 20__ - Yield: ____% CUSIP suffix† ____ † 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© 2018 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 Municipal Advisor and the Underwriters take no responsibility for the accuracy of such numbers. 4159-8549-8385.4 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 Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS 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 UNDERWRITERS 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 UNDERWRITERS. 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 2018, 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 Municipal Advisor and the Underwriters take no responsibility for the accuracy of such numbers. 4159-8549-8385.4 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. 4159-8549-8385.4 CITY OF SANTA MONICA (County of Los Angeles, California) City Council Ted Winterer, Mayor Gleam Davis, Mayor Pro Tempore Sue Himmelrich Kevin McKeown Pam O’Connor Terry O’Day Tony Vazquez Santa Monica Public Financing Authority Ted Winterer, Chairperson Gleam Davis, Chairperson Pro Tempore Sue Himmelrich Kevin McKeown Pam O’Connor Terry O’Day Tony Vazquez City Manager/Authority Executive Director Rick Cole City Attorney/ Authority Counsel Lane Dilg City Clerk/Authority Secretary Denise Anderson-Warren Director of Finance/City Treasurer/Authority Treasurer Gigi Decavalles-Hughes Municipal Advisor Public Resources Advisory Group Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Trustee The Bank of New York Mellon Trust Company, N.A. 4159-8549-8385.4 (THIS PAGE INTENTIONALLY LEFT BLANK) TABLE OF CONTENTS Page -i- 4159-8549-8385.4 INTRODUCTION ....................................................................................................................................... 1 THE BONDS ............................................................................................................................................... 3 General ........................................................................................................................................... 3 Redemption ..................................................................................................................................... 3 Transfer and Exchange of Bonds .................................................................................................... 6 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ........................................................... 6 Pledge of Revenues ......................................................................................................................... 6 Abatement ....................................................................................................................................... 7 Substitution and Removal of Property ............................................................................................ 7 Action on Default ............................................................................................................................ 8 No Reserve Fund for the Bonds ...................................................................................................... 8 Base Rental Payments ..................................................................................................................... 8 Additional Rental Payments ........................................................................................................... 9 Insurance ......................................................................................................................................... 9 Damage or Destruction of the Property ........................................................................................ 10 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................. 11 BASE RENTAL PAYMENT SCHEDULE .............................................................................................. 12 PLAN OF FINANCE ................................................................................................................................. 13 THE PROPERTY ...................................................................................................................................... 13 THE AUTHORITY ................................................................................................................................... 14 CITY OF SANTA MONICA ..................................................................................................................... 15 General ......................................................................................................................................... 15 Government and Administration ................................................................................................... 15 CITY OF SANTA MONICA FINANCES ................................................................................................ 15 Accounting Policies and Financial Reporting ............................................................................... 15 Budgetary Process ......................................................................................................................... 16 Tax Receipts ................................................................................................................................. 16 Proposition 1A .............................................................................................................................. 20 Principal Property Taxpayers ........................................................................................................ 21 Federal, State and County Awarded Grants and Special Allocations ........................................... 21 General Fund Financial Summary ................................................................................................ 21 Assessed Valuations...................................................................................................................... 27 Ad Valorem Property Taxes ......................................................................................................... 29 Dissolution of Redevelopment ...................................................................................................... 31 TABLE OF CONTENTS (continued) Page -ii- 4159-8549-8385.4 Dependence on State for Certain Revenues .................................................................................. 32 State Budget Acts .......................................................................................................................... 32 Future Budgets and Budgetary Actions ........................................................................................ 33 Investment of City Funds .............................................................................................................. 33 Self Insurance ............................................................................................................................... 35 Retirement System ........................................................................................................................ 35 Other Post Employment Benefits .................................................................................................. 43 Medical Trusts .............................................................................................................................. 45 Labor Relations ............................................................................................................................. 45 Long-Term Debt ........................................................................................................................... 46 Overlapping Debt .......................................................................................................................... 47 RISK FACTORS ....................................................................................................................................... 47 General Considerations – Security for the Bonds ......................................................................... 47 Abatement ..................................................................................................................................... 48 Seismic Activity and Natural Disasters ........................................................................................ 49 Drought and Emergency Drought Response ................................................................................. 50 Federal, State and County Awarded Grants and Special Allocations ........................................... 51 Substitution and Removal of Property .......................................................................................... 52 Limited Recourse on Default; No Acceleration of Base Rental ................................................... 52 Possible Insufficiency of Insurance Proceeds ............................................................................... 53 Limitations on Remedies .............................................................................................................. 53 Loss of 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 ................................................................................. 56 Articles XIIIC and XIIID of the California Constitution .............................................................. 57 Tiered Municipal Water Rate Structures After Capistrano Taxpayers Association Case ............. 58 Statutory Spending Limitations .................................................................................................... 59 Recent Initiative Measures Affecting State and Local Governments ........................................... 59 Future Initiatives ........................................................................................................................... 60 TAX MATTERS ........................................................................................................................................ 60 CERTAIN LEGAL MATTERS................................................................................................................. 62 ABSENCE OF MATERIAL LITIGATION .............................................................................................. 62 UNDERWRITING .................................................................................................................................... 63 RATINGS .................................................................................................................................................. 63 MUNICIPAL ADVISOR ........................................................................................................................... 63 TABLE OF CONTENTS (continued) Page -iii- 4159-8549-8385.4 CONTINUING DISCLOSURE ................................................................................................................. 63 MISCELLANEOUS .................................................................................................................................. 64 APPENDIX A GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA ...................................................................................................... A-1 APPENDIX B CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017 ................................................ B-1 APPENDIX C DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ......... C-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 4159-8549-8385.4 OFFICIAL STATEMENT $________* SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2018 (DOWNTOWN FIRE STATION 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 Bonds, Series 2018 (Downtown Fire Station 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 on January 1, 2019. 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 The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Bonds. See APPENDIX D – “BOOK-ENTRY ONLY SYSTEM” herein. The Bonds are subject to optional redemption, sinking fund redemption and extraordinary redemption from condemnation award or insurance proceeds 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) finance the construction of a new City fire station, fire training facilities and related improvements (the “Project”) and (ii) pay the costs incurred in connection with the issuance of the Bonds. See “PLAN OF FINANCE” 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, 2018 (the “Indenture”), by and among the Authority, the City of Santa Monica (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 and the improvements thereto (the “Property”) pursuant to a Lease Agreement, dated as of ______ 1, 2018 (the “Lease Agreement”), between the City, as lessee, and the Santa Monica Public Financing Authority (the “Authority”), as lessor. The City has leased the Property to the Authority pursuant to a Ground Lease, dated as of ______ 1, 2018 (the “Ground Lease”). See “THE PROPERTY.” 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 * Preliminary, subject to change. 2 4159-8549-8385.4 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. 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 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 will 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 Municipal Securities Rulemaking Board (“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 Underwriters in complying with SEC Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” herein for a description of the specific nature of the annual report and notices of 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 PRINCIPAL LEGAL DOCUMENTS.” 3 4159-8549-8385.4 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 on January 1, 2019. 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 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 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, 20__ shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after July 1, 20__, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. 4 4159-8549-8385.4 Extraordinary Redemption from 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. Mandatory Sinking Fund Redemption. The Bonds maturing on July 1, 20__, are 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) Principal Amount 20__ 20__ 20__† ________________ † Maturity Date. If some but not all of the Bonds maturing on July 1, 20__ are optionally redeemed, the principal amount of the Bonds maturing on July 1, 20__ to be subject to mandatory sinking fund redemption on any subsequent July 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by the Authority in a Written Certificate of the Authority filed with the Trustee; provided, however, that the aggregate amount of such reductions will not exceed the aggregate amount of the Bonds maturing on July 1, 20__ which are optionally redeemed. The Bonds maturing on July 1, 20__, are 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) Principal Amount 20__ 20__ 20__† ________________ † Final Maturity Date. If some but not all of the Bonds maturing on July 1, 20__ are optionally redeemed, the principal amount of the Bonds maturing on July 1, 20__ to be subject to mandatory sinking fund redemption on any subsequent July 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by the Authority in a Written Certificate of the Authority filed with the Trustee; provided, however, that the aggregate amount of such reductions will not exceed the aggregate amount of the Bonds maturing on July 1, 20__ which are optionally redeemed. 5 4159-8549-8385.4 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, at least 20 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 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 discre tion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. 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 re demption, 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 th erefor 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 6 4159-8549-8385.4 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 r egistered, 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. SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Pledge of Revenues The Bonds are payable from and secured by Lease Revenues and any other amounts held in the Payment Fund established under the Indenture. The term “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. 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 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 7 4159-8549-8385.4 amounts (including proceeds of the sale of the Bonds) held in the Payment Fund are pledged by the Authority pursuant to the Indenture to secure the payment of the principal of, and premium, if any, an d 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 term “Rental Period” means the period from the Delivery Date through [June 30, 2018] and, thereafter, the twelve-month period commencing on July 1 of each year during the term of the Lease Agreement. 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, 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 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 will 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 ; provided, however, that such conditions shall not apply to a release of the portion of the Public Safety Facility Property as described 8 4159-8549-8385.4 herein under the caption “THE PROPERTY.” 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 and the Ground Lease. See APPENDIX C – “DEFINITIONS AND SUMMARY OF 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’s rights 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 or terminate the Lease Agreement upon an Event of Default thereunder. 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 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 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 interes t on the Bonds. 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 fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due. All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority to 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 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 Payment Fund as are necessary to the Interest Account and the Principal Account 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.” 9 4159-8549-8385.4 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 OBLIGATE D 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) insurance premiums for all insurance required pursuant to the Lease Agreement; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of the Lease Agreement. 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 will provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasi oned by reason of the use or ownership of the Property. Such policy or policies will 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 will 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 PRINCIPAL LEGAL DOCUMENTS – The Lease Agreement – Insurance.” The City will 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 10 4159-8549-8385.4 insurable value will not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance will 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 PRINCIPAL LEGAL DOCUMENTS – The Lease Agreement – Insurance.” The City will 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 will 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 will be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such policies will contain a standard lessee clause in favor of the Trustee and the general liability insurance policies will be endorsed to show the Trustee, as an additional insured. All such policies will provide that coverage shall not be cancelled except with notice to the City of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee will 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 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 part 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 11 4159-8549-8385.4 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 repai r 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 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 PRINCIPAL LEGAL DOCUMENTS – The Lease Agreement – Abatement,” “– Substitution or Release of the Property” and “– Damage or Destruction.” ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Bonds are shown below. SOURCES Principal Amount of Bonds Plus Net Original Issue Premium Total Sources USES Deposit to Project Fund Cost of Issuance Fund (1) Total Uses (1) Includes legal, Municipal Advisory, underwriting, rating agency, printing fees and other miscellaneous costs of issuance. 