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Home My WebLink About16 LMT OB BONDS 95-1 08-17-98 NO. 16 · · 8-17-98 , Inter-Com DATE: August 17, 1998 TO: FROM: SUBJECT: William A. Huston, City Manager Ronald A. Nault, Finance Director CITY OF TUSTIN LIMITED OBLIGATION IMPROVEMENT BONDS REASSESSMENT DISTRICT NO. 95-1 SUMMARY: In February of 1996 the City Council approved the formation of the Tustin Financing Authority to facilitate the reorganization of Assessment Districts 85-1 and 86-2, and the concurrent refinancing of the outstanding debt of the two Districts into Reassessment District 95-1, made up of owner occupied residential property with fixed rote bond assessments, and Reassessment District 95-2, made up of commercial and vacant parcels with variable rate assessments. In keeping with the City Council's policy as stated in the East Tustin Development Agreement, as vacant parcels are developed as owner occupied residential property, the variable rate debt is converted to fixed rate debt for the remaining life of the original issue and the parcels become part of Reassessment District 95-1. RECOMMENDATION: . , , Adopt Resolution No. 98-77 making changes in the amounts of certain assessments in the City of Tustin Reassessment District No. 95-2 (Tustin Ranch) and modifying the Reassessment Report, therefore approving the Second Supplemental Reassessment Report. Adopt Resolution No. 98-74 authorizing the issuance of not to exceed $4,195,000 aggregate principal amount of City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-1 (Tustin Ranch), Fixed Rate Bonds, Group Two, Approving the execution and delivery of a Third Supplemental Fiscal Agent Agreement, a Bond Purchase Agreement and a Continuing Disclosure Agreement (Series C), and the preparation of an Official Statement and other matters related thereto, approving forms of the enclosed Third Supplemental Fiscal Agent Agreement; Bond Purchase Agreement for City. Bonds; Continuing Disclosure Agreement (Series C) and a Preliminary Official Statement. Adjourn the City Council meeting and open a meeting as the Tustin Public Financing Authority. FISCAL IMPACT: None. DISCUSSION: The City of Tustin Reassessment District 95-2 is supported by variable rate debt, with liens applied to vacant and commercial parcels within the District. The City Council's policy as stated in the East Tustin Development Agreement requires that as parcels are developed as owner occupied residential property, the Developer will convert the outstanding variable rate for said parCels in Assessment District 95-2 to fixed rate debt, and the parcels are transferred to Assessment District 95-1. The Developer, The Irvine Company, has requested that certain parcels with variable rate liens totalling approximately $4.2 million be converted to fixed rate and transferred to Assessment District 95-1. This is the second conversion from variable to fixed rate in the Reassessment District. Net of this conversion, there will be approximately $33.6 million outstanding Reassessment District 95-2 Bonds with maturities in 2011 and 2013. Finance Director RAN:ts Attachments · RAN:TPFA1998Bonds.Agenda.doc -E- -' 'pog!~m p~ potmLtuoo 'poAo.tddu .,(qo.toq o.m 'uo.t~nIoso~I s.tq, .gq po,~Idmo,uoo suo.tlo~ oql ol pol~IOa ~o ql.tA~ uo.tlootruoo u! 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APPROVED and ADOPTED by the City Council of the City of Tustin on August 17, ATTEST: Mayor City Clerk -3- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATE OF CALIFORNIA ) ) COUNTY OF ORANGE ) SS I, Pamela Stoker, City Clerk of the City of Tustin, hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a regular meeting of the City Council of said City duly and regularly held atthe regular meeting place thereof on August 17, 1998, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following roll call vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS' ABSENT: COUNCIL MEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 300 Centennial Way, Tustin, California, a location freely accessible to members of the public,, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, true and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said Resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: ,1998 City Clerk 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 RESOLUTION NO. 98-74 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $4,195,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF TUSTIN LIMITED OBLIGATION IMPROVEMENT BONDS REASSESSMENT DISTRICT NO. 95-2 (TUSTIN RANCH), FIXED RATE BONDS, GROUP TWO, APPROVING THE EXECUTION AND DELIVERY OF A THIRD SUPPLEMENTAL FISCAL AGENT AGREEMENT, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT (SERIES C) AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996 (the "Original Agreement"), by and between the City and the Fiscal Agent, the City issued its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series A (the "Series A Bonds") in the aggregate principal amount of $41,500,000; WHEREAS, the Original Agreement was amended and supplemented pursuant to a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the Fiscal Agent, and a Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, by and between the City and the Fiscal Agent (as so amended and supplemented, the "Second Amended Original Agreement") (all capitalized terms used in these recitals shall have the meanings ascribed thereto in the "Second Amended Original Agreement"); WltEREAS, the Series A Bonds were originally issued as Adjustable Rate Bonds; WHEREAS, in acCordance with the provisions of the Second Amended Original Agreement, all or a portion of the Series A Bonds may, and in certain circumstances are required to be, converted to Fixed Rate Bonds; WHEREAS, $3,647,741.53 aggregate principal amount of Series A Bonds are now being converted to Fixed Rate Bonds (the "Group Two Fixed Rate Bonds"); WHEREAS, the Second Amended Original Agreement provides that the Second Amended Original Agreement and the fights and obligations of the City, the Fiscal Agent and the Owners of Fixed Rate Bonds, but only as such rights and obligations relate solely to such Fixed Rate Bonds, may be modified or amended, as of the Conversion Date for such Fixed Rate Bonds, by a Supplemental Agreement which the City and the Fiscal Agent may enter into without the consent of any Bond Owners, but only if such Fixed Rate Bonds have been remarketed by the Remarketing Agent with such modified or amended rights and obligations; 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHEREAS, the City desires to amend and modify the Second Amended Original Agreement with respect to certain of the rights and obligations relating solely to Group Two Bonds as of Conversion Date for the Group Two Fixed Rate Bonds; WHEREAS, the Second Amended Original Agreement provides that, in connection with the conversion of each group of Series A Bonds to Fixed Rate Bonds pursuant to the Second Amended Original Agreement, the City may, subject to the requirements of the Act, by Supplemental Agreement establish one or more Series of Bonds, and the City may issue and the Fiscal Agent may authenticate and deliver Bonds of any Series so established, in such principal amount as shall be determined by the City in said Supplemental Agreement, but only upon compliance by the City with the provisions of the Second Amended Original Agreement; WHEREAS, in connection with the conversion of the Group Two Fixed Rate Bonds, the City desires to establish an additional Series of Bonds (the "Series Two Bonds", together with the Group Two Fixed Rate Bonds, the "Group Two Bonds") for one or more of the purposes specified in the Second Amended Original Agreement; and WHEREAS, the Bonds of such additional Series (the "Series Two Bonds") are to be issued in an aggregate principal amount of not to exceed $547,000; WHEREAS, in order to provide for the authentication and delivery of the Group Two