12 4159-8549-8385.4 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 January 1, 2019 July 1, 2019 January 1, 2020 July 1, 2020 January 1, 2021 July 1, 2021 January 1, 2022 July 1, 2022 January 1, 2023 July 1, 2023 January 1, 2024 July 1, 2024 January 1, 2025 July 1, 2025 January 1, 2026 July 1, 2026 January 1, 2027 July 1, 2027 January 1, 2028 July 1, 2028 January 1, 2029 July 1, 2029 January 1, 2030 July 1, 2030 January 1, 2031 July 1, 2031 January 1, 2032 July 1, 2032 January 1, 2033 July 1, 2033 January 1, 2034 July 1, 2034 January 1, 2035 July 1, 2035 January 1, 2036 July 1, 2036 January 1, 2037 July 1, 2037 January 1, 2038 July 1, 2038 January 1, 2039 July 1, 2039 January 1, 2040 July 1, 2040 January 1, 2041 July 1, 2041 January 1, 2042 July 1, 2042 January 1, 2043 July 1, 2043 January 1, 2044 July 1, 2044 January 1, 2045 July 1, 2045 January 1, 2046 July 1, 2046 January 1, 2047 July 1, 2047 January 1, 2048 July 1, 2048 Total 13 4159-8549-8385.4 PLAN OF FINANCE Net proceeds of the Bonds will be applied to fund (i) the construction of a new 28,690 square foot state-of-the-art fire station to be named Fire Station 1 (headquarters) (the “Fire Station Project”), and (ii) the construction of a new fire training facility (the Fire Training Facilities Project”). As defined herein, the term “Project” means, collectively, the Fire Station Project and the Fire Training Facilities Project. The Fire Station Project will be constructed on a City owned parcel on 7th Street, across from the City’s Main Library, between Arizona Avenue and Santa Monica Boulevard. The Fire Station Project will comprise part of the Property. See “THE PROPERTY” below. The Fire Station Project has been designed to serve the community for the next 50 years. Net proceeds of the Bonds in an amount of approximately $______, together with approximately $6.5 million of City funds, are projected to be applied to pay costs of the Fire Station Project. A portion of the costs of the Fire Station Project including the acquisition of land was funded with general funds of the City including as a result of a land swap. The Fire Training Facilities Project will be constructed at the site of existing City fire facilities located at the City Yards, a 14.7-acre site owned and operated by the City and located at 2500 Michigan Avenue, near the intersection of 24th Street and Michigan Avenue. The City Yards surrounding the Fire Training Facilities Project is used as a base for the City’s maintenance operations, storage facilities, and other industrial uses. The scope of the project includes the demolition of the current fire department training trailers, the Quonset hut and the fire department environmental building and improvements to create a new training drill yard, including new environmental burn building, and the conversion to a set of classrooms and offices for training purposes. Net proceeds of the Bonds in an amount of approximately $______ will be applied to the costs of the Fire Training Facilities Project. The City currently expects to commence construction of the Fire Station Project in June 2018 and the Fire Training Facilities Project in March 2019, and to complete each component by September 2020. THE PROPERTY The Property consists of the real property and the improvements thereto constituting the Fire Station Project located on 7th Street, across from the City’s Main Library, between Arizona Avenue and Santa Monica Boulevard and, initially, an approximately one acre parcel of real property and the improvements thereto generally consisting of the City’s Public Safety Building located immediately east of City Hall at 333 Olympic Drive, at the corner of 4th Street and Olympic Drive. The term “Property” means the real property particularly described in the Ground Lease and the Lease Agreement and any improvements thereto, subject to the provisions of the Ground Lease and the Lease Agreement relating to (i) the substitution and release of property and (ii) the termination of the term of the Ground Lease and the Lease Agreement with respect to the one acre parcel of real property and the improvements thereto generally consisting of the City’s Public Safety Building referred to as the “Public Safety Facility Property.” Public Safety Facility Property and Release of Public Safety Facility Property as a Component of the Property. The Public Safety Facility Property is the site of a $47 million 117,000 square foot, four- story specialized office building housing the City’s police and fire department central operations, municipal jail, emergency operations center and 100 spaces of subterranean parking (the “Public Safety Facility”). The Public Safety Facility is located at 333 Olympic Drive, between the Santa Monica Freeway, Olympic Drive and 4th Street and is considered a part of the City’s Civic Center area. Construction of the Public Safety Facility was completed, and the building was dedicated in August 2003. Revenue Bonds were issued in 1999 and 2002 which generated project funds of approximately $26.7 million. These funds, together with approximately $33.5 million of City funds were applied to finance the Public Safety Facility. Final 14 4159-8549-8385.4 project costs included $2.6 million for construction of an Olympic Drive Extension that runs between Fourth Street and Main Street and $3.3 million for facility equipment. The Public Safety Facility is the City’s first major facility designed and built with the intent of minimizing its lifecycle impact on the natural environment while providing for the health and comfort of the building’s occupants. As a measure of its sustainability, the structure is the first City facility to be awarded the US Green Building Council’s LEED Silver certification. Upon completion of the construction of the Fire Station Project and the use and occupancy thereof, evidenced by the filing with the Trustee of a Written Certificate of the City stating that the construction of the Fire Station Project has been completed and that the City has use and occupancy thereof, the Public Safety Facility Property is expected to be automatically released from among the leased property under the Lease Agreement and the Ground Lease. The Ground Lease provides that so long as no Event of Default shall have occurred and be continuing under the Lease Agreement, the term of the Ground Lease and the Lease Agreement with respect to the Public Safety Facility Property will terminate on the date that such Written Certificate of the City to the effect that the construction of the Fire Station Project has been completed and that the City has use and occupancy thereof is filed with the Trustee, unless such term is sooner terminated as provided in the Ground Lease and the Lease Agreement, and, from and after the date of such termination (i) the description of such portion of the Property set forth in the Ground Lease and the Lease Agreement shall be deemed to have been deleted therefrom and the term “Property” shall, for all purposes of the Ground Lease and the Lease Agreement, be deemed not to include such property, and (ii) all right, title and interest in and to the portion of the Public Safety Facility Property shall vest in the City (in connection with which, the Authority shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record). 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 and the Ground Lease. See APPENDIX C – “DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – The Lease Agreement – Substitution and Removal of Property.” 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, as amended, by and between the City and the former Redevelopment Agency of the City of Santa Monica. Pursuant to California Health & Safety Code Section 34178(b)(3), joint powers agreements in which the former redevelopment agency is a member of the joint powers authority remain valid and bind the successor agency, subject to the constraints on the successor agency under the redevelopment agency dissolution law. 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 as 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. 15 4159-8549-8385.4 CITY OF SANTA MONICA General The City of Santa Monica is situated on the western side of Los Angeles County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. The City encompasses an area slightly greater than eight square miles and, as of January 1, 2017, had an estimated residential population of 93,834 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, 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, voted at-large, 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. 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 – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” Accompanying the Independent Auditor’s Report in Appendix B are introductory materials entitled the City’s Letter of Transmittal, and Management’s Discussion and Analysis, which are not audited, but provide additional summary detail on the City’s operations and finances. Each should be reviewed in conjunction with the information presented below to obtain an understanding of the City’s financial condition. The City’s Management’s Discussion and Analysis is supplementary information required by the Government Accounting Standards Board. 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 16 4159-8549-8385.4 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 [33] 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 the following July 1. Study sessions and public hearings are conducted by the City Council to obtain City 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. The Fiscal Year 2017-19 Adopted Biennial Budget incorporates a new framework that provides the structure for an overarching program laying out core values, establishing objectives, and measuring progress made on those objectives. This begins the City’s shift towards a unified performance management system called SaMoStat. This framework will be used to make resource and programmatic decisions, and to address operational challenges, including how to most effectively meet the needs for services using increasingly limited resources. In addition to the new framework structure, the City has taken steps to control costs in the Fiscal Year 2017-19 Adopted Budget and beyond by reallocating over $4 million in General Fund budget to areas requiring additional focus, rather than adding resources. See “General Fund Financial Summary” below for a summary of the City’s general fund budget for Fiscal Years 2017-19. 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 2016-17, the five major tax sources listed above accounted for between [8% and 15%], each, of General Fund revenues. For Fiscal Year 2017-18, the five major tax sources are projected to account for between 7% and 17%, each, of General Fund revenues. See APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” 17 4159-8549-8385.4 The following table sets forth General Fund tax revenues received by the City during the last five fiscal years, and projected to be received during the current fiscal year, by source: Table 1 City of Santa Monica Tax Revenues by Source (1) For Fiscal Years 2012-13 through 2017-18 (dollars in thousands) Fiscal Year Ended June 30 Source 2013 2014 2015 2016 2017 2018 (3) Utility User’s Tax $ 31,450 $ 32,817 $ 32,066 $ 30,773 $ 29,438 $ 29,573 Sales Taxes 47,881 49,210 51,090 54,803 54,505 69,043 Property Taxes (2) 44,392 50,114 55,044 50,452 56,424 57,875 Transient Occupancy Tax 40,997 44,396 47,629 51,021 55,532 60,400 Business License Taxes 27,518 29,783 30,354 30,799 30,712 31,800 Parking Facility Taxes 9,954 10,598 11,072 10,718 11,231 11,000 Vehicle License Fees 48 39 38 38 42 0 Real Property Transfer Tax 6,027 6,273 7,903 7,851 10,952 8,000 Condominium Taxes 18 14 45 73 38 30 Total $208,285 $223,244 $235,241 $236,528 $248,874 $267,721 _______________________ (1) Does not include Highway Users’ Taxes which are recorded in the Gas Tax Fund, Unit Dwelling Taxes, which are recorded in the Parks and Recreation Facilities Fund, or TORCA (Tenant Ownership Rights Charter Amendment) 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 backfill payments, redevelopment and successor agency statutory pass through and residual payments to the City. See “Sales Tax” and “Vehicle License Fee Reduction” below. (3) Projected for Fiscal Year ending June 30, 2018. Source: City of Santa Monica Finance Department. A brief discussion of Property Taxes, Transient Occupancy Taxes, Sales Taxes, Utility User’s Taxes, and Business License Taxes follows: Property Taxes. Property Tax receipts of approximately $56.4 million received during Fiscal Year 2016-17 represented the largest major tax revenue source for the City, contributing approximately 22.7% of General Fund tax revenues and approximately 15% of total General Fund revenues during Fiscal Year 2016-17. For Fiscal Year 2017-18, projected property tax receipts allocable to the General Fund are projected to be approximately $57 million or approximately 14.4% of total General Fund revenues. 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 $1.3 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 2016-17 was approximately 2%. Los Angeles County does not offer “Teeter Plan” advances (i.e., the alternative method of distribution of tax levies and collections and of tax sale proceeds, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code). Transient Occupancy Tax. Transient occupancy tax receipts of approximately $55.5 million received during Fiscal Year 2016-17 represented the second largest revenue source for the City in Fiscal Year 2016-17, contributing approximately 22.3% of General Fund tax revenues and approximately 14.7% of total General Fund revenues during Fiscal Year 2016-17. For Fiscal Year 2017-18, projected transient occupancy tax receipts allocable to the General Fund are projected to be approximately $60.4 million or 18 4159-8549-8385.4 approximately 15.1% of total General Fund revenues. A transient occupancy tax (“T OT”) 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 primarily 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.” Sales Tax. Sales tax receipts of approximately $54.5 million received during Fiscal Year 2016-17 represented the third largest tax revenue source for the City, contributing approximately 21.9% of General Fund tax revenues and approximately 14.5% of total General Fund revenues during Fiscal Year 2016-17. For Fiscal Year 2017-18, projected sales tax receipts allocable to the General Fund are projected to be approximately $69 million or approximately 17.2% of total General Fund revenues, making it the largest revenue source in Fiscal Year 2017-18. 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 7.25%. Effective July 1, 2017, the newly established California Department of Tax and Fee Administration (“CDTFA”) collects and administers the tax, makes distributions on taxes collected within the City, and transfers tax receipts to the City’s General Fund each month. The total sales tax rate within the City is currently 10.25 % as increased most recently with the July 1, 2017 effective date of Los Angeles County Metropolitan Transportation Authority Measure M (as described below). Total sales taxes are collected and administered by the CDTFA subject to further administration and allocation applicable to each tax measure. Additional sales tax totaling 2% are authorized locally under Propositions A and C and Measures R and M by the Los Angeles County Metropolitan Transportation Authority for transportation including bus, rail and some streets and road projects. These funds are collected by the CDTFA 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 ½ 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 (“SMMUSD”) also passed. Pursuant to Measure YY, the City is currently sharing 50% of Measure Y revenues with SMMUSD. Measure Y has no sunset provision. The CDTFA collects and administers the tax, makes distributions on taxes collected within the City. Additionally, on November 8, 2016, Santa Monica voters approved Measure GSH, which added another ½ cent to the City’s transaction and use tax. Beginning on April 1, 2017, eligible transactions have been subject to this tax. A non-binding Measure GS calling for 50% of the tax to be paid used to improve and maintain local schools and the other 50% to be used for affordable housing purposes also passed. The additional tax is expected to generate revenues of approximately $16 million annually. Like Measure Y, Measure GSH has no sunset provision and the CDTFA collects and administers the tax and makes distributions on taxes collected within the City. Approximately $18.2 million of Measure Y and Measure GSH revenue was received in Fiscal Year 2016-17, of which approximately $9.1 million was paid to the SMMUSD. 19 4159-8549-8385.4 On November 8, 2016, Los Angeles County voters approved Measure M, which increased the County-wide sales tax rate by an additional ½ cent with the proceeds to be used for traffic improvement. Beginning on July 1, 2017, eligible transactions have been subject to this tax. Measure M is administered similar to Propositions A, Proposition C, and Measure R, with a portion of the proceeds returned to cities for use on approved projects. As of July 1, 2017, the total sales tax rate is 10.25% in the City. In March 2017, Los Angeles County voters approved Measure H, which further increased the County-wide sales tax rate by another ¼ cent with the proceeds used for homeless services. The ¼ cent tax applies to unincorporated areas of the County and cities located in the County except for those cities currently at the cap (i.e. the City along with six other cities). However, since this would effectively raise the aggregate tax rate applicable in the City above the State-wide maximum amount, there is a question whether this ¼ cent can be collected in the City. The sales tax increase raise s the rate in most cities in the County (other than the City) to 9.5% effective October 1, 2017. A trailer bill in the fiscal year 2017-18 State budget authorized the CDTFA to begin collection of the Measure H sales tax with respect to the seven cities currently at the cap, once the existing district tax expires, at which point Measure H tax will be applied in such cities, respectively. Like Measure Y and Measure GSH above, the CDTFA collects and administers the tax and makes distributions on taxes collected within the City. The Measure H sale tax will terminate in 2027, ten years after its effective date. The CDTFA began operation on July 1, 2017 following the enactment of the Taxpayer Transparency and Fairness Act of 2017 which restructured the State Board of Equalization into three separate entities: The State Board of Equalization, the CDTFA and the Office of Tax Appeals. The State Board of Equalization remains independent from any agency, and retains its constitutional responsibilities, including reviewing, equalizing, or adjusting property tax assessments, assessing taxes on insurers, and assessing/collecting excise taxes on alcoholic beverages. CDTFA is housed within the Government Operations Agency and handles most of the taxes and fees previously collected by the Board of Equalization, including sales and use tax. The Office of Tax Appeals is an independent entity which began its full operations and hearing appeals in January 1, 2018. Utility User’s Tax. Utility user’s tax receipts of approximately $29.4 million received during Fiscal Year 2016-17 represented a major tax revenue source for the City, contributing approximately 11.8% of General Fund tax revenues and approximately 7.8% of total General Fund revenues during Fiscal Year 2016-17. For Fiscal Year 2017-18, projected utility user’s tax receipts allocable to the General Fund are projected to be approximately $29.6 million or approximately 7.4% of total General Fund revenues. 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 Jul y 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 $33,941 or $29,619 for persons living alone (as of July 1, 2017). 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. 20 4159-8549-8385.4 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. Business License Tax. Business license tax receipts of approximately $30.1 million received during Fiscal Year 2016-17 were an additional significant source of tax revenue for the City contributing approximately 12.3% of General Fund tax revenues and approximately 8.2% of total General Fund revenues during Fiscal Year 2016-17. For Fiscal Year 2017-18, projected business license tax receipts allocable to the General Fund are projected to be approximately $31.8 million or approximately 7.9% of total General Fund revenues. 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, a real property transfer tax and other local taxes, which have contributed approximately $11.2 million and $11 million, respectively, in Fiscal Year 2016-17, or approximately 8.9% of total General Fund tax revenues and approximately 5.9% of total General Fund revenues, respectively. For Fiscal Year 2017-18, parking facility tax and real property transfer tax receipts allocable to the General Fund are projected to be approximately $11 million and $8 million, respectively, or approximately 7.1% of total General Fund tax revenues and approximately 4.7% 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 1A (“Proposition 1A”), 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 allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A 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 1A 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 1A 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 1A’s effect on State finances could be the opposite of its effect on local finances. Specifically, Proposition 1A 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. 21 4159-8549-8385.4 Principal Property Taxpayers The ten principal property taxpayers in the City and their taxable assessed values are listed below. Table 2 City of Santa Monica Principal Property Taxpayers For Fiscal Year 2016-17 (Based on Taxes Paid) Taxpayer Taxable Assessed Value Rank Percentage of Total City Taxable Assessed Value Douglas Emmett $ 547,074,326 1 1.59% California Colorado Center LLC 522,173,133 2 1.52% Water Garden Company 506,872,745 3 1.47 SC Enterprises SMBP LLC 384,995,726 4 1.12 Macerich Santa Monica Place LP 341,156,838 5 0.99 Lantana Media Campus LLC 331,344,168 6 0.96 Office Block Investment LLC 294,257,185 7 0.85 Prudential Insurance 195,768,536 8 0.57 Hart Arboretum LLC 177,989,582 9 0.52 Equity Office Properties Trust 159,974,319 10 0.46 Assessed Value $ 3,461,606,558 10.05% Total City Net Taxable Assessed Value $34,427,831,562 ____________________ Source: City of Santa Monica Finance Department; Los Angeles County Auditor-Controller. Federal, State and County Awarded Grants and Special Allocations Unpredictable federal funding is a significant risk factor for the City’s budget. In May 2017, the Trump administration released its 2018 Federal Budget Proposal, which included cuts to funding that provide programs to residents of the City with the greatest need and fewest options. This includes grants relating to local law enforcement and federal immigration law enforcement. A review of Fiscal Year 2016- 17 funding sources for the City’s 20 Human Services Grants Program (HSGP) funded agencies demonstrated an expectation of approximately $21 million in total federal funding, or approximately 13% of the HSGP-funded agencies’ total budgets. In addition, the HSGP agencies report a $65 million reliance on other State and local government sources--portions of which could also originate from federal sources- -for an additional 40% of their agencies’ budgets. City staff estimates that the annual impact of such federal funding cuts to the City’s programs could be approximately $1.5 million. Although the 2018 Federal Budget ultimately kept funding intact, similar valid concerns remain. The 2019 Federal Budget Proposal, released in February 2018, again contains reductions to these programs. See “RISK FACTORS – Federal, State and County Awarded Grants and Special Allocations.” General Fund Financial Summary The information contained in the following tables of revenues, expenditures and chan ges in fund balance, and assets and liabilities has been derived from the City’s audited financial statements for Fiscal Years 2014-15 through 2016-17. 22 4159-8549-8385.4 The City’s audited financial statements for the Fiscal Year ended June 30, 2017 are attached as APPENDIX B hereto. Audited financial statements for prior years are available upon request from the Finance Department of the City. 23 4159-8549-8385.4 Table 3 City of Santa Monica General Fund Balance Sheet For Fiscal Years 2014-15 through 2016-17 2014-15 2015-16 2016-17 ASSETS Cash and investments $289,983,870 $289,473,976 $330,310,664 Restricted cash and investments 59,998,642 57,888,970 662,292 Receivables (net, where applicable, of allowances for uncollectibles): Accounts 62,057,677 62,265,738 3,059,315 Notes 17,488,870 17,488,869 -- Property taxes -- -- 13,619,312 Interest 745,079 915,273 1,132,379 Other governments -- 1,165 -- Settlement -- -- 36,534,600 Due from other funds 1,330,116 12,597,387 6,546,066 Due from Successor Agency -- -- -- Deposits 58,528 58,528 58,528 Prepaids 2,913,201 3,170,826 3,031,020 Restricted cash and investments with fiscal agent 13,142,231 24,194 45,697 Advances to other funds 16,901,899 13,695,090 12,591,944 Advances to Successor Agency 24,155,332 -- -- Notes Receivable Successor Agency -- 9,415,999 9,229,255 Total assets $488,775,445 $466,996,015 $416,821,071 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities Accounts payable $ 12,051,854 $ 14,118,138 $ 12,926,515 Accrued liabilities 8,638,341 10,357,327 6,789,103 Contracts payable (retained percentage) 195,883 166,110 135,651 Due to other funds -- -- 1,056,350 Due to Successor Agency 19,149,678 -- -- Due to other governments -- -- -- Unearned revenue 7,710,102 6,712,460 6,996,452 Deferred revenue -- -- -- Deposits payable 690,040 709,776 709,413 Total liabilities 48,435,898 32,063,811 28,613,484 Deferred inflows of resources 65,315,519 47,857,485 41,909,066 Fund balance Nonspendable 23,725,864 21,062,205 15,419,253 Restricted 17,951,299 18,330,042 1,976,576 Committed 520,574 31,365 4,760,409* Assigned 218,630,183 280,303,334 256,059,633 Unassigned 114,196,108 67,347,773 68,082,651 Total fund balance 375,024,028 387,074,719 346,298,522 Total liabilities, deferred inflows of resources, and fund balance $488,775,445 $466,996,015 $416,821,072 _________________________ * Of this amount, approximately $3.3 million relates to a note between the Successor Agency and the City to be applied for affordable housing purposes and $1.5 million constitutes Measure GSH funds committed to SMMUSD, being held pending execution of a new contract between the City and SMMUSD. This statement is a summary statement only. The complete Comprehensive Annual Financial Report of the City, including the Not es to the Financial Statements therein, is an integral part of this statement. For Fiscal Year 2016-17 results, see APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” Source: City of Santa Monica Comprehensive Annual Financial Reports for Fiscal Years 2014-15 through 2016-17. 24 4159-8549-8385.4 Table 4 City of Santa Monica General Fund Statement of Revenues and Expenditures For Fiscal Years 2014-15 through 2016-17 2014-15 2015-16 2016-17 Revenues: Property taxes $ 55,044,307 $ 50,452,377 $ 56,423,891 Sales taxes 51,089,716 54,802,839 54,505,239 Other taxes * 129,105,916 131,272,639 137,944,686 Licenses and permits 39,370,036 41,275,058 43,030,564 Intergovernmental 1,594,357 1,580,683 1,428,595 Charges for services 37,332,249 42,737,262 44,843,264 Fine and forfeitures 16,287,290 15,904,736 15,461,662 Investment income 3,313,550 4,837,627 1,599,570 Rental income 9,504,058 9,879,905 7,995,682 Settlement income 2,433,175 2,433,175 6,103,175 Other 7,604,408 7,404,283 7,480,204 Total revenues $352,679,062 $362,580,584 $376,816,532 Expenditures: Current: General government $ 74,087,552 $ 60,750,267 $ 69,932,931 Public safety 114,939,986 130,240,269 132,310,633 General services 52,416,042 60,457,816 69,152,644 Cultural and recreation services 41,234,941 44,386,771 45,420,178 Library 12,025,143 12,641,931 12,440,156 Housing and community development 26,398,364 31,437,603 28,948,014 Debt Service - Principal -- 2,553,463 -- Bond issue costs -- 535,048 -- Total expenditures 321,102,028 343,003,168 358,204,556 Excess (deficit) of revenues over expenditures 31,577,034 19,577,416 18,611,976 Other financing sources (uses): Transfers in 9,358,120 3,583,551 9,101,133 Transfers out (10,357,844) (12,883,337) (31,749,870) Proceeds from issuance of long-term debt -- -- -- Proceeds from issuance of refunding bonds -- 26,360,000 -- Premium on debt issued -- 2,020,710 -- Payment to refunded bond escrow agent -- (27,826,666) -- Total other financing sources (uses) (999,724) (8,745,742) (22,648,737) Extraordinary item: Extraordinary item** (21,564,585) (2,591,510) (36,739,436) Extraordinary gain -- 324,615 -- Net change in fund balance 9,012,725 8,564,779 (40,776,197) Fund balance at beginning of year 366,011,303 378,509,940 387,074,719 Fund balance at end of year $375,024,028 387,074,719 $346,298,522 _________________________ * Includes transient occupancy taxes, utility user taxes, business license taxes, and other taxes. ** Represents for Fiscal Year 2014-15, an obligation to the Successor Agency, for Fiscal Year 2015-16, the write-off of a loan to the Santa Monica Airport t, and for Fiscal Year 2016-17, a pay down of the CalPERS unfunded liability. 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 2016-17 results, see APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” Source: City of Santa Monica Comprehensive Annual Financial Reports for Fiscal Years 2014-15 through 2016-17. 25 4159-8549-8385.4 The following table sets forth the budgetary information for Fiscal Years 2015-16 and 2016-17 and the budget for Fiscal Year 2017-18 as approved by the City Council on June 27, 2017 and revised as of 26 4159-8549-8385.4 _____ __, 2018. The City currently expects no materially adverse changes in year end 2017-18 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 2015-16 through 2017-18 Fiscal Year 2015-16 Actual Fiscal Year 2016-17 Actual Fiscal Year 2016-17 Revised Budget Fiscal Year 2017-18 Adopted Budget Fiscal Year 2017-18 Revised Budget Revenues: Property Taxes $ 50,452,377 $ 56,423,890 $ 56,173,376 $ 57,688,119 $ 57,875,318 Sales Taxes 54,802,839 54,505,239 55,191,000 71,079,000 69,043,000 Other Taxes 131,272,639 137,944,687 133,236,000 135,257,000 140,803,000 Licenses and Permits 41,275,058 43,030,564 44,875,283 45,803,373 41,468,244 Intergovernmental 1,580,683 1,428,595 1,361,898 1,181,673 1,181,673 Charges for Services 42,737,262 44,843,264 40,716,964 41,521,035 43,859,376 Fine and Forfeitures 15,904,736 15,461,662 16,245,000 15,694,057 15,770,057 Investment Income 4,837,627 1,599,570 3,700,000 4,727,000 5,600,000 Other 19,717,363 21,579,061 18,732,455 18,809,947 25,569,738 Total Revenues $362,580,584 $376,816,532 $370,231,976 $391,761,204 $401,170,406 Operating Appropriations: City Council $ 996,380 $ 853,161 $ 1,328,718 $ 969,117 $ 1,390,165 City Manager 14,312,756 11,706,759 12,772,362 12,050,201 12,880,438 Records and Election Services 2,313,393 2,998,237 3,051,236 2,596,129 2,577,888 Finance 12,151,776 13,068,057 13,675,470 15,100,051 15,023,457 City Attorney 10,332,201 13,270,352 11,316,926 11,433,371 11,320,834 Human Resources 4,259,286 4,453,331 4,552,646 4,964,956 4,949,346 Information Services 8,638,442 7,874,321 7,865,428 8,605,398 8,556,074 Planning and Community Development 31,448,379 34,569,409 36,634,641 34,457,439 34,821,557 Police 79,625,505 84,685,681 85,602,866 85,669,292 85,497,811 Fire 36,757,886 38,874,570 40,225,186 40,693,359 41,276,439 Community and Cultural Services 25,431,802 26,814,254 27,811,612 27,664,334 27,614,072 Library 11,743,215 12,307,797 13,092,897 12,910,497 12,822,315 Public Works 41,370,815 48,276,445 49,191,970 51,179,421 50,830,845 Housing and Economic Development 5,260,772 5,175,425 5,744,048 6,201,731 6,881,252 Non-Departmental 38,251,443 61,742,951 33,748,210 45,042,758 45,965,196 Subtotal $322,894,051 $366,670,750 $346,614,216 $359,538,054 $362,407,689 Interfund Transfers (7,844,218) 22,648,737 (6,093,923) (335,713) (741,259) Total Operating Expenditures $315,049,833 $389,319,487 $340,520,293 $359,202,341 $361,666,430 Operating Surplus Available for Capital Projects $ 47,530,751 ($ 12,502,955) $ 29,711,683 $ 32,558,863 $ 39,503,976 Less: Capital Projects $ 34,581,663 $ 28,273,242 $100,676,354 $146,221,789 $218,768,510 Fiscal Year Revenues Less Appropriations for Operating and Capital * $ 12,949,088 ($ 40,776,197) ($ 70,964,671) ($113,662,926) ($179,264,534) _________________________ * Negative balances signify use of reserves specifically set aside for use on capital projects. Source: City of Santa Monica Finance Department. 27 4159-8549-8385.4 The biennial budget for Fiscal Year 2017-18 and 2018-19 anticipates a $0.3 million deficit in Fiscal Year 2020-21 and $10.6 million in Fiscal Year 2021-22 due primarily to a 37% increase in pension costs as a result of policy changes made by the California Public Employees Retirement System (CalPERS) that impact pension contributions, as well as increases in healthcare and workers’ compensation costs. 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. 2 8 4159-8549-8385.4 Table 6 City of Santa Monica Assessed Value of Taxable Property For Fiscal Years 2008-09 through 2017-18 (dollars in thousands) Fiscal Year Land Improvements Personal Property Public Utilities Secured Gross Exemptions (1) Secured Net Net Unsecured Net Assessed Valuations Total Direct Tax Rate (2) 2008-09 $13,460,087 $ 9,640,425 $228,271 $742 $23,329,524 $ 904,661 $22,424,864 $987,849 $23,412,713 1.00 2009-10 13,972,767 9,978,675 234,194 742 24,186,379 1,134,967 23,051,412 969,009 24,020,421 1.00 2010-11 13,795,191 10,070,986 230,387 742 24,097,305 1,095,461 23,001,845 880,331 23,882,176 1.00 2011-12 14,235,295 10,349,621 228,784 742 24,814,442 1,073,027 23,741,415 902,707 24,644,122 1.00 2012-13 14,828,199 10,846,677 370,673 742 26,046,292 1,222,722 24,823,570 942,035 25,765,605 1.00 2013-14 16,046,789 11,701,427 402,171 742 28,151,130 1,573,052 26,578,078 936,031 27,514,109 1.00 2014-15 16,867,678 12,433,379 437,194 742 29,738,993 1,609,033 28,129,960 916,381 29,046,341 1.00 2015-16 17,890,583 12,932,934 472,362 -- 31,295,879 1,042,924 30,252,955 902,502 31,155,457 1.00 2016-17 19,308,450 13,550,065 48,643 -- 32,907,158 653,548 32,253,610 906,371 33,159,981 1.00 2017-18 20,799,168 14,235,956 124,391 -- 35,159,515 1,656,924 33,502,591 925,241 34,427,832 1.00 __________________________ (1) Includes homeowner exemption. The City is reimbursed by the State for taxes lost because of these exemptions. (2) Excludes direct and overlapping Rates. See Table 11 for overlapping debt rates. Source: Los Angeles County Auditor-Controller. 29 4159-8549-8385.4 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 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one-half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax-defaulted property is subject to sale by the Treasurer and Tax Collector of the County of Los Angeles. Los Angeles County does not offer “Teeter Plan” advances (i.e., the alternative method of distribution of tax levies and collections and of tax sale proceeds, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code). 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 ten fiscal years, together with the total amounts and percentages of taxes uncollected as of June 30 of each fiscal year. 3 0 4159-8549-8385.4 Table 7 City of Santa Monica Property Tax Rates, Secured Levies and Collections and Delinquencies For Fiscal Years 2007-08 through 2016-17 Fiscal Year Total Secured Tax Levy Current Secured Tax Collections Percent of Levy Collected Delinquent Secured Tax Collections (1) Total Tax Collections Total Secured Tax Collections as Percent of Total Tax Levy Outstanding Delinquent Taxes (2) Outstanding Delinquent Taxes as Percent of Total Secured Tax Levy 2007-08 $20,654,045 $19,309,774 93.5% $ 528,207 $19,837,981 96.0% $442,105 2.1% 2008-09 22,439,401 21,195,066 94.5 1,237,357 22,432,423 100.0 662,983 3.0 2009-10 22,585,685 21,724,105 96.2 1,262,484 22,986,589 101.8 690,928 3.1 2010-11 22,293,648 21,759,685 97.6 937,340 22,697,025 101.8 669,232 3.0 2011-12 23,211,627 22,641,826 97.5 645,927 23,287,753 100.3 661,315 2.8 2012-13 23,446,717 23,428,590 99.9 713,956 24,142,546 103.0 585,417 2.5 2013-14 25,173,273 24,689,372 98.1 570,037 25,259,409 100.3 512,940 2.0 2014-15 26,567,114 26,190,114 98.6 600,642 26,790,756 100.8 438,248 1.6 2015-16 25,198,360 27,662,256 109.8 512,080 28,174,336 111.8 358,568 1.4 2016-17 30,859,806 30,545,235 99.0 489,991 31,035,226 100.6 375,288 1.2 __________________________ (1) Exclusive of penalties and collections related to tax overrides for debt service on general obligation bonds. (2) Reflects City of Santa Monica proportionate share of county-wide outstanding delinquencies. The Los Angeles County property tax system does not provide City of Santa Monica specific st atistics related to delinquencies. Should the County change their system to include specific city data, the table will be u pdated to adjust delinquent taxes by year. Source: Los Angeles County Auditor-Controller. 31 4159-8549-8385.4 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 of unobligated cash and cash -equivalent balances previously held by the Successor Agency as identified in the Due Diligence Reviews. The settlement was paid in full on January 14, 2015. On January 16, 2015, the DOF issued a Finding of Completion to the Agency, allowing it to apply for repayment of previously-denied City/Agency agreements, and starting the process for the preparation of a Long Range Property Management Plan (LRPMP), which details disposition of the various Successor Agency properties. The LRPMP was approved on December 29, 2015, and during the course of fiscal year 2015-16, the DOF approved the repayment of three City/Agency loans. As a result, it is anticipated that the City will receive approximately $70 million in repayment over a period of 8 years. 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. In addition, the DOF 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 governmental purpose assets and are therefore exempt from disposition as required under redevelopment dissolution law. The State Controller’s Office completed its review of assets transferred from the Former RDA to the City and on June 30, 2015 the State Controller’s Office issued its final report. The report identified $19,149,678 in unauthorized transfers from the Successor Agency to the City which has been transferred back to the Successor Agency. A portion of these funds was used to pay do wn an outstanding loan with Wells Fargo Bank on July 1, 2017. One of the consequential benefits to the City of redevelopment dissolution 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. The most significant and lasting impacts of the dissolution of redevelopment for the City are the loss of ongoing funding for affordable housing rehabilitation and production in the City, and the suspension of the Civic Center Joint Use Project with SMMUSD and the rehabilitation of the Civic Auditorium. However, the passage of Measures GS and GSH established a regular, albeit decreased, revenue stream to fund affordable housing. 32 4159-8549-8385.4 Dependence on State for Certain Revenues State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst 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 neither the Authority nor the City takes responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. 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.ca.gov, under the heading “California Budget.” An impartial analysis of the State budget is posted by the Office 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 Underwriters, and the City and the Underwriters 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 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the “Governor’s Budget”). Under State law, the annual proposed Governor’s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior 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. 33 4159-8549-8385.4 According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. The budget requires a simple majority vote of each house of the State Legislature for passage. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. A two–thirds vote of the State Legislature is required to override any veto by the Governor. The Governor signed the fiscal year 2016-17 State budget on June 27, 2016. The Governor signed the fiscal year 2017-18 State Budget on June 27, 2017. [Current State Budget and May Revision Disclosure to Come] The City cannot predict how State income funding available to local agencies will vary over the term to maturity of the Bonds, and the City takes no responsibility for informing owners of the Bonds as to actions the State Legislature or Governor may take affecting the current year’s budget after its adoption. Future Budgets and Budgetary Actions The City cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years. The State budget will be affected by national and State economic conditions and other factors beyond the City’s ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State’s ability to fund local agencies in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the City. 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. In addition, the Committee will include one other department head serving one-year terms on a rotating basis and one member of the public. 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. 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. 34 4159-8549-8385.4 (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 City’s investment policy dictates certain socially responsible guidelines for the investment of the City’s excess funds including a prohibition of investments in fossil fuel-related companies and banks which fund those companies. In an effort to enhance the socially responsible nature of the City’s investment portfolio, City staff began to research and analyze green bonds as a potential investment alternative. Investments in green bonds are otherwise required to meet the City’s legal and strategic investment parameters. As of December 31, 2018, the City’s portfolio has a total of $[11] million in green bonds. 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 February 2018 (the “February 2018 Cash and Investment Report”) provides a monthly summary review of the City’s investment portfolio and cash position. As of February 28, 2018, the value of cash and investments held in the pooled portfolio (excluding investments held in trust by third parties such as bond proceeds, perpetual care funds and other escrow accounts) was $___ million. The February 2018 Cash and Investment Report shows an aggregate value $___ million [greater than for the same period last year primarily due to several large one-time cash receipts received in that period]. The pooled portfolio yield-to-maturity of ____% was ___ basis points higher than the prior month and ___ basis points higher than in _____ 2017. Net investment earnings for the month on a cash basis were $___ million. Fiscal year-to-date earnings as of February 28, 2018 were ____% greater than for the same period last year. As of February 28, 2018, the market value of the City’s portfolio was approximately $___ million less than the unamortized book value (purchase price). As of February 28, 2018, the average weighted days-to- maturity was ____ days (____ years). In addition to the pooled portfolio, the City’s total cash holdings as of February 28, 2018 included $___ million in debt proceeds held in trust with various fiscal agents, $___ million in other funds held in trust, and $___ in petty cash/change funds for a total balance of $___ million. The Monthly Report dated February 28, 2018, indicates that: _______% of the City’s pooled investment portfolio (approximately $___ million) was invested in Federal Agency securities; ____% (approximately $___ million) was invested in corporate bonds; ____% (approximately $___ million) was invested in the Local Agency Investment Fund of the State (LAIF); ____% (approximately $___ million) was invested in suprationals; ____% (approximately $___ million) was held as cash in a general bank account; ____% (approximately $___ million) was invested in State of California obligations; and ____% 35 4159-8549-8385.4 (approximately $___ million) was held in Federal Treasury Bills. Supranational organizations are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. Supranational bonds finance economic and infrastructure development and support environmental protection, poverty reduction, and renewable energy around the globe, which are issued by International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. 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 $200,000,000. The City shares limits with two other cities within ACCEL to cover losses over $100,000,000 and up to $200,000,000. 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 $4,250,000 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, 2017 audited financial statements, the net reserves amounts related to the City were $5,702,092 (17% of ACCEL’s total net reserves and incurred but not reported). Total assets of ACCEL at June 30, 2017 were $50,801,134. 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, 2017, 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. CalPERS provides retirement and disability benefits, annual cost-of living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a 36 4159-8549-8385.4 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 CalPERS annual financial reports 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 herein by such reference or otherwise. See Note 16 in APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” 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 by City 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, 2017 was $185,747,415. The City’s payroll for employees covered by CalPERS for the year ended June 30, 2018 is projected to be approximately $199,249,121. As of July 1, 2017, active full-time City employees eligible to participate in CalPERS are required to contribute 6.25% to 8.00% (for miscellaneous employees), 9.00% to 12.75% (for Police safety employees), and 9.00% to 11.25% (for Fire safety employees), of their annual covered salary. The City makes such employee contributions on behalf and for employees hired before January 1, 2013 for Police safety and before July 1, 2012 for miscellaneous employees. Beginning July 1, 2017, the City is no longer required to pay the employee contribution for Policy safety employees. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members earned during the year with an additional amount to finance any unfunded accrued liability. Among the greatest challenges to the City’s long-term fiscal sustainability is the long-term unfunded pension obligations to CalPERS. The City has consistently taken steps to mitigate increases in its pension costs using a combination of pay downs of its unfunded liability, employee cost-sharing, and prepayments that result in discounted costs. See “Pension Funding Information” below for information on the City’s recent payments to CalPERS beyond the actuarially required contribution determined by CalPERS. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. 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 miscellaneous members reimburse the City for the cost of an enhanced benefit at a rate of 6.70%. Police safety employees reimburse the City for the cost of an enhanced benefit at a rate of 6.50% and fire safety employees reimburse the City at a rate of 4.0%. In addition, starting July 1, 2014, Fire plan members began paying the employee contribution at a rate of 9.00%. Beginning July 1, 2017, Police plan members are required to pay the employee contribution of 9.00%. Employee reimbursements totaled $13,162,309 in Fiscal Year 2016-17. Employees passed through an additional $4,375,604 in contributions to CalPERS in Fiscal Year 2016-17, for total employee contributions of $17,537,913, or 27% of total retirement costs. See Note 16 in APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” 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. 