Fixed Rate Bonds and the Series Two Bonds (collectively, the "Group Two Bonds"), to establish and declare the terms and conditions upon which the Group Two Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City proposes to enter into a Third Supplemental Fiscal Agent Agreement with the Fiscal Agent (such Third Supplemental Fiscal Agent Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Third Supplemental Agreement"); WHEREAS, the Tustin Public Financing Authority (the "Authority") intends to isgue its Revenue Bonds (Tustin Ranch), Series C (the "Authority Bonds"), and use a portion of the proceeds of the sale thereof to purchase the Group Two Bonds from the City; . WHEREAS, the Authority has presented the City with a proposal, in the form of a Bond Purchase Agreement, to purchase the Group Two Bonds (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Bond Purchase Agreement"); WHEREAS, PaineWebber Incorporated, as underwriter (the "Underwriter"), has submitted to the Authority a proposal to purchase the Authority Bonds; WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Authority Bonds, the Underwriter must have reasonably determined that an obligated person has undertaken in a written agreement or contract for the benefit of the holders of the Authority Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; -2- 8 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHEREAS, in order to cause such requirement to be satisfied, the City desires to enter into a Continuing Disclosure Agreement (Series C) with State Street Bank and Trust Company of California, N.A., as Trustee for the Authority Bonds (such Continuing Disclosure Agreement (Series C), in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement"); WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Third Supplemental Agreement; (b) the Bond Purchase Agreement; (c) the Continuing Disclosure Agreement; and (d) the Preliminary Official Statement to be used in connection with the offering and sale of the Authority Bonds, which contains certain information about the City, the Second Amended Original Agreement, the Third Supplemental Agreement, the Group Two Bonds, the City's Reassessment District No. 95-1, the City's Reassessment District No. 95-2 and the proceedings relating thereto (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement"); and WHEREAS, the City desires to proceed to issue and sell the Group Two Bonds and to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Group Two Bonds; NOW, THEREFORE, BE IT RESOLVED by the City Council the City of Tustin as follows: Section 1. Subject to the provisions of Section 2 hereof, the conversion and issuance of the Group Two Fixed Rate Bonds, in the aggregate principal amount of not to exceed $4,195,000, and the issuance of the Series Two Bonds, in the aggregate principal amount of not to exceed $547,000 on the terms and conditions set' forth in, and subject to the limitations specified in, the Second Amended Original Agreement, as amended and supplemented by the Third Supplemental Agreement (as so amended and supplemented, the "Fiscal Agent Agreement"), are hereby authorized and approved. The Group Two Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be issued in the form, and shall be as otherwise provided in the Fiscal Agent Agreement. Section 2. The Third Supplemental Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Mayor of the City, the Mayor Pro Tem of the City, or such other member of the City Council as the Mayor may designate, the City Manager of the City and the Director of Finance/Treasurer of the City, or such other officer of the City as the City Manager or the Director of Finance/Treasurer may designate (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Third -3- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Supplemental Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Third Supplemental Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Group Two Bonds in excess of $4,195,000, shall not result in a final maturity date of the Group Two Bonds later than September 2, 2013 and shall not result in a true interest cost on the Group Two Bonds in excess of 8.17%. Section 3. The Bond Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Bond Purchase Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Bond Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate purchaser's discount (not including any original issue discount) from the principal amount of the Group Two Bonds in excess of 1.5% of the aggregate principal amount of the Group Two Bonds. Section 4. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 5. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Authority Bonds is hereby authorized and approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to certify to the Underwriter that the Preliminary Official Statement has been "deemed fmal" for purposes of Rule 15c2-12. Section 6. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the Authority Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement, and any amendment or supplement thereto, for and in the name of the City. Section 7. The Authorized Officers are hereby authorized and directed to investigate, or cause to be investigated, the availability and economic viability of bond insurance for the Group -4- 1 2 3 4 5 10 11 12 13 .14 15 16 17 18 19 20 21 22 23 24 25 26 27 '28 Two Bonds and/or the Authority Bonds and, if such insurance is determined to be cost effective, to select a bond insurer and to negotiate the terms of such bond insurance. Section 8. The Authorized Officers are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the issuance of the Group Two Bonds and the transactions contemplated by the Fiscal Agent Agreement, the Bond Purchase Agreement, the Continuing Disclosure Agreement, the Official Statement and this Resolution. Section 10. All actions heretofore taken by the officers and employees of the City with respect to the issuance and sale of the Group Two Bonds, or in connection with or related to any of the agreements or documents referenced herein, are hereby approved, confirmed and ratified. Section 11. This Resolution shall take'effect immediately upon its adoption. APPROVED and ADOPTED by the City Council of the City of Tustin on August 17, 1998. Mayor ATTEST: City Clerk -5- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss I, Pamela Stoker, City Clerk of the City of Tustin, California hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a regular meeting of the City Council of said City duly and regularly held at the regular meeting place thereof on August 17, 1998, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 300 Centennial Way, Tustin, California, a location freely accessible to members of the public, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, tree and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said Resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: ,1998 City Clerk THIRD SUPPLEMENTAL FISCAL AGENT AGREEMENT by and between the CITY OF TUSTIN and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent Dated as of ,1998 RELATING TO CITY OF TUSTIN LIMITED OBLIGATION IMPROVEMENT BONDS REASSESSMENT DISTRICT NO. 95-2 (TUSTIN RANCH) FIXED RATE BONDS, GROUP TWO DOCSLA1:258287.4 42081-4-TH6-08/10/98 TABLE OF CONTENTS PART 1 ADDITION OF ARTICLE XIv Part 1.1. Addition of Article XIV .................................................................................................. 3 ARTICLE XIV GROUP TWO BONDS Section 14.01. Section 14.02. Section 14.03. Section 14.04. Section 14.05. Section 14.06. Section 14.07. Section 14.08. Section 14.09. Section 14.10. Section 14.11. Section 14.12. Section 14.13. Section 14.14. Section 14.15. Section 14.16. Section 14.17. Definitions .............................................................................................................. 3 Authorization and Issuance of Series Two Bonds ................................................. 