37 4159-8549-8385.4 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 62. 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 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 CalPERS 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 2.5% at age 67 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. Pension Funding Information. The staff actuaries at CalPERS prepare annually an actuarial valuation which covers a Fiscal Year ending approximately 12 to 15 months before the actuarial valuation is delivered (thus, the actuarial valuation delivered to the City in July 2017 (the “2016 CalPERS Report”) covered CalPERS’ Fiscal Year ended June 30, 2016). 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, 2016, that was delivered in July 2017, will affect the City’s Fiscal Year 2018-19 required contribution rate). CalPERS rules require the City to implement the actuary’s recommended rates. In calculating the annual actuarially recommended contribution rates, the CalPERS actuary calculates, on the basis of certain assumptions, the actuarial present value of benefits that CalPERS will fund under the CalPERS 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 CalPERS 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, aver age 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 38 4159-8549-8385.4 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 hire (entry age) to the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost. 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 expressed as a dollar amount. The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment are generally included in the first valuation that is prepared after the amendment becomes effective, even if the valuation date is prior to the effective date of the amendment. At its April 17, 2013, meeting, CalPERS’ Board of Administration (the “Board of Administration”) approved a recommendation to change the CalPERS amortization and smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing policy that spread investment returns over a 15-year period with experience gains and losses paid for over a rolling 30 -year period. After this policy change, CalPERS commenced an amortization and smoothing policy that pays for all gains and losses amortized over a 20-year period with a five-year ramp-up and five-year ramp-down period. The new amortization and smoothing policy was used for the first time in the June 30, 2013 actuarial valuations in setting employer contribution rates for fiscal year 2015-16. On February 18, 2014, the Board of Administration approved new demographic actuarial assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit groups, is a new 20-year mortality projection reflecting longer life expectancies and that longevity will continue to increase. Because retirement benefits will be paid out for more years, the cost of those benefits will increase as a result. The Board of Administration also assumed earlier retirements for Police 3% at age 50, Fire 3% at age 55, and Miscellaneous 2.7% at age 55 and 3% at age 60, which will increase costs for those groups. As a result of these changes, rates began to increase beginning in fiscal year 2016-17 (based on the June 30, 2014 valuation) and are expected to continue to increase with full impact in fiscal year 2020-21. Also in 2014, CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions and strategic asset allocation. On February 19, 2014, the CalPERS Board of Administration adopted relatively modest changes to the current asset allocation that will reduce the expected volatility of returns. 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 CalPERS reported seeing in its membership and expected continued improvements. The new actuarial assumptions were first used in the June 30, 2014 valuation to set the fiscal year 2016-17 contribution for public agency employers. The increase in liability due to new actuarial assumptions is 39 4159-8549-8385.4 amortized over a 20-year period with a 5-year ramp-up/ramp-down in accordance with Board policy. These new actuarial assumptions are set forth in this section. On November 18, 2015, the Board of Administration adopted a funding risk mitigation policy intended to incrementally lower its discount rate – its assumed rate of investment return – in years of good investment returns, help pay down the pension fund’s unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. The policy establishes a mechanism to reduce the discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the then existing discount rate, currently 7.5%, by at least four percentage points. CalPERS staff modeling anticipates the policy will result in a lowering of the discount rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the pension system by lowering the volatility of investment returns. More information about the funding risk mitigation policy can be accessed through CalPERS’ web site at the following website address: https://www.calpers.ca.gov/page/newsroomicalpers-news/2015/adopts-funding-risk-mitigation-policy. The reference to this website is provided for reference and convenience only. The information contained within the website may not be current, has not been reviewed by the City or the Authority and is not incorporated in this Official Statement by reference. In December 2016, the Board of Administration voted to lower the CalPERS discount rate from 7.5% to 7.0% over the following three years, advising plan members that this incremental lowering of the discount rate will give employers more time to prepare for the changes in contribution costs. The discount rate changes approved by the Board of Administration for the next three fiscal years are as follows: Fiscal Year 2017-18: 7.375% Fiscal Year 2018-19: 7.250% Fiscal Year 2019-20: 7.000% In addition, the Board of Administration approved separate timelines for implementing the new rate for state, school, and public agencies. The new discount rate for the state went into effect July 1, 2017. The discount rate decreases for the school districts and public agencies, including the City, will take effect July 1, 2018. The difference allows schools and public agencies additional time to plan for rate increases. CalPERS has reported that lowering the discount rate, also known as the assumed rate of return, means employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under the PEPRA will also see their contribution rates rise. The three-year reduction of the discount rate would, based upon the City’s current projections, result in average employer rate increases of about 19% of normal cost as a percent of payroll for its miscellaneous retirement plan, and a 22% increase for its Fire Safety Plan and 17% for its Police Safety Plan. The City has preliminarily projected employer rate increases of approximately 53% from Fiscal Year 2017-18 through 2024-25 for normal and UAAL costs as a percent of payroll for the Miscellaneous Plan, and approximately 51% increases for its Police Safety Plan and 56% increases for its Fire Safety Plan. The Miscellaneous employee bargaining group approved a second tier of reduced retirement benefits for new employees starting on or after July 1, 2012, and Miscellaneous group employees continue to contribute to a portion of their pension costs, while Public Safety employee bargaining groups have approved annual incremental increases to their employee pension contributions. Over the past three years, Police and Fire sworn employees have increased their contributions towards pensions to reach over 28% of the total pension cost, while Miscellaneous employees are contributing over 25% of the pension cost. The passage of the Public Employee Pension Reform Act, or PEPRA, in September 2012 is working to further control cost increases in the future, as new employees entering CalPERS after January 1, 2013 are receiving 40 4159-8549-8385.4 reduced retirement benefits and cities are encouraged to further increase employees’ share of contribution costs. To date, approximately 32% of the City’s permanent workforce is receiving reduced pension benefits. Another cost-saving measure is the series of payments made to CalPERS beyond the actuarially required contribution determined by CalPERS. These additional payments serve to reduce the City’s net pension liability. The City has made such prepayments of its annual employer contributions to CalPERS since Fiscal Year 2007-08. In 2014, after a series of pay downs funded from year end savings, the City Council adopted a policy that, provided there are sufficient funds, the annual budget would include a minimum set-aside of $1.0 million in the General Fund, and commensurate set-aside amounts in all other funds, to be used towards pay downs of the CalPERS unfunded liability. Based on the availability of additional funds, staff would annually assess the set -aside of additional CalPERS payments against other unfunded needs, and present the Council with a recommendation. This policy would remain in effect until such time as there is no remaining net pension liability. Starting in Fiscal Year 2017-18, however, CalPERS will only allow the unfunded liability amounts to be prepaid. The City’s pay downs in recent years have been substantial. Fiscal Year 2010-11 to Fiscal Year 2016-17, the City made an aggregate $76.3 million in pay downs. This resulted in over $6.0 million in annual pension contribution savings. In June 2017, responding to the prospect of additional significant pension contribution rate increases beginning in Fiscal Year 2018-19, the City Council approved a $45 million pay down of the City’s pension unfunded liability, which payment has been made. The combination of the additional pay down and a better than anticipated experience level resulting from City employees retiring later is contributing to a 1/3 decrease in the projected growth of pension costs over the next 5 years. The City plans to continue to prepay its contributions to CalPERS and to set aside the discount received from such prepayments for future pension costs or further pay downs of unfunded liability. As noted earlier, employees paid 27% of the total cost of retirement contributions in Fiscal Year 2016-17, and efforts to work with employee labor groups to increase cost sharing continue. Projected Future Employer Contribution Rates. CalPERS recently updated its projections for the City’s future employer contribution rates, considering the $45 million paydown, discussed above, and updated information on investment earnings, the City’s experience level, and payroll. These projections are subject to change based on future gains/losses, assumption changes, demographic changes, etc. The table below shows projected employer contributions (before cost sharing) for the next five fiscal years. The estimates are based a 7.375% investment return for Fiscal Year 2016-17 and assume returns of 3.00% 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 during the projection period. The projected normal cost percentages do not reflect that the normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers. 41 4159-8549-8385.4 Projected Future Employer Contribution Rates Miscellaneous Fire Police Fiscal Year Normal Cost† UAL Deposit* Normal Cost† UAL Deposit* Normal Cost† UAL Deposit* 2018-19 9.9% 11.4% 16.9% 22.8% 21.8% 26.7% 2019-20 10.4 13.2 17.7 26.6 22.7 30.9 2020-21 11.4 14.5 19.4 29.0 24.6 33.8 2021-22 11.4 16.0 19.4 32.0 24.6 37.3 2022-23 11.4 17.3 19.4 34.5 24.6 40.0 ____________________ * Projected. † CalPERS projected. Source: City of Santa Monica Finance Department and CalPERS Supplemental estimates. While CalPERS will collect employer contributions toward the plan’s unfunded liability as dollar amounts instead of the prior method of a contribution rate beginning with fiscal year 2018-19, latest estimates for the City in the table above have been provided as percentages. This change to fixed dollar amounts is intended to address potential funding issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Although employers will be invoiced at the beginning of the fiscal year for their unfunded liability payment the plan’s normal cost contribution will continue to be collected as a percentage of payroll. Reporting obligations under Governmental Accounting Standards Board Statement No. 68 (including as amended by Statement No. 71, “GASB 68”) commenced with financial statements for the fiscal year ended June 30, 2015. The City implemented this Statement in the fiscal year ending June 30, 2015. Under GASB 68, an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources related to pensions in its financial statements as part of its financial position. GASB 68 states that the long-term expected rate of return should be determined net of pension plan expense but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 and 2016 measurement dates is without reduction of pension plan administrative expense. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Additional changes to the discount rate will require CalPERS Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate for GASB 67 and 68 calculations through at least fiscal year 2017-18. CalPERS will continue to check the materiality of the difference in calculation until such time as the methodology is changed. Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. 42 4159-8549-8385.4 See Note 16 in APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” 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 retirement plan for each of these member groups for the actuarial valuations performed for each of the fiscal years ending June 30, 2011 through June 30, 2016 are set forth in the tables below. Underfunded liability is primarily the result of a significant decline in the value of the plan assets, less than anticipated investment returns by CalPERS and an increase in benefits for Miscellaneous and Public Safety employees. As described above, 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. Miscellaneous Members (dollars in thousands) Valuation Date (June 30) Entry Age Normal Accrued Liability Actuarial Value of Assets Market Value of Assets Underfunded Liability (MVA) Actuarial Funded Ratio Market Value Funded Ratio Annual Covered Payroll UAAL as a Percentage of Payroll 2011 $ 700,594 $553,563 $497,408 $203,186 79.0% 71.0% $125,749 116.9% 2012 757,193 604,495 512,241 244,952 79.8 67.6 129,806 117.6 2013* 810,732 -- 585,420 225,312 -- 72.2 134,174 167.9 2014 899,677 -- 696,278 203,399 -- 77.4 133,203 152.7 2015 947,897 -- 715,137 232,760 -- 75.4 138,779 167.7 2016 1,006,963 -- 720,374 286,589 -- 71.5 143,079 200.3 Fire Safety Members (dollars in thousands) Valuation Date (June 30) Entry Age Normal Accrued Liability Actuarial Value of Assets Market Value of Assets Underfunded Liability (MVA) Actuarial Funded Ratio Market Value Funded Ratio Annual Covered Payroll UAAL as a Percentage of Payroll 2011 $173,591 $140,675 $124,921 $48,669 81.0% 72.0% $14,057 234.2% 2012 182,266 146,676 122,262 60,004 80.5 67.1 14,362 247.8 2013* 190,424 -- 133,725 56,699 -- 70.2 15,275 371.2 2014 207,637 -- 153,452 54,185 -- 73.9 15,112 358.6 2015 213,153 -- 152,542 60,611 -- 71.6 15,245 397.6 2016 223,711 -- 148,440 75,271 -- 66.4 16,370 459.8 43 4159-8549-8385.4 Police Safety Members (dollars in thousands) Valuation Date (June 30) Entry Age Normal Accrued Liability Actuarial Value of Assets Market Value of Assets Underfunded Liability (MVA) Actuarial Funded Ratio Market Value Funded Ratio Annual Covered Payroll UAAL as a Percentage of Payroll 2011 $307,731 $241,473 $216,527 $ 91,204 78.5% 70.4% $25,800 256.8% 2012 326,610 256,820 216,240 110,371 78.6 66.2 27,208 256.5 2013* 346,389 -- 243,858 102,531 -- 70.4 27,642 370.9 2014 384,582 -- 286,664 97,917 -- 74.5 27,953 350.3 2015 403,448 -- 291,484 111,964 -- 72.2 28,327 395.3 2016 426,762 -- 289,290 137,473 -- 67.8 29,701 462.9 ____________________ * 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 CalPERS Direct Rate Smoothing Policy. Source: City of Santa Monica Finance Department. The City expects 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 pass age 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 historically funded OPEB on a pay-as-you-go basis however the City has begun to prefund its OPEB obligation utilizing the CalPERS Employer’s Retirement Benefit Trust. Beginning with Fiscal Year 2014-15, the City has been paying the equivalent of its annual required OPEB contribution into the irrevocable trust. This has allowed the City to benefit from a higher discount rate used in calculating its OPEB unfunded liability. The annual OPEB cost is reported as expenses in the non-departmental governmental activities program. The City’s annual required contribution for Fiscal Year 2016-17 was 44 4159-8549-8385.4 1.6% 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. The following is the City’s net OPEB Obligation and Annual OPEB Cost: Annual required contribution $ 2,686,113 Interest on OPEB obligation 702,046 Adjustment to annual required contribution (593,111) Annual OPEB expense 2,795,048 Contributions made (2,686,113) Increase in net OPEB obligation 108,935 Net OPEB obligation - beginning of the year 10,431,582 Net OPEB obligation - end of the year $10,540,517 ___________________________ Source: City of Santa Monica Finance Department. Five-year trend information is disclosed below (dollars in thousands): Fiscal Year Annual OPEB Cost (AOC) (Employer Contribution) Actual Contribution Percentage of AOC Contributed Net OPEB Obligation (Asset) 6/30/2013 $2,451 $ 711 29.0% $ 8,480 6/30/2014 2,715 987 36.4 10,208 6/30/2015 2,622 2,507 95.6 10,324 6/30/2016 2,743 2,635 96.1 10,432 6/30/2017 2,795 2,686 96.1 10,541 ___________________________ Source: City of Santa Monica Finance Department. The funded status of the City’s OPEB plan as of July 1, 2015, the most recent actuarial valuation date, is as follows: OPEB Funding Information (dollars in thousands) Valuation Date (July 1) Actuarial Value of Assets Actuarial Accrued Liability Underfunded Actuarial Accrued Liability (UAAL) Actuarial Funded Ratio Annual Covered Payroll UAAL as a Percentage of Payroll 2015 $1,247 $29,095 $27,848 4.28% $164,871 16.89% ____________________ Source: City of Santa Monica Finance Department. With the current Fiscal Year’s financial statements, the City will implement a new accounting standard for OPEB in accordance with Governmental Accounting Standards Board’s Statement No. 75 (“GASB 75”), which requires the City to recognize in its financial statements a liability equal to the net OPEB liability, defined as the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), 45 4159-8549-8385.4 less the amount of the OPEB plan’s fiduciary net position. Because of the relatively limited OPEB program offered by the City, and the prefunding that has and will continue to occur, the adoption of GASB 75 is not anticipated to have a detrimental effect on the City’s balance sheet. 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, 2017 the City contributed $3,933,230 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 and, accordingly, 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. The table below sets forth the City’s existing bargaining units and the term of each current agreement. Of the approximately 2,170 budgeted permanent full-time equivalent (FTE) City employees, most are represented by twelve bargaining units. As to the agreements which have a term that concluded before the date of this Official Statement, each bargaining unit continues to function under the terms of its respective agreement as if it had not expired. City employees in the process of negotiations have historically continued to work under the terms of their previous contract with no interruption in services. Table 8 City of Santa Monica Bargaining Units Bargaining unit Fiscal Year 2017-18 Budgeted Permanent FTEs Term From To Administrative Team Associates 351.25 July 1, 2017 June 30, 2020 Executive Pay Plan 20.00 July 1, 2017 June 30, 2018 Fire Executive Management Association 2.00 July 1, 2017 June 30, 2020 International Brotherhood of Teamsters 441.20 July 1, 2017 June 30, 2020 Management Team Associates 45.00 July 1, 2017 June 30, 2020 Municipal Employee Association 502.90 July 1, 2017 June 30, 2019 Public Attorneys’ Legal Staff Support Union 19.00 July 1, 2015 June 30, 2018 Public Attorneys Union 27.00 July 1, 2017 June 30, 2020 Santa Monica Firefighters 117.00 July 1, 2017 June 30, 2020 Santa Monica Police Officers Association 223.00 July 1, 2017 June 30, 2020 SMART (Transportation Division) 298.40 July 1, 2017 June 30, 2020 Confidential Unrepresented Employees (CUE) 17.00 July 1, 2017 June 30, 2018 Supervisory Team Associates 107.00 July 1, 2017 June 30, 2020 46 4159-8549-8385.4 _______________________ Source: City of Santa Monica Finance Department. 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, 2017, the City had $7,725,000 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. A summary of long-term General Fund obligations outstanding as of June 30, 2017 is as follows: Table 9 City of Santa Monica Long-Term General Fund Obligations Outstanding (As of June 30, 2017) Governmental Activities Date of Issue Original Issue Final Maturity Date Interest Rate Balance at June 30, 2017 Lease Obligations Public Finance Authority Refunding 2009* Dec. 16, 2009 $ 9,155,000 July 1, 2021 2.00-5.00% $ 4,335,000 Public Finance Authority 2011 (Series A) Nov. 16, 2011 32,065,000 June 1, 2031 4.00-5.00 26,895,000 Public Finance Authority Refunding 2011 (Series B) Nov. 16, 2011 8,625,000 Dec. 1, 2020 2.00-4.00 3,935,000 Public Finance Authority Refunding 2015 July 9, 2015 26,360,000 July 1, 2033 3.00-5.00 25,365,000 Total $60,530,000 _______________________ * Defeased in December 2017 and are secured by and payable solely from funds on deposit under an escrow agreement. Source: City of Santa Monica Finance Department. As of June 30, 2017, there were $60,530,000 in non-voter approved bonded or certificated City lease obligations outstanding. See APPENDIX B – “CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017.” On September 14, 2017, the City entered into a lease agreement in connection with the issuance and sale of $68,565,000 aggregate principal amount of Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2017 (City Services Building Project) payable from base r ental payments to be made by the City for the right to the use of certain real property pursuant to a Lease Agreement, dated as of September 1, 2017, by and between the City, as lessee, and the Authority, as lessor, to finance the construction of a City Services Building extension to the City Hall and related improvements. The final maturity date of the bonds is June 1, 2047 and interest coupon rates range from 3.00% to 5.00%. 47 4159-8549-8385.4 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, 2017 is provided below: Table 10 City of Santa Monica Statement of Overlapping Debt as of June 30, 2017 Debt Outstanding Estimated Percentage Applicable (1) Estimated Share of Overlapping Debt Overlapping Debt: Los Angeles County General Fund Obligations $ 1,996,576,065 2.466% $ 49,235,566 Los Angeles County Superintendent of Schools Certificates of Participation 7,204,988 2.466 177,675 Metropolitan Water District 74,905,000 1.284 961,780 Santa Monica Community College District 474,764,922 66.384 315,167,946 Los Angeles Unified School District 9,815,110,000 0.0002 19,630 Santa Monica-Malibu Unified School District 383,670,710 66.437 254,899,310 Los Angeles County Regional Park and Open Space Assessment District 38,895,000 2.466 959,151 Santa Monica Community College District Certificates of Participation 13,310,000 66.384 8,835,710 Los Angeles Unified School District Certificates of Participation 239,440,000 0.0002 479 Los Angeles Community College District 3,847,880,000 0.011 423,267 Santa Monica-Malibu Unified School District Certificates of Participation 8,066,501 66.437 5,359,141 Overlapping Tax Increment Debt 83,920,000 Total Overlapping Debt $719,959,655 ____________________ (1) Percentage of overlapping agency’s assessed valuation located within boundaries of the City. Source: California Municipal Statistics, Inc. and City of Santa Monica Comprehensive Annual Financial Report for Fiscal Year 2016-17. RISK FACTORS The following factors, along with the other information in this Official Stat ement, 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 meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the 48 4159-8549-8385.4 City or the State is obligated to levy or pledge any form of taxation or for which the Cit y 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 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 XIIIB 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, 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 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 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, R ental Payments will 49 4159-8549-8385.4 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. In July 2017, the California Geological Survey released new draft maps showing the location of earthquake fault lines that run beneath the City, the general locations of which have been known for many years. The City expects that the maps will impact future development on and near the identified fault lines. In advance of the draft maps, in March 2017 the City Council unanimously approved a comprehensive seismic retrofit ordinance intended to increase safety of earthquake-vulnerable buildings in the event of a large earthquake. As part of that process, the City released a City-wide list of almost 4,600 addresses in some 2,400 structures identified as at-risk in earthquakes. The Ordinance establishes a program under which building owners will receive notices to complete a seismic assessment for possible structural improvement. The Ordinance mandates strengthening and structural retrofit of buildings identified by the City as potentially hazardous, with retrofitting expected to occur over multiple years as buildings are brought into compliance with the requirements. Timelines for submitting structural evaluation reports and retrofitting will vary based on the complexity of work involved in each building type. The City’s program is designed to limit the loss of life and infrastructure in the event of a disaster. 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. The Property is not located on an identified fault line and 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. 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. In the event of a severe earthquake, fire, flood or other natural disast er, 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 50 4159-8549-8385.4 Agreement to maintain earthquake or flood insurance on the Property. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Insurance” herein. Drought and Emergency Drought Response 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 of that year which provided $687.4 million to support drought relief. On March 27, 2015, Governor Brown signed emergency legislation (Assembly Bill Nos. 91 and 92) that mandated reductions in residential use and expedited $1 billion for drought and water infrastructure projects, including emergency food aid, drinking water, water recycling, conservation awareness, and flood protection. While near record rainfall in the winter of 2016 -17 replenished surface water supplies in many parts of the State, areas such as the Southern California that rely primarily on groundwater for potable supply still face water reliability challenges. The City recognizes long term planning is necessary in order to ensure a sustainable and resilient source of potable supply that does not rely on environmentally costly imported water from northern California an d the Colorado River. To achieve its goal of water self-sufficiency the City has implemented a multi-faceted approach that includes detailed planning, conservation and the treatment and reuse of nonconventional resources, such a storm water and municipal wastewater, in order to sustainably mange all available water resources. In 2014 the City adopted its first Sustainable Water Master Plan (SWMP). This comprehensive report on the state of the City’s conservation and water programs serves as a road map for adaptive management of the City’s groundwater resources. The SWMP is updated every five years and provides water demand forecasts that serve to facilitate City’s reliability and resiliency planning efforts. In 2015, the City implemented its Water Shortage Response Plan (WSRP), which sets water conservation allowances at 20% below 2013 usage for all customers. The WSRP is one of many conservation programs currently in place to help reduce potable demand. Others include greater use of graywater, low-flow toilet rebates, turf replacement and encouraging residential rainwater harvesting for on property use. The City has been meeting WSRP targeted 20% below 2013 usage level, and is working to continue to meet this target for long-term resiliency and water self-sufficiency. Continuing conservation efforts will allow the City to reach a level of water self-sufficiency, ending or mitigating the need to rely on imported water to meet the demands of the community. The City is fortunate to be able meet the majority of current water needs by pumping local groundwater from City-owned wells. As a compliment to this resource the City is in the process of constructing several innovative projects that will provide a combined 1,680 acre-feet of new water annually from the harvesting, treatment and reuse of storm water, brackish groundwater and municipal wastewater. Due to the long-term effects of the recent drought, the City has determined it will maintain its WSRP conservation restrictions, including water use allowances and penalties for exceeding individual allowances. The City will also continue providing its most effective conservation programs, including, but not limited to, rebates covering landscaping and low-flow toilets and consumer water use consultations. The City has been implementing water efficiency programs since 1998, and is recognized as a leader in California for its environmental and water conservation policies. Long-term, the reliability of the City’s water supply will depend on its continued leadership and commitment to water conservation, strategic and adaptive management of its groundwater aquifers, and the innovative use of available nonconventional resources to offset the vagaries of projected population growth and climate change. 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. 51 4159-8549-8385.4 Federal, State and County Awarded Grants and Special Allocations Unpredictable federal funding is a significant risk factor for the City’s budget. In May 2017, the Trump administration released its 2018 Federal Budget Proposal, which included cuts to funding that provide programs to residents of the City with the greatest need and fewest options. As a result, the City Council expressed concern that the proposed reductions could have severe impacts on these programs and residents. Although the 2018 Federal Budget ultimately kept funding intact, similar valid concerns remain. The 2019 Federal Budget Proposal, released in February 2018, again contains reductions to these programs. A review of Fiscal Year 2016-17 funding sources for the City’s 20 Human Services Grants Program (HSGP) funded agencies demonstrated an expectation of approximately $21 million in total federal funding, or approximately 13% of the HSGP-funded agencies’ total budgets. In addition, the HSGP agencies report a $65 million reliance on other State and local government sources--portions of which could also originate from federal sources--for an additional 40% of their agencies’ budgets. City staff is working with local agencies to project direct and indirect impacts of proposed cuts at both the agency and community level. City staff will also coordinate with State and regional entities to avoid duplication of effort and ensure local funds are used to fill local gaps. Among the programs proposed for elimination in the 2019 Federal Budget Proposal are the Department of Housing and Urban Development’s (HUD) Community Development Block Grant (CDBG) program and HOME Investment Partnerships Program (HOME). Program impacts include the following: • $201,000 of the City’s annual $1.03 million CDBG allocation is granted among the following: Legal Aid Foundation of Los Angeles (LAFLA) ($80,000), Westside Center for Independent Living (WCIL) ($36,000), Chrysalis ($40,000), and St. Joseph Center ($45,000). • The City’s Housing Division also uses CDBG for rehabilitation of 20 existing apartments per year where low-income households earning 80% of area median income reside. The HOME Program provides assistance totaling $437,000 to 16 households, with another 10 voucher holders seeking apartments. The average monthly subsidy for all participants is over $15,000. Both of these grants also provide administrative funds to reimburse the City for the costs of administering the programs. • HUD’s Section 8 program provides a monthly housing subsidy to 995 households that totals over $11 million. An estimated $500,000 decrease in funding is possible with passage of the Trump Administration budget. If the budget is decreased by $500,000, approximately 100 households could lose their housing subsidies. While continued research and engagement is needed to assess grantee needs, City staff estimates that the annual impact of proposed federal funding cuts to the City’s programs could be approximately $1.5 million. City staff will continue to monitor budget negotiations in Congress. Once a final federal budget is adopted, City staff will confirm any impacts in the City, as well as potential options for addressing the local need. On January 25, 2017, President Trump signed an executive order directing the United States Attorney General and the Secretary of Homeland Security to ensure that state and local jurisdictions that willfully refuse to comply with federal law concerning the provision of information on individuals’ immigration status will not be eligible to receive federal grants except as deemed necessary for law enforcement purposes. On July 25, 2017, the United Stated Justice Department announced a policy to require cities to actively provide information to federal immigration authorities as a condition for the receipt of federal grant money. From time to time the City has adopted policies and resolutions with respect to its 52 4159-8549-8385.4 population including its diversity, national or ethnic origins, immigration status, and the actions of the City of Santa Monica Police Department and its use of City resources with respect to immigration law enforcement functions. The General Fund is the primary operating fund. It accounts for all the financial resources and the legally authorized activities of the City, except those required to be accounted for in other specialized funds. The City maintains a Miscellaneous Grants Fund to account for the receipt and expenditure of federal, State and County awarded grants and special allocations provided to the City. On April 25, 2017, the United States District Court for the Northern District of California issued a preliminary injunction enjoining enforcement nationwide of one section of President Trump’s executive order which sought to limit grants beyond those relating to federal immigration law enforcement. The court’s decision is consistent with the City’s position that controlling legal authority limits funding reductions to grants directly related to federal immigration law enforcement. Federal grants to the City arguably related to federal immigration law enforcement comprise a small percentage of the City’s total budget. Moreover, most if not all of such grants support local law enforcement functions which the executive order expressly authorizes the Attorney General or Secretary of Homeland Security to exempt from reduction. If implementation of the executive order results in the reduction of federal aid to the City, the City expects that it would mount a vigorous legal challenge. However, there can be no guarantee that implementation of the executive order will not result in a significant reduction or delay in receiving such aid. The City has joined with the city and county of Los Angeles and the cities of Santa Ana and West Hollywood and over thirty other jurisdictions filing an amicus brief (denotes a brief filed with a court by a person with interest in or views on the subject matter of a legal action pending before that court) in federal court in San Francisco in support of that city’s pending lawsuit challenging the constitutionality of President Trump’s executive orders threatening to withhold federal funds from cities that fail to cooperate with federal immigration authorities. The local jurisdictions argue that pulling funding from cities would threaten public health and safety and that certain federal law enforcement and immigration practices if required of local law enforcement would lead to a loss of cooperation between immigrants and police, with victims or witness of crimes opting not to come forward out of fear of deportation. Substitution and Removal of Property The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and summarized below ; provided, however, that such conditions shall not apply to a release of the Public Safety Facility Property as described herein under the caption “THE PROPERTY.” 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 and the Ground Lease. 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, have 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 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 53 4159-8549-8385.4 in the Lease Agreement or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, constitute events of default under the Lease Agreement and permit the Trustee or the Authority to pursue any and all remedies available. In the event of a default, notwithstanding anything in the Lease Agreement or in the Indenture to the contrary, there shall be no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable, nor shall the Authority or the Trustee have any right to re-enter or re-let the Property except as described in the Lease Agreement. The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Property, the Trustee, as assignee of the Authority, may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City. Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. Due to the specialized nature of the Property or any property substituted therefor pursuant to the Lease Agreement, 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 54 4159-8549-8385.4 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, 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, th e 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 c ollected 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. 55 4159-8549-8385.4 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 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 pers ons. 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. 00CC03385, 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. 56 4159-8549-8385.4 Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of 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 year s 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 XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unempl oyment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB 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 courts 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 XIIIB 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 XIIIB 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 adopting the second year of the City’s Fiscal Years 2015-17 Biennial Budget, the City calculated its appropriations limit at $1,910,159,058, with appropriations subject to the limit estimated at $231,701,481 for Fiscal Year 2016-17. When preparing the Fiscal Years 2017-19 Biennial Budget, the 57 4159-8549-8385.4 City calculated its appropriations limit at $2,013,078,428, with appropriations subject to the limit estimated at $256,590,386 for Fiscal Year 2017-18. 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. 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 an d parks, the City currently has no landscape and maintenance assessments for open space areas, street medians, street lights and parks. 58 4159-8549-8385.4 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, 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 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. The City responded to limited opposition in its most recent water rate-setting proceedings with respect to its calculation of costs of service, but faced no substantive legal challenges. 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. 59 4159-8549-8385.4 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 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 of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two -thirds vote of the voters within the jurisdiction, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the California Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal.4th 220; 45 Cal.Rptr.2d 207 (1995). Proposition 62 applies to the imposition of any taxes or the effecting of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are 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. Recent Initiative Measures Affecting State and Local Governments 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. 60 4159-8549-8385.4 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 purpos es, 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 XIIID 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. For example, ballot initiatives currently in process for qualification for consideration at future elections include a measure that would require a two-thirds vote of the electorate for all taxes, including local general and special taxes put on the ballot through an initiative and a measure to revoke Proposition 13 protections for commercial and industrial properties. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon 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 alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F hereto. 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 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 61 4159-8549-8385.4 compounding dates). The accruing original issue discount is added to 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. 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 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 62 4159-8549-8385.4 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. 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 disagre es, 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 the 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 and by Orrick, Herrington & Sutcliffe LLP, Los Angeles California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. ABSENCE OF MATERIAL 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. Various claims and suits have been and can be expected to be filed against the City in the normal course of business. [The City is currently a defendant in a California Voting Rights Act of 2001 (CVRA) case brought by Santa Monica and Malibu activists to compel the City to move to district-based elections as opposed to the current system of “at-large,” citywide elections for City Council members. The CVRA expands on the federal Voting Rights Act of 1965 and related case law, making it easier for minority groups in California to prove that their votes are being diluted in at-large elections. In the event that the City does not prevail and continue to maintain its current system, City Council members will be compelled to establish a new system of district elections and the City will be required to pay the plaintiffs’ costs. Similar complaints have been brought against other California cities, and terms of the CVRA have been deemed constitutional under the State Constitution. Among the questions raised by the City’s case is the application of the CVRA to a small city, where existing populations and communities are diverse within an area of limited space, and a premise of the CVRA that any minority group occupy and establish a majority in a specific geographic area. The aggregate amount of the uninsured liabilities of the City which may result from all current claims will not, in the opinion of the City, materially affect the City’s finances so as to impair its ability to pay Base Rental Payments when due under the Lease Agreement.] 