9 Terms of Group Two Bonds .................................................................................. 9 Form of Group Two Bonds ................................................................................... 11 Application of Amounts .................................................................................... ~.. 11 Costs Account (Group Two) ................................................................................. 11 Redemption of Group Two Bonds ....................................................................... 12 Selection of Group Two Bonds for Redemption ................................................. 13 Group Two Accounts ........................................................................................... 13 Group Two Tax Covenants .................................................................................. 14 Rebate Fund (Group Two) ................................................................................... 14 Report to California Debt and Investment Advisory Commission ...................... 15 Modification or Amendment of Agreement ......................................................... 15 Defeasance of Group Two Bonds ........................................................................ 15 Reporting Requirements ...................................................................................... 17 Third Party Beneficiary ........................................................................................ 18 Group Two Bonds Original Issue Discount ......................................................... 18 PART 2 SPECIFIC AMENDMENTS Part 2.1. Amendment to Section 6.08 .......................................................................................... 18 Part 2.2. Amendment of Section 8.01 ................................................................... : ...................... 18 Part 2.3. Amendment of Section 12.03 ........................................................................................ 18 Part 2.4. Amendment of Section 12.08 ........................................................................................ 19 PART3 MISCELLANEOUS Part 3.1. Effect of Third Supplemental Agreement .................................................................... 20 Part 3.2. Execution in Several Counterparts ............................................................................... 20 Part 3.3. Effective Date of Third Supplemental Agreement ....................................................... 20 Exhibit D FORM OF GROUP TWO BONDS Exhibit E DESIGNATED PARCELS (GROUP TWO) DOCSLA1:258287.4 42081-4-TH6-08/I 0/98 THIRD SUPPLEMENTAL FISCAL AGENT AGREEMENT THIS THIRD SUPPLEMENTAL FISCAL AGENT AGREEMENT (this "Third Supplemental Agreement") is made and entered into as of , 1998 by and between the CITY OF TUSTIN, a general law city and municipal corporation organized and existing under and by virtue of the laws of the State of California (the "City"), and STATE STREET BANK AND TRUST COMPANY OF 'CALIFORNIA, N.A., a national banking association organized and existing under and by virtue of the laws of the United States of America, as fiscal agent (the "Fiscal Agent"). W I TN E S S E T H: · ' WHEREAS, pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996 (the "Original Agreement"), by and between the City and the Fiscal Agent, the City issued its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series A (the "Series A Bonds") in the aggregate principal amount of $41,500,.000; WHEREAS, the Original Agreement was amended and supplemented pursuant to a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the Fiscal Agent, and a Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, by and between the City and the Fiscal Agent (as so amended and supplemented, the "Second Amended Original Agreement") (all capitalized terms used in these recitals shall have the meanings ascribed thereto in the "Second Amended Original Agreement"); WHEREAS, the Series A Bonds were originally issued as Adjustable Rate Bonds; WHEREAS, in accordance with the provisions of the Second Amended Original Agreement, all or a portion of the Series A Bonds may, and in certain circumstances are required to be, converted to Fixed Rate Bonds; WHEREAS, $3,647,741.53 aggregate principal amount of Series A Bonds are now being converted to Fixed Rate Bonds (the "Group Two Fixed Rate Bonds"); WHEREAS, the Second Amended Original Agreement provides that the Second Amended Original Agreement and the rights and obligations of the City, the Fiscal Agent and the Owners of Fixed Rate Bonds, but only as such rights and obligations relate solely to such Fixed Rate Bonds, may be modified or amended, as of the Conversion Date for such Fixed Rate Bonds, by a Supplemental Agreement which the City and the Fiscal Agent may enter into without the consent of any Bond Owners, but only if such Fixed Rate Bonds have been remarketed by the Remarketing Agent with such modified or amended rights and obligations; DOCSLA1:258287.4 42081 4-T1t6-08/10/98 WHEREAS, the City desires to amend and modify the Second Amended Original Agreement with respect to certain of the rights and obligations relating solely to Group Two Bonds as of Conversion Date for the Group Two Fixed Rate Bonds; WHEREAS, the Second Amended Original Agreement provides that, in connection with the conversion of each group of Series A Bonds to Fixed Rate Bonds pursuant to the Second Amended Original Agreement, the City may, subject to the reqUirements of the Act, by Supplemental Agreement establish one or more Series of Bonds, and the City may issue and the Fiscal Agent may authenticate and deliver Bonds of any Series so established, in such principal amount as shall be determined by the City in said Supplemental Agreement, but only upon compliance by the City with the provisions of the Second Amended Original Agreement; WHEREAS, in connection with the conversion of the Group Two Fixed Rate Bonds, the City desires to establish an additional Series of Bonds (the "Series Two Bonds", together with the Group Two Fixed Rate Bonds, the "Group Two Bonds") for one or more of the purposes specified in the Second Amended Original Agreement; and WHEREAS, the City has determined that all things necessary to cause the authorization, execution and delivery of this Third Supplemental Agreement have in all respects been duly authorized; NOW, THEREFORE, in consideration of the covenants and provisions herein set forth and for other valuable consideration the receipt and sufficiency of which is hereby 'acknowledged, the parties hereto do hereby agree as follows: DOCSLA1:258287.4 42081-4-Ti16-08/10/98 PART I ADDITION OF ARTICLE XIV Part 1.1. Addition of Article XIV. The Second Amended Original Agreement is hereby amended by adding thereto an additional Article as follows: ARTICLE XIV GROUP TWO BONDS Section 14.