63 4159-8549-8385.4 UNDERWRITING The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated and UBS Financial Services Inc. (together, the “Underwriters”). Pursuant to a Bond Purchase Agreement between Stifel, Nicolaus & Company, Incorporated, as representative of the Underwriters, and the Authority (the “Purchase Agreement”), the Underwriters have agreed to purchase the Bonds for an aggregate purchase price of $_____, which represents the par amount of the Bonds, plus net original issue premium of $_____, less an underwriters’ discount of $_____. The Purchase Agreement provides that the Underwriters will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriters 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 Underwriters. RATINGS Fitch Ratings (“Fitch”), Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings (“S&P”), respectively, have assigned ratings of “___,” “___” 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. MUNICIPAL ADVISOR Public Resources Advisory Group, Los Angeles, California, served as Municipal Advisor (the “Municipal Advisor”) to the Authority and the City with respect to the issuance of the Bonds. The Municipal 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 Municipal 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 April 1), commencing with the report for the 2017- 18 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 64 4159-8549-8385.4 15c2-12”). These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). In the preceding five years, the City has failed to timely comply in certain respects with its previous undertakings with regard to Rule 15c2-12 to provide annual reports or certain enumerated information. These failures include the following: With respect to the City of Santa Monica Wastewater Enterprise Refunding Revenue Bonds (Hyperion Project), 2005 Series A (which bonds are no longer outstanding) the City failed to timely file with respect to Fiscal Year 2012-13, the Annual Report and failed to file notice of such failure to timely file (such failure to file having previously been remedied in a corrective filing posted to EMMA), and failed to timely file information with respect to wastewater rate changes for Fiscal Year 2013-14, as required (such failure to file having previously been remedied in a corrective filing posted to EMMA). With respect to the City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A (the “Series 2012 Bonds”) the City failed to timely file information with respect to wastewater rate changes for Fiscal Years 2013-14 and 2014-15, as required (such failure to file having previously been remedied in a corrective filing posted to EMMA). The City has made the necessary filings to address the deficiencies identified above. The City has adopted disclosure policies and procedures in an effort to formalize its disclosure practices and implement additional procedures to timely file complete annual reports and event notices in the future. 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. 65 4159-8549-8385.4 The execution and delivery of this Official Statement have been duly authorized by the Authority and the City. SANTA MONICA PUBLIC FINANCING AUTHORITY By: Treasurer CITY OF SANTA MONICA By: City Manager A-1 4159-8549-8385.4 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 “SECURITY AND 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, 2017, had an estimated residential population of 93,834 making it the 18th 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. Elec tions 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. A-2 4159-8549-8385.4 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 2010 89,736 2011 90,306 2012 90,745 2013 91,350 2014 92,321 2015 93,181 2016 93,282 2017 93,834 ____________________ Source: 1970-2000 data from US Census Bureau; 2010- 2017 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. On January 28, 2017, the Santa Monica City Council announced an agreement reached with the Federal Aviation Administration that would secure the closure of Santa Monica Airport to all aeronautical use as of December 31, 2028. In Fiscal Year 2016-17, the City’s 200 fixed route buses carried about 13.3 million revenue passengers. 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. 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 75% 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 25% of the water is purchased from A-3 4159-8549-8385.4 The Metropolitan Water District of Southern California. The City’s modern, automated system delivers over 9 million gallons per day to approximately 18,000 water accounts, a reduction from 2014 due to local and state water conservation measures. 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. A new treatment plant, launched in December 2010, allowed for the reactivation of this well and in 2017, produced 75% of the water utilized by the City. 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 including rebates for water-wise landscaping and harvesting rain water. 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 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 up to 500,000 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, Hulu 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 the Colorado Esplanade, California Incline Bridge Replacement and Pedestrian Overpass project and Ishihara Park. 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 economic turndown. The three largest business types producing taxable goods in the City for Calendar Year 2017 are: New Motor Vehicle Dealers, 14% of the City’s sales tax revenue; Casual Dining, 10% of the City’s sales tax revenue; and Electronics/Appliance Stores, 9.00% of the City’s sales tax revenue. When grouped into major business groups, General Consumer Goods provide 31% of the City’s sales tax revenue, A-4 4159-8549-8385.4 Autos and Transportation and Restaurants and Hotels each provide approximately 21.0% of the City’s sales tax revenue. Taxable sales for 2017 were essentially the same as 2016. 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 nearly 4,000 available rooms including the opening of two new hotels in early 2016, average hotel occupancy rates for calendar year 2017 were 86.1%, essentially the same as 2016. Average room rates for the same period were $366.66, a 1.2% 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 June 30, 2017 Company Number of Employees UCLA Medical Center, Santa Monica 2,356 City of Santa Monica 2,167 Santa Monica College 1,977 Providence Saint John’s Health Center 1,750 Santa Monica-Malibu Unified School District 1,550 RAND Corporation 901 LionsGate Entertainment Corporation 873 Activision Publishing Inc. 827 Universal Music Group 796 E.T. Whitehall, Inc. 629 Total jobs provided by principal employers 13,826 Average Total jobs in Santa Monica 88,848 Principal Employers As Percent Of Total Jobs 15.56% ____________________ 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. A-5 4159-8549-8385.4 Annual Average Unemployment Rates For Years 2008 through 2017 Year City of Santa Monica City of Los Angeles County of Los Angeles State of California United States 2008 6.1% 8.3% 7.6% 7.3% 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 7.0 8.7 8.2 7.5 6.2 2015 5.6 7.0 6.6 6.2 5.3 2016 4.4 5.6 5.2 5.5 4.9 2017 4.4 4.8 4.7 4.8 4.4 ____________________ 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 2008 through 2017: Year Los Angeles-Long Beach-Anaheim Statistical Area California United States 2007 $44,529 $43,692 $39,821 2008 45,228 44,162 41,082 2009 43,245 42,224 39,376 2010 44,717 43,323 40,278 2011 47,284 45,854 42,463 2012 50,337 48,359 44,283 2013 49,509 48,555 44,489 2014 52,201 51,317 46,486 2015 55,585 54,664 48,429 2016 57,160 56,308 49,204 2017 --(1) 58,272 50,392 ____________________ (1) 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. The City also A-6 4159-8549-8385.4 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 Cent er, 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 nine 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 27 parks to pursue their recreational activities of choice. The City is in the process of implementing a 5-year and 20-year Bike Action Plan with a goal of increasing bicycle transportation to a 14-35% share of transportations modes by 2030. The City continues to have a profound effect on the development of art and culture in this country. More visual and performing artists, arts presenters, designers, architects, and film and music producers per capita can be found in the City 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 California Incline Bridge Replacement and Pedestrian Overpass project reconstructed the California Incline roadway/structures with a new bridge and roadway adjacent to Palisades Bluffs and reopened to the public on September 1, 2016. The widened bridge improves access for pedestrians as well as bicyclists and meets current seismic codes and design standards. This project also enhances the stability of the bluff above the roadway and bridge. The project cost $17 million, with 88.5% of the cost covered by federal funds. 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 was completed in June 2016 and also implements the Civic Center Specific Plan circulation improvements for Main/Second Street. The improvement integrate the Civic Center, Downtown, and Pier/Oceanfront districts, and create a gateway to Downtown Santa Monica. The project was funded out of the General Fund and also out of a LA Metro Pedestrian Improvement Grant. A-7 4159-8549-8385.4 The EXPO Maintenance Yard Buffer Park, renamed Ishihara Park, created a 2.35 acre neighborhood park located within a buffer zone between the EXPO Maintenance Facility and the neighboring residential area upon its opening in February 2017. 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 mitigation funds. The Citywide Bikeshare project (Breeze Bike Share) includes the purchase, construction, installation and operation of a bicycle sharing system comprised of 500 bicycles and 1,000 racks beginning at 75 locations throughout the City and expected to grow over time based on demand. The system utilizes “smart bike” technology, allowing for flexibility with respect to regional integration and size and location of stations. CycleHop, LLC is operating the system on the City’s behalf for up to seven years. The project utilizes grant funding from Mero Call for Projects and South Coast Air Quality Management District (SCAQMD) as well as the General Fund and Proposition C Local Return money as matching funding for the grants. Operational costs are subsidized by Hulu, LLC’s sponsorship. Remaining costs will be covered by user fees, with the shortfall, if any, budgeted in the coming year in the General Fund. The Breeze Bike Share was launched in November 2015 and the first public bike share system operating in Los Angeles County. Utilities Southern California Gas Company and Southern California Edison Company (“SCE”) provide gas and electricity service within the City, respectively. Frontier California supplies local telecommunication service. Over 100 telecommunications companies provide long-distance and wireless service. The City provides water and wastewater service. Public Transportation The City of Santa Monica has one of the most extensive transit networks among cities of its size. Approximately 17% of residents ride the City’s local bus service, Big Blue Bus at least a few times a week and 12% ride some other transit service as often. The City and the Los Angeles County Metropolitan Transportation Authority’s (“LA Metro”) have made significant investments in the Expo Light Rail Line, and also on facilities and services designed to increase access to future station areas for people walking, biking or busing. The Expo Light Rail Line is open and offering convenient service between downtown Los Angeles and downtown Santa Monica and destinations in between. This $1.5 billion light rail project to the Pacific Ocean extends from the existing Expo Line Culver City station to Downtown Santa Monica linking Westside neighborhoods and expanding the LA Metro Rail system to over 100 miles of rail. LA Metro reports over 45,000 weekday rides and over 34,000 daily weekend rides. B-1 4159-8549-8385.4 APPENDIX B CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017 C-1 4159-8549-8385.4 APPENDIX C DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS D-1 4159-8549-8385.4 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 “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has 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 from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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. D-2 4159-8549-8385.4 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 MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 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 “street name” and will be the responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of 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. E-1 4159-8549-8385.4 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of ______ 1, 2018, is executed and delivered by the City of Santa Monica (the “City”). WHEREAS, pursuant to the Indenture, dated as of ______ 1, 2018 (the “Indenture”), by and among the Santa Monica Public Financing Authority (the “Authority”), the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), the Authority has issued $________ aggregate principal amount of its Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station 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, 2018, 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 and Beneficial Owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Disclosure Certificate have the meanings herein specified. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. “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. “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 _____ __, 2018 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. “Participating Underwriters” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. E-2 4159-8549-8385.4 “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 2017-18 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: (i) The principal amount of Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and (ii) The balance in the Project Fund 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 (as of the end of the preceding fiscal year) substantially similar to that provided in the corresponding tables and charts in the Official Statement: (i) City Principal Property Taxpayers; (ii) City Assessed Value of Taxable Property; E-3 4159-8549-8385.4 (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; (vii) City General Fund Summary of Revenues and Expenditures; (viii) City Direct and Overlapping Debt; (ix) Information under the captions “CITY OF SANTA MONICA FINANCES – Retirement System” and “−Other Post Employment Benefits”; and (x) Summary of City’s current fiscal year’s investments as of the end of the second month next preceding the Annual Report Date, 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: (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 E-4 4159-8549-8385.4 (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 governmenta l 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 Trustee or the change of name of a Trustee. (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 paragraph (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. E-5 4159-8549-8385.4 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 dissemi nation 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 E-6 4159-8549-8385.4 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. The City covenants that, if a Dissemination Agent other than the City has been appointed pursuant to Section 7 hereof, the City will indemnify and save such 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 such Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of such 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 By: Rick Cole, City Manager ATTEST: Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: Lane Dilg, City Attorney E-7 4159-8549-8385.4 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 Bonds, Series 2018 (Downtown Fire Station Project) Date of Issuance: June __, 2018 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, 2018, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by _____________.] Dated: _______________ CITY OF SANTA MONICA By: F-1 4159-8549-8385.4 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: [Date of Delivery] Santa Monica Public Financing Authority Santa Monica, California Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project) (Final Opinion) Ladies and Gentlemen: Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per Stradling Yocca Carlson & Rauth Draft of 4/19/18 1 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2018 (DOWNTOWN FIRE STATION PROJECT) BOND PURCHASE AGREEMENT May __, 2018 Santa Monica Public Financing Authority c/of City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Executive Director City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: City Manager Ladies and Gentlemen: The undersigned, Stifel, Nicolaus & Company, Incorporated (the “Representative”), on behalf of itself, and UBS Financial Services Inc. (collectively, the “Underwriters”), acting not as a fiduciary or agent for you, offers to enter into this Bond Purchase Agreement (which, together with Exhibit A and Exhibit B, is referred to as the “Purchase Agreement”) with the Santa Monica Public Financing Authority (the “Authority”) and the City of Santa Monica, California (the “City”), which, upon the acceptance of the Authority and the City, will be binding upon the Authority, the City and the Underwriters. This offer is made subject to acceptance by the Authority and by the City by the execution of this Purchase Agreement and delivery of the same to the Representative prior to 11:59 P.M., Pacific Standard Time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Representative upon notice delivered to the Authority and the City at any time prior to the acceptance hereof by the Authority and the City. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture dated as of _________ 1, 2018 (the “Indenture”), by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements herein set forth, the Underwriters, jointly and severally, hereby agree to purchase from the Authority, and the Authority hereby agree s to issue, sell and deliver to the Underwriters all (but not less than all) of the Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2018 (Downtown Fire Station Project) in the aggregate principal amount of $__________ (the “Bonds”). The Bonds will be dated as of their date of delivery. Interest on the Bonds shall be payable semiannually on January 1 and July 1 in each year, commencing [January 1, 2019] and will mature, bear interest and be subject to redemption prior to maturity as set forth in Exhibit A hereto. The purchase price for the Bonds shall be equal to $__________ (being the aggregate principal amount thereof [plus][less] a [net] original issue [premium][discount] of $__________, less an underwriter’s discount of $__________). Attachment H 2 Section 2. The Bonds. The Bonds shall be secured by a pledge of Lease Revenues consisting primarily of base rental payments (“Base Rental Payments”) to be paid by the City pursuant to the Lease Agreement, dated as of _________ 1, 2018 (the “Lease Agreement”), by and between the City and the Authority. The Bonds shall be as described in, and shall be secured under and pursuant to the Indenture substantially in the form previously submitted to the Underwriters with only such changes therein as shall be mutually agreed upon by the Authority, the City and the Representative. The proceeds of the Bonds shall be used: (i) to finance the construction of a new City fire station, fire training facilities and related improvements ; and (ii) to pay the costs incurred in connection with the issuance of the Bonds. The Bonds, this Purchase Agreement, the Indenture, the Lease Agreement, the Ground Lease, dated as of _________ 1, 2018 (the “Ground Lease”), by and between the Authority and the City and the resolution of the Authority authorizing the issuance of the Bonds an d the execution and delivery of the Authority Documents (hereinafter defined) are collectively referred to herein as the “Authority Documents.” This Purchase Agreement, the Continuing Disclosure Certificate, dated as of _________ 1, 2018 (the “Continuing Disclosure Certificate”), executed and delivered by the City, the Lease Agreement, the Ground Lease and the resolution of the City authorizing the execution and delivery of the City Documents (hereinafter defined) are collectively referred to herein as the “City Documents.” Section 3. Public Offering and Establishment of Issue Price. (a) The Underwriters agree to make an initial public offering of all of the Bonds at the public offering prices (or yields) set forth on Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter s reserve the right to change the public offering prices (or yields) as the Underwriter s deem necessary in connection with the marketing of the Bonds, provided that the Underwriters shall not change the interest rates set forth on Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. The City and the Authority acknowledge and agree that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the City and the Authority, on one hand, and the Underwriters, on the other; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriters are and have been acting solely as principals and not as Municipal Advisors (as defined in Section 15B of The Securities Exchange Act of 1934, as amended); (iii) the Underwriters have not assumed an advisory or fiduciary responsibility in favor of the City or Authority with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter s have provided other services or are currently providing other services to the City or Authority on other matters); (iv) the Underwriters have financial and other interests that differ from those of the City and the Authority; and (v) the City and Authority have consulted their own legal, financial and other advisors to the extent they have deemed appropriate. (b) The Representative, on behalf of the Underwriters, agrees to assist the Authority in establishing the issue price of the Bonds and each underwriter allotted Bonds shall 3 execute and deliver to the Authority at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Representative, the Authority and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the respective allotted Bonds. All actions to be taken by the Authority under this section to establish the issue price of the Bonds may be taken on behalf of the Authority by the Authority’s municipal advisor, Public Resources Advisory Group, Los Angeles, California (the “Municipal Advisor”) and any notice or report to be provided to the Authority may be provided to the Municipal Advisor. (c) [Except as otherwise set forth in Exhibit A,] the Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Contract, the Representative shall report to the Authority the price or prices at which the Underwriters have sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Representative agrees to promptly report to the Authority the prices at which Bonds of that maturity have been sold by the Underwriters to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public. (d) [The Representative confirms that the Underwriters have offered the Bonds to the public on or before the date of this Purchase Contract at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A, except as otherwise set forth therein. Exhibit A also sets forth, identified under the column “Hold the Offering Price Rule Used,” as of the date of this Purchase Contract, the maturities, if any, of the Bonds for which the 10% test has not been satisfied and for which the Authority and the Representative, on behalf of the Underwriters, agree that the restrictions set forth in the next sentence shall apply, which will allow the Authority to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the- offering-price rule remains applicable to any maturity of the Bo nds, the Underwriters will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (i) the close of the fifth (5th) business day after the sale date; or (ii) the date on which the Underwriters have sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Representative shall promptly advise the Authority when the Underwriters have sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) busin ess day after the sale date.] The Authority acknowledges that, in making the representation set forth in this subsection, the Representative will rely on (i) the agreement of each Underwriter to comply with 4 the hold-the-offering-price rule, as set forth in an agreement among underwriters and the related pricing wires, (ii) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the hold-the-offering-price rule, as set forth in a selling group agreement and the related pricing wires, and (iii) in the event that an Underwriter is a party to a retail distribution agreement that was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the hold -the-offering-price rule, as set forth in the retail distribution agreement and the related pricing wires. The Authority further acknowledges that each Underwriter shall be solely liable for its failure to comply with its agreement regarding the hold-the-offering-price rule and that no Underwriter shall be liable for the failure of any other Underwriter, or of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a retail distribution agreement, to comply with its corresponding agreement regarding the hold-the-offering-price rule as applicable to the Bonds. (e) The Representative confirms that: (i) any agreement among underwriters, any selling group agreement and each retail distribution agreement (to which the Representative is a party) relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain langu age obligating each Underwriter, each dealer who is a member of the selling group, and each broker- dealer that is a party to such retail distribution agreement, as applicable, to: (A) report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the Representative that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public; and (B) comply with the hold-the-offering-price rule, if applicable, in each case if and for so long as directed by the Representative and as set forth in the related pricing wires; and (ii) any agreement among underwriters relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each Underwriter that is a party to a retail distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such retail distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the Representative or the Underwriter that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public and (B) comply with the hold-the-offering-price rule, if applicable, in each case if and for so long as directed by the Representati ve or the Underwriter and as set forth in the related pricing wires. (f) The Underwriters acknowledge that sales of any Bonds to any person that is a related party to an Underwriter shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (i) “public” means any person other than an underwriter or a related party; (ii) “underwriter” means: (A) any person that agrees pursuant to a written contract with the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public; and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial 5 sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public); (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to: (A) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another); (ii) more than 50% common ow nership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another); or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (iv) “sale date” means the date of execution of this Purchase Contract by all parties. Section 4. The Official Statement. By its acceptance of this proposal, the Authority and the City ratify, confirm and approve of the use and distribution by the Underwriters prior to the date hereof of the preliminary official statement relating to the Bonds dated _______ __, 2018 (including the cover page, all appendices and all information incorporated therein and any supplements or amendments thereto and as disseminated in its printe d physical form or in electronic form in all respects materially consistent with such physical form, the “Preliminary Official Statement”) that authorized officers of the Authority and City deemed “final” as of its date, for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”), except for certain information permitted to be omitted therefrom by Rule 15c2 -12. The Authority and the City hereby agree to deliver or cause to be delivered to the Underwriters, within seven business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Bonds (including all information previously permitted to have been omitted by Rule 15c2-12), including the cover page, all appendices, all information incorporated therein and any amendments or supplements as have been approved by the Authority, the City and the Representative (the “Official Statement”) in such quantity as the Underwriters shall reasonably request to comply with Section (b)(4) of Rule 15c2-12 and the rules of the Municipal Securities Rulemaking Board (the “MSRB”). The Underwriters hereby agree that they will not request that payment be made by any purchaser of the Bonds prior to delivery by the Underwriters to the purchaser of a copy of the Official Statement. The Underwriters agree to provide the Authority and the City with final pricing information on the Bonds on a timely basis. The Representative agrees to promptly file a copy of the Official Statement, including any supplements prepared by the Authority or the City with the MSRB at http://emma.msrb.org. The Authority and the City hereby approve of the use and distribution by the Underwriters of the Preliminary Official Statement in connection with the offer an d sale of the Bonds. The Authority and the City will cooperate with the Representative in the filing by the Representative of the Official Statement with the MSRB. Section 5. Closing. At 8:30 a.m., Pacific Standard Time, on ______ __, 2018, or at such other time or date as the Authority and the Representative agree upon (the “Closing Date”), the Authority shall deliver or cause to be delivered to the Trustee, the Bonds, in definitive form, registered in the name of Cede & Co., as the nominee of The Depository Trust Company (“DTC”), so that the Bonds may be authenticated by the Trustee and credited to the account specified by the 6 Representative under DTC’s FAST procedures. Concurrently with the delivery of the Bonds, the Authority and the City will deliver the documents hereinafter mentioned at the offices of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California (“Bond Counsel”), or another place to be mutually agreed upon by the Authority, the City and the Representative. The Representative will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer in immediately available funds. This payment for and deliver y of the Bonds, together with the delivery of the aforementioned documents, is herein called the “Closing.” The Bonds shall be registered in the name of Cede & Co., as nominee of DTC in denominations of five thousand dollars ($5,000) or any integral multiple thereof. The Authority and the City acknowledge that the services of DTC will be used initially by the Underwriters in order to permit the issuance of the Bonds in book-entry form, and agree to cooperate fully with the Underwriters in employing such services. Section 6. Representations, Warranties and Covenants of the Authority. The Authority represents, warrants and covenants to the Underwriters and the City that: (a) The Authority is a public body, duly organized and existing under the Constitution and laws of the State of California (the “State”), including Article 1 of Chapter 15 of Division 7 of Title 1of the Government Code of the State of California (the “JPA Act”) and the Joint Exercise of Powers Agreement, dated as of July 25, 1995, as amended (the “JPA Agreement”), by and between the City and the former Redevelopment Agency of the City of Santa Monica. (b) The Authority has full legal right, power and authority to adopt or enter into, as the case may be, and to carry out and consummate the transactions on its par t contemplated by the Authority Documents. (c) By all necessary official action, the Authority has duly authorized and approved the Authority Documents, has duly authorized and approved the Preliminary Official Statement, will, by execution thereof, duly autho rize and approve the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained in, the Authority Documents and the consummation by it of all other transactions contemplated by the Authority Documents in connection with the issuance of the Bonds. As of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and de livered, and assuming due execution and delivery by the other parties thereto, if applicable, the Authority Documents will constitute the legally valid and binding obligations of the Authority enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally, or by the exercise of judicial discretion and the limitations on legal remedies against joint powers authorities in the State. The Authority has complied, and will at the Closing be in compliance in all material respects, with the terms of the Authority Documents. (d) The Authority is not in any material respect in breach of or default under any applicable constitutional provision, law or administrative regulation of any state or of the United States, or any agency or instrumentality of either, or any applicable judgment or decree, or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party which breach or default has or may have a materially adverse effect on the ability of the Authority to perform its obligations under the Authority Documents, and no event has occurred and 7 is continuing which with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and the adoption, execution and delivery of the Authority Documents, if applicable, and compliance with the provisions on the Authority’s part contained therein, will not conflict in any material way with or constitute a material breach of or a material default under any constitutional provision, law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Authority or under the terms of any such law, regulation or instrument, except as may be provided by the Authority Documents. (e) All material authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the Authority of its obligations in connection with the Authority Documents have been duly obtained or, when required for future performance, are expected to be obtained, other than such appr ovals, consents and orders as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds; except as described in or contemplated by the Preliminary Official Statement and the Official Statement, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the Authority of its obligations under the Authority Documents have been duly obtained. (f) The Authority hereby agrees that it will notify the other parties hereto if, within the period from the date of this Purchase Agreement to and including the date twenty-five (25) days following the end of the underwriting period (as defined herein), the Authority discovers any pre-existing or subsequent fact or becomes aware of the occurrence of any event, in any such case, which might cause the Official Statement (as the same may have then been supplemented or amended) to contain any untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental authority, public board or body, pending, with service of process upon the Authority having been accomplished, or threatened in writing to the Authority: (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of Base Rental Payments with respect to the Lease Agreement or any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the other Authority Documents or the consummation of the transactions contemplated thereby or hereby, or contesting the exclusion of the interest on the Bonds from taxation or contesting the p owers of the Authority or its authority to issue the Bonds; (iii) which would be likely to result in any material adverse change relating to the business, operations or financial condition of the Authority; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official 8 Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) To the best of the Authority’s knowledge, there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of paragraph 6(g). (i) The information in the Official Statement set forth under the captions “THE AUTHORITY” does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) The Authority will refrain from taking any action, or permitting any action to be taken, with regard to which the Authority may exercise control, that results in the loss of the tax-exempt status of the interest on the Bonds. (k) The Authority will refrain from taking any action, or permitting any action to be taken, to reduce the amount of the Base Rental Payments while the Bonds are Outstanding, and the Authority will collect the Base Rental Payments in accordance with the Lease Agreement. (l) Any certificate signed by any officer of the Authority authorized to execute such certificate in connection with the execution, sale and delivery of the Bonds and delive red to the Representative shall be deemed a representation and warranty of the Authority to the Underwriters and the City as to the statements made therein but not of the person signing such certificate. Section 7. Representations, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriters and the Authority that: (a) The City is a chartered city duly organized and existing under and by virtue of the laws of the State. (b) The City has full legal right, power and authority to adopt or enter into, as the case may be, and to carry out and consummate the transactions on its part contemplated by the City Documents. (c) By all necessary official action, the City has duly authorized and approved the City Documents, has duly authorized and approved the Preliminary Official Statement and the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in, the City Documents and the consummation by it of all other transactions contemplated by the City Documents in connection with the issuance of the Bonds. As of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, and assuming due execution and delivery by the other parties thereto, if applicable, the City Documents will constitute the legally valid and binding obligations of the City enforceabl e in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally, or by the exercise of judicial discretion and the limitations on legal remedies against 9 municipal corporations in the State. The City has complied, and will at the Closing be in compliance in all material respects, with the terms of the City Documents. (d) The City is not in any material respect in breach of or default under any applicable constitutional provision, law or administrative regulation of any state or of the United States, or any agency or instrumentality of either, or any applicable judgment or decree, or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party which breach or default has or may have a materially adverse effect on the ability of the City to perform its obligations under the City Documents, and no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and the adoption, execution and delivery of the City Documents, if applicable, and compliance with the provisions on the City’s part contained therein, will not conflict in any material way with or constitute a material breach of or a material default under any constitutional provision, law, administrative regulation, judgment, decre e, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the City or under the terms of any such law, regulation or instrument, except as may be provided by the City Documents. (e) All material authorizations, approvals, licenses, permi ts, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the City of its obligations in connection with the City Documents have been duly obtained or, when required for future performance, are expected to be obtained, other than such approvals, consents and orders as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds; except as described in or contemplated by the Preliminary Official Statement, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the City of its obligations under the City Documents have been duly obtained. (f) The Preliminary Official Statement was as of its date, and the Official Statement is, and at all times subsequent to the date of t he Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement do not and will not contain and up to and including the Closing will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading (except that this representation does not include statements in the Official Statement under the captions “THE AUTHORITY” and “UNDERWRITING” and information regarding DTC and its book-entry only system, as to which no view is expressed). (g) The City will advise the Representative promptly of any proposal to amend or supplement the Official Statement. The City will advise the Representative promptly of the institution of any proceedings known to it by any governmental authority prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. 10 (h) As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental authority, public board or body, pending, with service of process upon the City having been accomplished, or threatened in writing to the City: (i) in any way questioning the corporate existence of the City or the titles of the officers of t he City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of Base Rental Payments with respect to the Lease Agreement or of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds, or the City Documents or the consummation of the transactions contemplated thereby or hereby, or contesting the exclusion of the interest on the Bonds from taxation, or contesting the powers of the Authority to issue the Bonds; (iii) which would be likely to result in any material adverse change relating to the business, operations or financial condition of the City; and (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) To the City’s knowledge, there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of paragraph 7(h). (j) Until the date which is twenty-five (25) days after the “end of the underwriting period” (as hereinafter defined), if any event shall occur of which the City is aware that would cause the Official Statement to contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements in the Official Statement, in light of the circumstances under which they were made, not misleading (except that this representation does not include information regarding DTC and its book entry only system, as to which no view is expressed), the City shall forthwith notify the Representative of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, in the Representative’s reasonable opinion, so that the statements therein as so supplemented will not be misleading in l ight of the circumstances existing at such time and the City shall promptly furnish to the Underwriters a reasonable number of copies of such supplement. As used herein, the term “end of the underwriting period” means the later of such time as: (i) the Authority delivers the Bonds to the Underwriters; or (ii) the Underwriters do not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Representative gives notice to the contrary, the “end of the underwriting period” shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the Representative at or prior to the Closing Date of the Bonds and shall specify a date (other than the Closing Date) to be deemed the “end of the underwriting period.” (k) Except as disclosed in the Preliminary Official Statement and the Official Statement, the City has not within the last five years failed to comply in any material respect with any continuing disclosure undertakings with regard to Rule 15c2-12, to provide annual reports or notices of material events specified in such rule. (l) The City will refrain from taking any action, or permitting any action to be taken, with regard to which the City may exercise control, that results in the loss of the tax -exempt status of the interest on the Bonds. 