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Agreement, of any Supplemental Agreement and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. "Code (Group Two)" means the Internal Revenue Code of 1986. "Continuing Disclosure Agreement (Series C)" means the Continuing Disclosure Agreement (Series C), dated as of ,1998, by and between the City and the Authority Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Conversion Date (Group Two)" means ,1998. "Costs Account (Group Two)" means the account within the Costs of Issuance Fund by that name established and held by the Fiscal Agent pursuant, to Section 14.06. "Designated Parcels (Group Two)" means the parcels of real proPerty within Reassessment District designated by the City, pursuant to Section 7.01(e) of the 'Agreement, to represent the Group Two Bonds, the assessor's parcel numbers for which are set forth in Exhibit C hereto. "Group Two Bonds" means, collectively, the Group Two Fixed Rate Bonds and the Series Two Bonds. "Group Two Costs" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, conversion, remarketing, sale and delivery of the Group Two Bonds and the authorization, issuance, sale and delivery of the Series C Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, fees, expenses and charges of the Fiscal Agent and its counsel, fees, expenses and charges of the Authority Trustee and its counsel, fees, charges and disbursements of underwriters, remarketing agents, attorneys, financial advisors, accounting firms, consultants, and other professionals, and fees and charges for preparation, execution and safekeeping of the Group Two Bonds and the Series C Bonds and any other Cost, charge or fee in connection with the issuance DOCSLA1:258287.4 42081-4-Tt16-08/10/98 of the Group Two Bonds and the Series C Bonds, including the premium for the municipal bond insurance policy securing payment of the Series C Bonds. "Group Two Fixed Rate Bonds" means the $ aggregate principal amount of Fixed Rate Bonds, the Conversion Date for which is the Conversion Date (Group Two). "Insurance Policy (Series C)" means the Municipal Bond Insurance Policy, and any endorsement thereto, issued by the Insurer (Series C) guaranteeing the scheduled payment of the principal of and interest on the Series C Bonds. "Insurer (Series C)" means Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto. "Original Purchaser (Group Two)" means the Authority, as the original purchaser of the Group Two Bonds. "ParticiPating Underwriter (Series C)" has the meaning ascribed to Participating Underwriter in the Continuing Disclosure Agreement (Series C). "Permitted Investments (Group Two)" means any of the following to the extent then permitted by the general laws of the State of California: (1) (a) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America ("United States Treasury Obligations"), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of AmeriCa when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. (2) Federal Housing Administration debentures. (3) The listed obligations of government-sponsored agencies which are not backed by · the full faith and credit of the United States of America: Federal Home Loan Mortgage Corporation (FHLMC) Participation certificates (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) Senior debt obligations DOCSLA1:258287.4 42081-4-T1t6-08/10/98 - Farm Credit Banks (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) Consolidated systemwide bonds and notes - Federal Home Loan Banks (FHL Banks) Consolidated debt obligations - Federal National Mortgage Association (FNMA) Senior debt obligations Mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) - Student Loan Marketing Association (SLMA) Senior debt obligations (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) - Financing Corporation (FICO) Debt obligations - Resolution Funding Corporation (REFCORP) Debt obligations (4) Unsecured certificates of deposit, time deposits, deposit accounts and bankers' acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated "A-I" or better by S&P. (5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. (6) Commercial paper (having original maturities of not more than 270 days) rated "A- 1 +" by S&P and "Prime- 1" by Moody' s. (7) Money market funds rated "AAm" or "AAm-G" by S&P, or better. (8) State Obligations, which means (a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated "A3" by Moody's and "A" by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct, general short-term obligations of any state agency or .subdivision or agency described in (a) above and rated "A-l+" by S&P and "Prime-l" by Moody' s. DOCSLA1:258287.4 42081-4-T1t6-08/10/98 (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated "AA" or better by S&P and "Aa" or better by Moody's. (9) Pre-refunded municipal obligations rated "AAA" by S&P and "Aaa" by Moody's meeting the following requirements: (a) the municipal obligations are (i) not subject to redemption prior to maturity or (ii) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations. other than as set forth in such instructions; (b) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; (c) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ("Verification"); (d) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (e) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and (f) the cash or the United States Treasury. Obligations are not available to Satisfy any other claims, including those by or against the trustee or escrow agent. (10) Repurchase agreements: A. With (i) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least "A" by S&P and Moody's; or (ii) any broker- dealer with "retail customers" or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long- term debt rated at least "A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (iii) any other entity rated "A" or better by S&P and Moody's and acceptable to the Insurer (Series C) provided that: DOCSLA1:258287.4 42081-4-TH6-08/10/98 a. The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); b. The Fiscal Agent or a third party acting solely as agent therefor or for the City (the "Holder of the Collateral") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor's books); c. The repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the 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 the Collateral is in possession); d. All other requirements of S&P in respect of repurchase agreements shall be met; e. The repurchase agreement shall provide that if during its term the provider's rating by either Moody's or S&P is withdrawn or suspended or falls below "A-" by S&P or "A3" by Moody's, as appropriate, the provider must, at the direction of the City or the Fiscal Agent (who shall give such direction if so directed by the Insurer (Series C)), within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement with no penalty or premium to the City or the Fiscal Agent. Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with no evergreen provision), collateral levels need not be as specified in (a) above, so long as such collateral levels are 103% or better and the provider is rated at least "A" by S&P and Moody's, respectively. (11) 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 monoline financial guaranty insurance company, claims payability, or the guarantor is rated at least "AA" by S&P and "Aa" by Moody's; provided, that, by the terms of the investment agreement: (a) interest payments are to be made to the Fiscal Agent at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Bonds; (b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice; the City and DOCSLA1:258287.4 42081-4-T!t6-08/10/98 the Fiscal Agent hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (c) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof; (d) the City or the Fiscal Agent receives the opinion of domestic counsel (which opinion shall be addressed to the City and the Insurer (Series C)) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable) in form and substance acceptable, and addressed to, the Insurer (Series C); (e) the investment agreement shall provide that if during its term (i) the provider's rating by either S&P or Moody's falls below "AA-" or "Aa3", respectively, the provider shall, at its option, within 10 days of receipt 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 City, the Fiscal Agent or a third party acting solely as agent therefor ( the "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 S&P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); or (b) repay the principal of and accrued but unpaid interest on the investment and (ii) the provider's rating by either Moody's or S&P is withdrawn or suspended or falls below "A3" or "A-" respectively, the provider must, at the direction of the City or the Fiscal Agent (who shall give such direction if so directed by the Insurer (Series C)), within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the City or Fiscal Agent; (f) 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 the 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 the Collateral is in possession); (g) the investment agreement must provide that if during its term (x) 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 Fiscal Agent (who shall give such direction if so directed by the Insurer (Series C)), be accelerated and amounts invested and accrued but unpaid interest thereon shall be DOCSLA1:258287.4 42081-4-TH6-08/10/98 repaid to the City or Fiscal Agent, as appropriate, and (y) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ("event of insolvency"), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest 'thereon shall be repaid to the City or Fiscal Agent, as appropriate. "Rebate Fund (Group Two)" means the fund by that name established and held by the Fiscal Agent pursuant to Section 14.11. "Rebate Requirement (Series C)" has the meaning ascribed to Rebate Requirement in the Tax Certificate (Series C). "Reserve Requirement (Group Two)" means, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Series C Bonds, (b) maximum annual debt service on the Series C Bonds, and (c) 125% of average annual debt service on the Series C Bonds. "Second Supplemental Agreement" means the Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, by and between the City and the Fiscal Agent. "Series C Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series C, issued under the Authority Indenture. "Series Two Bonds" means the City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series Two, issued hereunder. "Tax Certificate (Series C)" means the Tax Certificate executed by the Authority and the City at the time of issuance of the Series C Bonds relating to the requirements of Section 148 of the Code (Group Two), as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Third Supplemental Agreement" means the Third Supplemental Fiscal Agent Agreement, dated as of ., 1998, by and between the City and the Fiscal Agent. Section 14.02. Authorization and Issuance of Series Two 'Bonds. The Series Two · Bonds shall be designated "City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series Two", and shall be secured by and payable from the Reassessments and other assets pledged hereunder, as provided herein. The aggregate principal amount of Series Two Bonds that may be issued and Outstanding under this Agreement shall not exceed $ .,. except as may be otherwise provided in Section 2.14. On the Conversion Date (Group Two), the City shall execute and the Fiscal Agent shall authenticate the Series Two Bonds and deliver the Series Two Bonds to the Original Purchaser (Group Two) in the aggregate principal amount of $ Section 14.03. Terms of Group Two Bonds. (a) The Group Two Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Group Two DOCSLA1:258287.4 42081-4-T!t6-08/10/98 Bond shall have more than one maturity date. The Group Two Bonds shall be dated as of~ ,1998, shall be in the aggregate principal amount of $ , shall mature on September 2, 2013, and shall bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) at the nominal rate of % per annum; provided, however, that the actual rate of interest to be borne by the Group Two Bonds shall be adjusted as of each September 1 to be a rate per annum such that the sum of (i) the product of such rate (expressed as a decimal) times the principal amount of Group Two Bonds Outstanding as of the close of business on such September 1, plus (ii) the amount to be deposited on the following September 3 in the Redemption Account (Group Two), pursuant to Section 6.02(a), from amounts transferred by the Authority Trustee from the Surplus Fund established under the Authority Indenture, is equal to the product of the nominal rate (expressed as a decimal) times the principal amount of Group Two Bonds Outstanding as of the close of business on such September 1. (b) The Interest Payment Dates for the Group Two Bonds shall commence on 2, 1998. Interest on the Group Two Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Group Two Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Group Two Bond is authenticated on or before the first Record Date therefor, in which event interest thereon shall be payable from , 1998, or (iii) interest.on any Group Two Bond is in default as of the date of authentication thereof, in which event interest .thereon shall be payable from the date to which interest has been paid in full or made available for such payment, payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Group Two Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Group Two Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Group Two Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Paying Agent 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. Interest shall be paid by check of the Paying Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Group Two Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. (c) The principal of and premium, if any, on the Group Two 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 Paying Agent. Payment of principal of and premium, if any, on any Group Two Bond shall be made only upon presentation and surrender of such Group Two Bond at the Office of the Paying Agent. (d) Notwithstanding the foregoing, so long as the ownership of a Group Two Bond is registered in the name of the Authority Trustee, payment of the principal of, premium, if any, and interest on such Group Two Bond shall be made to the Authority Trustee in immediately DOCSLA1:258287.4 42081-4-Ti 16-08/1 I}/98 10 available funds on each applicable payment date, in an amount equal to the principal, interest and any premium due on such Group Two Bond on the applicable payment date. (e)' 14.07. The Group Two Bonds shall be subject to redemption as provided in Section Section 14.04. Form of Group Two Bonds. The Group Two Bonds shall be in substantially the form set forth in Exhibit C hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Only such of the Group Two Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit C hereto, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of or on behalf of the Paying Agent shall be conclusive evidence that the Group Two Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Agreement. Section 14.05. ApPlication of Amounts. On the Conversion Date (Group Two), the proceeds of the sale of the Group Two Bonds $ shall be paid to the Fiscal Agent and, together with the amount $ required to be transferred pursuant to Section 6.02(b) and the amount $ required to be transferred pursuant to Section 6.05, shall be transferred or deposited by the Fiscal Agent as follows: (a) The Fiscal Agent shall, from the proceeds of the sale of the Group Two Bonds, transfer the amount of$ to the Paying Agent for deposit in the Remarketing Proceeds Account. (b) The Fiscal Agent shall, from the proceeds of the sale of the Group Two Bonds, the amount transferred from the Interest Reserve Fund and the amount transferred from the Capitalized Interest Account, deposit the amount of $ in the Reserve Account (Group Two) established pursuant to Sections 6.06 and 14.09, constituting the full amount of the Reserve Requirement (Group Two). (c) The Fiscal Agent shall, from the proceeds of the sale of the Group Two Bonds, deposit the amount of $ in the Costs Account (Group Two) established pursuant to Section 14.06. Section 14.06. Costs Account (Grou_v Two). There is hereby established within the Costs of Issuance Fund a separate account to be known as the "Costs Account (Group Two)", which shall be held by the Fiscal Agent in trust. On the Conversion Date(Group Two), there shall be deposited in the Costs Account (Group Two) the amount specified in Section 14.05(c). The moneys in the Costs Account (Group Two) shall be used and withdrawn by the Fiscal Agent from time to time to pay the Group Two Costs upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs Account (Group Two), and (e) that such amounts have not been the DOCSLA1:258287.4 42081-4-Ttl 