11 (m) The financial statements relating to the receipts, expenditures and cash balances of the City as of June 30, 2017 attached as Appendix B to the Official Statement fairly represent the receipts, expenditures and cash balances of the City. Except as disclosed in the Official Statement or otherwise disclosed in writing to the Representative, there has not been any materially adverse change in the financial condition of the City or in its operations since June 30, 2017 and there has been no occurrence, circumstance or combination thereof which is reasonably expected to result in any such materially adverse change. (n) To the extent required by law, the City will undertake, pursuant to the Continuing Disclosure Certificate and the other City Documents, to provide annual reports and notices of certain events, if material. A description of this undertaking is set forth in Appendix E to the Preliminary Official Statement and will also be set forth in the Official Statement. (o) Except in connection with the issuance of refunding bonds pursuant to the terms of the Indenture or as permitted under the Lease Agreement due to damage, destruction, or substantial interference with the use and occupancy by the City of the Property or any portion thereof, the City will refrain from taking any action, or permitting any action to be taken, to reduce the amount of the Base Rental Payments while the Bonds are Outstanding, and the City will pay the Base Rental Payments in accordance with the Lease Agreement. (p) Any certificate signed by any officer of the City authorized to execute such certificate in connection with the execution, sale and delivery of the Bonds and delivere d to the Representative shall be deemed a representation and warranty of the City to the Underwriters and the Authority as to the statements made therein but not of the person signing such certificate. Section 8. Conditions to the Obligations of the Underwriters. The Underwriters have entered into this Purchase Agreement in reliance upon the representations and warranties of the Authority and the City contained herein. The obligations of the Underwriter s to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Representative, to the accuracy in all material respects of the statements of the officers and other officials of the Authority and of the City, as well as authorized representatives of Bond Counsel and the Trustee made in any Bonds or other documents furnished pursuant to the provisions hereof; to the performance by the Authority and the City of their obligations to be performed hereunder at or prior to the Closing Date; and to the following additional conditions: (a) The representations, warranties and covenants of the City and the Authority contained herein shall be true and correct at the date hereof and at the time of the Closing, as if made on the Closing Date. (b) At the time of Closing, the City Documents and the Auth ority Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto, and the City Documents, the Authority Documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Representative. (c) At the time of the Closing, no material default shall have occurred or be existing under the City Documents, Authority Documents, or any other agreement or document pursuant to which any of the City’s financial obligations were executed and delivered, and the City shall not be in default in the payment of principal or interest with respect to any of its financial 12 obligations, which default would materially adversely impact the ability of the City to pay the Base Rental Payments. (d) In recognition of the desire of the Authority, the City and the Underwriter s to effect a successful public offering of the Bonds, and in view of the potential adverse impact of any of the following events on such a public offering, this Purchase Agreement shall be subject to termination in the discretion of the Representative by notification, in writing, to the Authority and the City prior to delivery of and payment for the Bonds, if at any time prior to such time, r egardless of whether any of the following statements of fact were in existence or known of on the date of this Purchase Agreement: (i) any event shall occur which makes untrue any material statement or results in an omission to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading, which event, in the reasonable opinion of the Representative would materially or adversely affect the ability of the Underwriters to market the Bonds; or (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Representative, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the C ongress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Agreement in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either su ch Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority affecting the federal or State tax status of the Authority or the City, or the interest on or with respect to bonds or notes (including the Bonds); or (iii) any legislation, ordinance, rule or regulation shall be enacted by any governmental body, department or authority of the State, or a decision by any court of competent jurisdiction within the State shall be rendered which materially adversely affects the market price of the Bonds; or (iv) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental authority having jurisdiction of the subject matter, to the effect that: (i) obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended; or (ii) the issuance, offering or sale of obligations of the general character of the 13 Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; or (v) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, to the effect that obligations of the general character of the Bonds, or the Bonds are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or (vi) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any domestic governmental authority or by any domestic national securities exchange, which are material to the marketability of the Bonds; or (vii) a general banking moratorium shall have been declared by federal, State or New York authorities, or the general suspension of trading on any national securities exchange; or (viii) there shall have occurred any outbreak or escalation of hostilit ies, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is materially adverse such as to make it, in the sole judgment of the Representative, impractical or inadvisable to proceed with the purchase or delivery of the Bonds as contemplated by the Official Statement (exclusive of any amendment or supplement thereto); or (ix) any rating of the Bonds or the rating of any obligations of the City secured by the City’s general fund shall have been downgraded or withdrawn by a national rating service, which, in the opinion of the Representative, materially adversely affects the market price of the Bonds; or (x) the commencement of any action, suit or proceeding described in Section 6(g) or Section 7(h). (e) at or prior to the Closing, the Representative shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Representative: (i) Resolution No. _______ (PFAS) adopted on [May 8], 2018 relating to the Bonds and authorizing the execution and delivery of the Bonds and the Authority Documents and the Official Statement signed by an authorized official of the Authority; (ii) Resolution No. _______ (CCS) adopted on [May 8], 2018 relating to the Bonds and authorizing the execution and delivery of the City Documents and the delivery of the Bonds and the Official Statement signed by an authorized official of the City; (iii) The City Documents and the Authority Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Representative; 14 (iv) The approving opinion of Bond Counsel dated the Closing Date and addressed to the Authority and the City, in substantially the form attached as Appendix F to the Official Statement, and a reliance letter thereon addressed to the Underwriters; (v) A supplemental opinion of Bond Counsel dated the Closing Date and addressed to the Underwriters, to the effect that: (A) the statements on the cover of the Official Statement and in the Official Statement under the captions “INTRODUCTION,” “THE BONDS,” “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS,” and “TAX MATTERS,” and in Appendix C— “DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” and Appendix F— “PROPOSED FORM OF OPINION OF BOND COUNSEL,” excluding any material that may be treated as included under such captions and appendices by any cross-reference, insofar as such statements expressly summarize provisions of the City Documents, the Au thority Documents and Bond Counsel’s final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the Closing Date, provided that Bond Counsel need not express any opinion with respect to any financial or statistical data contained therein or with respect to the book-entry system in which the Bonds are initially delivered; (B) The Purchase Agreement and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the City and the Authority, as applicable, and are the valid, legal and binding agreements of the City and the Authority, as applicable, enforceable in accordance with their respective terms, except that the rights and obligations under the Purchase Agreement and the Continuing Disclosure Certificate are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State, and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein; (C) The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (vi) The Official Statement, executed on behalf of the Authority and the City, and the Preliminary Official Statement; (vii) Evidence that the ratings on the Bonds are as described in the Official Statement; (viii) A certificate, dated the Closing Date, signed by a duly authorized officer of the Authority satisfactory in form and substance to the Representative to the effect that: (i) the representations, warranties and covenants of the Authority contained in this Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the Authority, and the Authority has complied with , in all material respects, all of the terms and conditions of this Purchase Agreement required to be complied with by the Authority at or prior to the Closing Date; (ii) no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make 15 the statements and information therein not misleading in any material respect; and (i ii) the Authority is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument; (ix) A certificate, dated the Closing Date, signed by a duly authorized officer of the City satisfactory in form and substance to the Representative to the effect that: (i) the representations, warranties and covenants of the City contained in this Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the City, and the City has complied with , in all material respects, all of the terms and conditions of the Purchase Agreement required to be complied with by the City at or prior to the Closing Date; (ii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Official Statement (other than information in the Official Statement under the captions “THE AUTHORITY” and “UNDERWRITING” and information regarding DTC and its book entry only system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (iv) the City is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, w hich would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (x) An opinion dated the Closing Date and addressed to the Underwriters, of the City Attorney, as counsel to the Authority, to the effect that: (A) The Authority is a public body, organized and existing under the Constitution and laws of the State, including the JPA Act and the JPA Agreement; (B) Resolution No. _______ (PFAS) relating to the Bonds has been duly adopted by the Authority, is in full force and effect and has not been modified, amended, rescinded or repealed since its date of adoption; (C) Except as otherwise disclosed in the Official Statement, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental authority or body, pending, with service of process upon the Authority having been accomplished, or to the best knowledge of such counsel threatened in writing against the Authority, challenging the creation, organization or existence of the Authority, or the validity of the Auth ority Documents or seeking to restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement or the repayment of the Bonds or in any way contesting or affecting the validity of 16 the Authority Documents or contesting the authority of the Authority to enter into or perform its obligations under any of the Authority Documents; (D) The execution and delivery of the Authority Documents and the issuance of the Bonds and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Authority is subject, which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents; and (xi) an opinion dated the Closing Date and addressed to the Underwriters, of the City Attorney, as counsel to the City, to the effect that: (A) The City is a municipal corporation, duly organized and existing under and by virtue of the laws of the State; (B) Resolution No. _______ (CCS) relating to the Bonds has been duly adopted by the City Council, is in full force and effect and has not been modified, amended, rescinded or repealed since its date of adoption; (C) Except as otherwise disclosed in the Official Statement and to the best knowledge of such counsel, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental authority or body, pending, with service of process upon the City having been accomplished, or threatened in writing against the City, challenging the creation, organization or existence of the City, or the validity of the City Documents or seeking to restrain or enjoin the payment of the Base Rental Payments or the repayment of the Bonds or in any way contesting or affecting the validit y of the City Documents or contesting the authority of the City to enter into or perform its obligations under any of the City Documents, or which, in any manner, questions the right of the City to pay the Base Rental Payments under the Lease Agreement; (D) To the best of such counsel’s knowledge the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents; and (xii) An opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, in its capacity as Disclosure Counsel, dated the Closing Date and addressed to the Authority, the City and the Underwriters, to the effect that, based upon the information made available to them in the course of their participation in the preparation of the Official Statement and without passing on and without assuming any responsibility for the accuracy, comp leteness and fairness of the statements in the Official Statement, and having made no independent investigation or verification thereof, and stated as a matter of fact and not opinion that, during the course of its representation of the Authority and the City on this matter, no facts came to the attention of the attorneys in its firm rendering legal services in connection with the Official Statement which caused 17 them to believe that the Official Statement, as of its date (except any CUSIP numbers, financial , accounting, statistical or economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, management discussion and analysis, information relating to The Depository Trust Company and its book-entry system, and Appendices C and F thereto, included or referred to therein, which shall be expressly exclude d from the scope of this paragraph and as to which such firm will express no opinion or view) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading ; (xiii) An opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, counsel to the Underwriters, in form and substance satisfactory to the Representative; (xiv) An opinion of counsel to the Trustee, addressed to the Underwriters and dated the Closing Date, in form and substance satisfactory to the Representative and to Bond Counsel; (xv) A certificate, dated the Closing Date, signed by a duly authorized official of the Trustee in form and substance satisfactory to the Representative; (xvi) The preliminary and final Statement of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the Government Code and Section 8855(g) of the Government Code; (xvii) A copy of the executed Blanket Issuer Letter of Representations by and between the Authority and DTC relating to the book-entry system; (xviii) The tax and nonarbitrage certificate of the Authority and the City in form and substance to the reasonable satisfaction of Bond Counsel and the Representative; (xix) A certificate, dated the date of the Preliminary Official Statement, of the City, as required under Rule 15c2-12; (xx) A certificate, dated the date of the Preliminary Official Statement, of the Authority, as required under Rule 15c2-12; (xxi) Certified copies of the JPA Agreement and all amendments thereto and related certificates issued by the Secretary of State of the State; (xxii) A certified copy of the general resolution of the Trustee authorizing the execution and delivery of certain documents by certain officers of the Trustee, which resolution authorizes the execution and delivery of the Indent ure and the authentication and delivery of the Bonds by the Trustee; (xxiii) a copy of an ALTA or CLTA title insurance policy in an amount equal to the principal amount of the Bonds, insuring the City’s leasehold interest in the Property, subject only to permitted encumbrances or such other encumbrances approved in writing by the Representative; and (xxiv) Such additional legal opinions, certificates, proceedings, instruments or other documents as Bond Counsel or the Underwriters may reasonably request. 18 Section 9. Changes in Official Statement. After the Closing, neither the Authority nor the City will adopt any amendment of or supplement to the Official Statement to which the Representative shall reasonably object in writing. Within 90 days after the Closing or within 25 da ys following the “end of the underwriting period” (as defined in Rule 15c2-12), whichever occurs first, if any event relating to or affecting the Bonds, the Trustee, the City or the Authority shall occur as a result of which it is necessary, in the opinion of the Representative, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will forthwith prepare and furnish to the Underwriters an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City and the Authority shall cooperate with the Representative in the filing by the Representative of such amendment or supplement to the Official Statement with the MSRB. The Underwriters acknowledges that the “end of the underwriting period” will be the Closing Date. Section 10. Expenses. The Authority or the City will pay or cause to be paid the approved expenses incident to the performance of its obligations hereunder and certain expenses relating to the sale of the Bonds, including, but not limited to (a) the cost of the preparation and printing or other reproduction of the Authority Documents and the City Documents (other than this Purchase Agreement); (b) the fees and disbursements of Bond Counsel, Disclosure Counsel, the Municipal Advisor and any other experts or other consultants retained by the Authority or the City; (c) the costs and fees of the credit rating a gencies; (d) the cost of preparing and delivering the definitive Bonds; (e) the cost of providing immediately available funds on the Closing Date; (f) the cost of the printing or other reproduction of the Preliminary Official Statement and Official Statement and any amendment or supplement thereto, including a reasonable number of certified or conformed copies thereof; (g) the Underwriters’ out-of-pocket expenses (included in the expense component of the Underwriter’s discount) incurred by the Underwriters on behalf of the City’s employees which are incidental to implementing this Purchase Agreement; and (h) the fees for counsel to the Underwriters. The Underwriters will pay the expenses of the preparation of this Purchase Agreement, including CDIAC fees, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriters in connection with the public offering and distribution of the Bonds. Section 11. Notices. Any notice or other communication to be given to the Underwriters under this Purchase Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, One Montgomery Street, 35th Floor, San Francisco, CA 94104, Attention: Sara Oberlies Brown. The approval of the Representative when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Representative and delivered to the Authority and to the City. All notices or communications hereunder by any party shall be given and served upon each other party. Any notice or communication to be given the Authority under this Purchase Agreement may be given by delivering the same in writing to the Santa Monica Public Financing Authority, c/o City of Santa Monica, 1717 4th Street, Suite 250, Santa Monica, California 90401, Attention: Executive Director. Any notice or communication to be given the City under this Purchase Agreement may be given by delivering the same in writing to the City of Santa Monica, 1717 4th Street, Suite 250, Santa Monica, California 90401, Attention: City Manager. 19 Section 12. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Authority, the City and the Underwriters (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the Authority and the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Bonds. Section 13. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 14. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 20 Section 15. Governing Law. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State. STIFEL, NICOLAUS & COMPANY, INCORPORATED By: Title: Authorized Officer Accepted as of the date first stated above: CITY OF SANTA MONICA By: Its: City Manager Time of Execution: _____ a.m./p.m. Pacific Time SANTA MONICA PUBLIC FINANCING AUTHORITY By: Its: Executive Director Time of Execution: _____ a.m./p.m. Pacific Time A-1 EXHIBIT A SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2018 (DOWNTOWN FIRE STATION PROJECT) MATURITY SCHEDULE Maturity Date (July 1) Principal Amount Interest Rate Initial Offering Price 10% Test Used Hold the Offering Price Rule Used $ % B-1 EXHIBIT B SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2018 (DOWNTOWN FIRE STATION PROJECT) FORM OF ISSUE PRICE CERTIFICATE The undersigned, on behalf of [FIRM NAME] (the “[Underwriter/Selling Group Member]”), hereby certifies as set forth below with respect to the sale and issuance of the above -captioned bonds (the “Bonds”). 1. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Any Maturity of the 10% Test Maturities offered to the Public by the [Underwriter/Selling Group Member] on or before the Sale Date was offered at the interest rates listed on Schedule A. Schedule A lists the amount of each 10% Test Maturity allotted to the [Underwriter/Selling Group Member] and sold to the Public on the Sale Date. (b) Neither the [Underwriter/Selling Group Member] nor any broker-dealer who is participating in the initial sale of the Bonds as a party to a retail distribution agreement with the [Underwriter/Selling Group Member] has offered or sold any unsold bonds within a Maturity of the Hold-the-Offering-Price Maturities listed on Schedule A allotted to it at a price that is higher than the respective initial offering prices listed on Schedule A for that Maturity of the Hold-the-Offering Price Maturities during the Holding Period. 2. Defined Terms. (a) 10% Test Maturities means those unsold bonds within Maturities of the Bonds listed in Schedule A hereto as the “10% Test Maturities.” (b) Hold-the-Offering-Price Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “Hold-the-Offering-Price Maturities.” (c) Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date (______ __, 2018), or (ii) the date on which the underwriters have sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-the-Offering-Price Maturity. (d) Issuer means the Santa Monica Public Financing Authority. (e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities. (f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an underwriter or a related party to an underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. B-2 (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is ______ __, 2018. (h) underwriter (when used with a lower case “u”) means: (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public; and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the [Underwriter/Selling Group Member]’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Bond Counsel in connection with rendering their opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. [Underwriter/Selling Group Member], as [Underwriter][Selling Group Member] By: Name: Dated: ______ __, 2018 B-3 SCHEDULE A SALE PRICES OF THE 10% TEST MATURITIES AND INITIAL OFFERING PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES 10% Test Maturities Allotted: Maturity Date (July 1) Principal Amount Allotted Interest Rate Initial Offering Price Amount Sold by _________ to Public as of Sale Date at Initial Offering Price $ % Hold-the-Offering Price Maturities Allotted: Maturity Date (July 1) Principal Amount Allotted Interest Rate Initial Offering Price Amount Sold by _________ to Public as of Sale Date at Initial Offering Price $ % B-4 SCHEDULE B PRICING WIRE OR EQUIVALENT COMMUNICATION (Attached) REFERENCE: Resolution No. 11111 (CCS) & Resolution No. 15 (PAS)