6-08/10/98 11 subject of a prior disbursement from the Costs Account (Group Two), in each case together with a statement or invoice for each amount requested thereunder. On February 1, 1999, all amounts remaining in the Costs Account (Group Two) shall be withdrawn therefrom by the Fiscal Agent and transferred to the Redemption Account (Group Two). Section 14.07. Redemption of Group Two Bonds. (a) Optional Redemption. The Group Two Bonds shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date on or after , at the following respective Redemption Prices (expressed as percentages of the principal amount of the Group Two Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price The reference in Section 7.01 (d) to Section 4.02(a) shall be deemed to also refer to this Section 14.07(a). (b) Mandatory Redemption From Reassessment Prepayments. The Group Two Bonds shall be subject to mandatory redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date, from and to the extent of any prepayment of Reassessments on parcels of real property within the area constituting the Designated Parcels (Group Two), at the following respective Redemption Prices (expressed as percentages of the principal amount of the Group Two Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price The City shall notify the Fiscal Agent of Group Two Bonds to be called for redemption upon prepayment of such Reassessments in amounts sufficient therefor, or whenever sufficient surplus funds are available therefor in the Redemption Account (Group Two). (c) Mandatory Sinking Fund Redemption. The Group Two Bonds shall be subject to mandatory sinking fund redemption, in part, on September 2 in each year, commencing September 2, , at a Redemption Price equal to the principal amount of the Group Two 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: DOCSI.,A1:258287.4 42081-4-T!t6-08/10/98 12 Sinking Fund Redemption Date (September 2) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Principal Amount to be Redeemed If some but not all of the Group Two Bonds are redeemed pursuant to Section 14.07(a), the principal amount of Group Two Bonds to be redeemed pursuant to Section 14.07(c) on any subsequent September2 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 Fiscal Agent at least 45 days prior to such redemption date; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Group Two Bonds redeemed pursuant to Section 14.07(a). If some but not all of the Group Two Bonds are redeemed pursuant to Section 14.07(b), the principal amount of Group Two Bonds to be subsequently redeemed pursuant to Section 14.07(c) shall be reduced by the aggregate principal amOunt of the Group Two Bonds so redeemed pursuant to Section 14.07(b), such reduction to be allocated as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as designated by the City in a Written Certificate of the City filed with the Fiscal Agent at least 45 days prior to such redemption date. Section 14.08. Selection of Group Two Bonds for Redemption. Whenever provision is made in this Agreement for the redemption of less than all of the Group Two Bonds, the Fiscal Agent shall select the Group Two Bonds to be redeemed from all Group Two Bonds not previously called for redemption, by lot in any manner which the Fiscal Agent in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Group Two Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Group Two Bonds which may be separately redeemed. Section 14.09. Group Two Accounts. In accordance with Section 6.02, the Fiscal Agent shall establish and maintain within the Redemption Fund a separate account designated the "Redemption Account (Group Two)." In accordance with Section 6.03, the Fiscal Agent shall establish and maintain within the Prepayment Account a separate account designated the DOCSI..A1:258287.4 42081-4-TH6-08/10/98 13 "Prepayment Subaccount (Group Two)." In accordance with Section 6.06, the Fiscal Agent shall establish and maintain within the Reserve Fund a separate account designated the "Reserve Account (Group Two)." Section 14.10. Group Two Tax Covenants. (a) The City shall not 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 Series C Bonds under Section 103 of the Code (Group Two). Without limiting the generality of the foregoing, the City shall comply with the requirements of the Tax Certificate (Series C), which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Group Two Bonds and the Series C Bonds. (b) In the event that at any time 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 Fiscal Agent in any of the funds or accounts established hereunder, the City shall so instruct the Fiscal Agent in writing, and the Fiscal Agent shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the City shall provide to the Fiscal Agent an opinion of Bond 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 Series C Bonds, the Fiscal Agent may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate (Series C), and the covenants hereunder shall be deemed to be modified to that extent. Section 14.11. Rebate Fund (Group Two). (a) The Fiscal Agent shall establish and maintain a special fund designated the "Rebate Fund (Group Two),'. There shall be deposited in the Rebate Fund (Group Two) such amounts as are required to be deposited therein pursuant to the Tax Certificate (Series C). Notwithstanding anything to the contrary contained herein, amounts held in the Rebate Fund (Group Two) are not pledged by the City to secure the payment of the principal of, premium, if any, or interest on the Bonds. All money at any time deposited in the Rebate Fund (Group Two) shall be held by the Fiscal Agent in trust, to the extent required to satisfy the Rebate Requirement (Series C), for payment to the United States of America. Notwithstanding defeasance of the Group Two Bonds pursuant to Article X hereof, the defeasance of the Series C Bonds pursuant to the Authority Indenture or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund (Group Two) shall be governed exclusively by this Section and by the Tax Certificate (Series C) (which is incorporated herein by reference). The Fiscal Agent shall be deemed conclusively to have complied with such provisions if it follows the written directions of the City, and shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate (Series C). The Fiscal Agent may conclusively rely upon the City's determinations, calculations and certifications required by the Tax Certificate (Series C). The Fiscal Agent shall have no responsibility to independently make any calculation or determination or to review the City's calculations. DOCSLAi :258287.4 42081-4-TH6-08/10/98 14 (b) Any funds remaining in the Rebate Fund (Group Two) after payment in full of all of the Group Two Bonds and the Series C Bonds and after payment of any amounts described in this Section, shall be withdrawn by the Fiscal Agent and remitted to the City. Section 14.12. Reports to California Debt and Investment Advisory Commission., The City shall, not later than October 30 of each year until the final maturity of the Series C Bonds, supply the information required by Section 6599.1(b) of the California Government Code to the California Debt and Investment Advisory Commission by mail, postage prepaid. In accordance with Section 6599.1(c) of the California Government Code, the City shall notify the California Debt and Investment Advisory Commission by mail, postage prepaid, within ten days if either (a) the City fails to pay principal of or interest on the Group Two Bonds on any scheduled payment date, or (b) funds representing all or a portion of the Reserve Requirement (Group Two) are withdrawn from the Reserve Account (Group Two) to pay principal of or interest on the Group Two Bonds. Section 14.13. Modification or Amendment of Agreement. Notwithstanding the provisions of Article X, any Supplemental Agreement that affects the Group Two Bonds may be entered into only with the written consent of the Insurer (Series C) (so long as the Insurer (Series C) is not in default in its payment obligations under the Insurance Policy (Series C)). Section 14.14. Defeasance of Group Two Bonds. (a) Notwithstanding the provisions of Article XI, the defeasance of the Group Two Bonds shall occur only in accordance with the provisions of this Section. (b) If the City shall pay or cause to be paid or there shall otherwise be paid (i) to the Owners of all Outstanding Group Two Bonds the principal thereof and the premium, if any, and interest thereon at the times and in the manner stipulated herein and therein, and (ii) all other amounts due hereunder, then such Owners shall cease to be entitled to the pledge of and lien on the Reassessments as provided herein, and all agreements and covenants of the City and the Fiscal Agent to such Owners hereunder shall thereupon cease, terminate and become void and shall be discharged and satisfied. (c) Any Outstanding Group Two Bond shall be deemed to have been paid within the meaning and with the effect expressed in this Section when the whole amount of the principal thereof and the premium, if any, and interest thereon shall have been paid or when (i) in case said Group Two Bond or portion thereof has been selected for redemption in accordance with Section 14.08 prior to its stated maturity date, the City shall have given to the Fiscal Agent irrevocable instructions to give, in accordance with the provisions of Section 4.04, notice of redemption of such Group Two Bond, or portion thereof, (ii)there shall be on deposit with the Fiscal Agent, moneys, or (A) Permitted Investments (Group Two) described in clause (1)(a) of the definition thereof, (B) evidences of ownership of proportionate interests in future interest and principal payments on Permitted Investments (Group Two) described in clause (1)(a) of the definition thereof 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 DOCSLA1:258287.4 42081-4-Tlt6-08/10/98 15 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, or (C) Permitted Investments (Group Two) described in clause (9) of the definition thereof, or any combinations thereof ("Defeasance Securities"), which Defeasance Securities shall not contain provisions permitting the redemption thereof other than at the option of the holder, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal of and premium, if any, and interest on such Group Two -Bond and due and to become due on said Group Two Bond or portion thereof on or pr!or to the redemption date or its stated maturity date, as the case may be, and (iii) in the event said Group Two Bond does not mature and is not to be redeemed within the next succeeding 60 days, the City shall have given the Fiscal Agent irrevocable instructions to give notice, as soon as practicable in the same manner as a notice of redemption given pursuant to Section 4.04, to the Owner of said Group Two Bond, or portion thereof, stating that the deposit of moneys or Defeasance Securities required by clause (ii) of this paragraph has been made with the Fiscal Agent and that said Group Two Bond, or portion thereof, is deemed to have been paid in accordance with this Section and stating such maturity date or redemption date upon which moneys are to be available for the payment of the principal of and premium, if any, and intereSt on such Group Two Bond, or portion thereof.' Neither the moneys nor the Defeasance Securities deposited with the Fiscal Agent pursuant to this Section 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, the payment of the Principal of and premium, if any, and interest on such Group Two Bond, or portions thereof. If payment of less than all of the Group Two Bonds is to be provided for in the manner and with the effect expressed in this Section, the Fiscal Agent shall select such Group Two Bonds, or portions thereof, in the manner specified in Section 14.08 for · selection for redemption of less than all of the Group Two Bonds in the principal amounts designated to the Fiscal Agent by the City. (d) The Fiscal Agent may seek and is entitled to rely upon (i)an opinion of Bond Counsel reasonably satisfactory to the Fiscal Agent to the effect that the conditions precedent to a defeasance pursuant to this Section have been satisfied, and (ii)such other opinions, certifications and computations, as the Fiscal Agent may reasonably request, of accountants or other financial consultants concerning the matters described in paragraph (c) of this Section. (e) Prior to' any defeasance becoming effective under this Section, (A) all amounts currently due to the Insurer (Series C) under the Insurance Policy (Series C) shall have been paid in full, and (B) the City shall cause to be delivered (i) an executed copy of a report, addressed to the Fiscal Agent, the City and the Insurer (Series C), in form and in substance acceptable to the Fiscal Agent, the City and the Insurer (Series C), of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, satisfy the requirements of clause (ii) of paragraph (c), above (a "Verification"), (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, which escrow deposit agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification or upon delivery of a new Verification, and (iii) a copy of an opinion of Bond Counsel, dated the DOCSLA1:258287.4 42081-4-T!t6-08/10/98 16 date of such defeasance and addressed to the Fiscal Agent, the City 'and the Insurer (Series C), in form and in substance acceptable to the Fiscal Agent, the City and the Insurer (Series C), to the effect that such Group Two Bonds have been paid within the meaning and with the effect expressed in the Fiscal Agent' Agreement, and that all agreements and covenants of the City and the Fiscal Agent to the Owners of such Group Two Bonds under the Fiscal Agent Agreement have ceased, terminated and become void and have been discharged and satisfied. In the event a forward purchase agreement will be employed in the refunding, such agreement shall be subject to the approval of the Insurer (Series C) and shall be accompanied by such opinions of counsel as may be required by the Insurer (Series C). The Insurer (Series C) shall be provided with final drafts of the above-referenced documentation not less than five Business Days prior to the funding of the escrow. Section 14.15. Reporting Requirements. (a) The City shall deliver to the Insurer (Series C), upon delivery of the financial statements described in subsection (b), below, a Written Certificate of the City stating that no Event of Default has occurred, or if an Event of Default has occurred, specifying the nature thereof and, if the City has a right to correct such default pursuant to Section 8.01(c), stating in reasonable detail the steps, if any, being taken by the City to correct such default. (b) The City shall promptly provide to the Insurer (Series C) (i) audited financial statements for each fiscal year, to be submitted within 120 days of the end of such fiscal year, and (ii) each annual budget of the City, to be submitted within 30 days Of the approval thereof. (c) The City shall file or cause to be filed with the Insurer (Series C) any official statement issued by, or on behalf of, the City in connection with the incurrence by the City of any additional indebtedness within 30 days of the incurrence thereof. (d) If, on the fifth Business Day prior to an Interest Payment Date, maturity date or redemption date, the Fiscal Agent determines that there will be insufficient funds in the funds and accounts established hereunder available to pay the principal of or interest on the Group Two Bonds on such Interest Payment Date, maturity date or redemption date, the Fiscal Agent shall give notice to the Insurer (Series C) and to the Authority Trustee by telephone or telecopy of the amount of such deficiency by 12 noon New York City time on such Business Day. (e)' All notices, reports, certificates and opinions required to be delivered by the City pursuant hereto shall also be delivered to the Insurer (Series C). (f) The City agrees promptly to provide or cause to be provided to the Insurer (Series C) such financial, statistical and other factual information as the Insurer (Series C) shall from time to time reasonably request regarding the City. Section 14.16. Third-Party Beneficiary. Notwithstanding anything to the contrary contained herein, the Insurer (Series C) is a third-party beneficiary of this Agreement. DOCSLA1:258287.4 42081-4-T1t6-08/10/98 17 Section 14.17. Group Two Bonds Original Issue Discount. Notwithstanding the provisions of Section 2.04 and 5.03, the Group Two Bonds may be purchased by the Original Purchaser (Group Two) on the Conversion Date (Group Two) at such purchase price, which may include original issue discount, as may be agreed to by the City and the Original Purchaser (Group Two). I)OCSLA1:258287.4 42081-4-Tl16-08/10/98 18 PART 2 SPECIFIC AMENDMENTS Part 2.1. Amendment to Section 6.08. Section 6.08 of the Second Amended Original Agreement is hereby amended by adding thereto a final paragraph, which shall read in full as follows: References in' this Section 6.08 to Permitted Investments shall, when such references are applicable to any fund or account established for the Group Two Bonds, be deemed to be references to Permitted Investments (Group Two). Part 2.2. Amendment of Section 8.01. Paragraph (a) of Section 8.01 of the Second Amended Original Agreement is hereby amended to read in full as follows: (a) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in this Agreement 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 City by the Fiscal Agent or the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, 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 (with the consent of the Insurer (Series B), if such failure relates to the Group One Bonds, and with the consent of the Insurer (Series C), if such failure relates to the Group Two Bonds), 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. Part 2.3. Amendment of Section 12.03. Section 12.03 of the Second Amended Original Agreement is hereby amended to read in full as follows: Section 12.03. Limitation of Rights to Parties and Bond Owners. Nothing in this Agreement or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Fiscal Agent, the City, the Paying Agent, the Bank, the Remarketing Agent, the Insurer (Series B) (with respect to the Group One Bonds), the Insurer (Series C) (with respect to the Group Two Bonds) and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Agreement 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 Fiscal Agent, the DOCSLA ! :258287.4 42081-4-TH6-08/10/98 19 City, the Paying Agent, the Bank, the Remarketing Agent, the Insurer (Series B) (with respect to the Group One Bonds), the Insurer (Series C) (with respect to the Group Two Bonds).and the Owners of the Bonds. Part 2.4. Amendment of Section 12.08. Section 12.08 of the Second Amended Original Agreement is hereby amended by adding the following prior to the final paragraph thereof: If to the Insurer (Series C): Financial Security Assurance Inc. 350 Park Avenue New York, New York 10022-6022 Attention: Managing Director Surveillance - Re: Policy No. Telephone: (212) 826-0100 Telecopier: (212) 339-3529 DOCSLA1:258287.4 42081'-4-T!t6-08/10/98 20 PART 3 MISCELLANEOUS Part 3.1. Effect of Third Supplemental Agreement. This Third Supplemental Agreement and all of the terms and provisions herein contained shall form part of the Second Amended Original Agreement as fully and with the same effect as if all such terms and provisions had been set forth in the Second Amended Original' Agreement.' The Second Amended Original Agreement is hereby ratified and confirmed and shall continue in full force and effect in accordance with the terms and provisions thereof, as heretofore amended and supplemented, and as amended and supplemented hereby. If there shall be any conflict between the terms of this Third Supplemental Agreement and the terms of the Second Amended Original Agreement (as in effect on the day prior to the effective date of this Third Supplemental Agreement), the terms of this Third Supplemental Agreement shall prevail. Part 3.2. Execution in Several Counterparts. This Third Supplemental 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, or as many of them as the City and the Fiscal Agent shall preserve undestroyed, shall together constitute but one and the same instrument. Part 3.3. Effective Date of Third Supplemental Agreement. This Third Supplemental Agreement shall take effect upon the Conversion Date (Group Two). DOCSLA1:258287.4 42081-4-T1t6-08/10/98 21 IN WITNESS WHEREOF, the City has caused this Third Supplemental Agreement to be signed in its name by its officer thereunto duly authorized, and the Fiscal Agent has caused this Third Supplemental Agreement to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF TUSTIN By: Ronald A. Nault Finance Director STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent By: Authorized Officer I)OCSLA 1:258287.4 42081-4-TH6-08/10/98 22 EXHIBIT C FORM OF GROUP TWO BOND No. CITY OF TUSTIN LIMITED OBLIGATION IMPROVEMENT BONDS REASSESSMENT DISTRICT NO. 95-2 (TUSTIN RANCH) FIXED RATE BOND, GROUP TWO NOMINAL INTEREST RATE MATURITY DATE DATED DATE % September 2, 2013 ,1998 REGISTERED OWNER: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE PRINCIPAL AMOUNT: ($ ) Under and by virtue of the Refunding Act of 1984 for 1915 Improvement Act Bonds (Division 11.5 of the California Streets and Highways Code) (the "Act"), the City of Tustin, County of Orange, State of California (the "City"), will, out of the redemption fund for the payment of the bonds issued upon the unpaid portion of reassessments made for the refunding bonds more fully described in proceedings taken pursuant to Resolution No. 95-118 adopted by the City Council of the City on November 20, 1995, pay 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 pay interest thereon at, except as provided below, the nominal Interest Rate identified above in like lawful money from the date hereof payable semiannually on March 2 and September 2 in each year, commencing .., 1998 (each such date an "Interest Payment Date"), until payment of such Principal Amount in full. This Group Two Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Group Two Bond, unless this Group Two Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date (the "Record Date"), in which event it shall bear interest from such Interest Payment Date, or unless this Group Two Bond is authenticated on or prior to , 1998, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Group Two Bond, interest is in default, this Group Two Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or D-1 DOCSLA 1:258287.4 42081-4-T!t6-08/10/98 made.available for payment. The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the principal corporate trust office (the "Trust Office") of State Street Bank and Trust Company of California, N.A., as fiscal agent and'paying agent (the "Fiscal Agent" and "Paying Agent", respectively), in Los Angeles, California. Interest hereon is payable by check of the Paying Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the Registration Books of the Paying Agent as of the close of business on the Record Date. This Group Two Bond shall not be entitled to any benefit under the Act, the Resolutions authorizing the issuance of the bonds, adopted by the City Council of the City on January 15, 1996, September 2, 1997, and , 1998 (the "Resolutions of Issuance") or the Fiscal Agent Agreement, dated as of February 1, 1996, by and between the City and the Fiscal Agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the Fiscal Agent, the Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, by and between the City and the Fiscal Agent and the Third SuPplemental Fiscal Agent Agreement, dated as of , 1998 by and between the City and the Fiscal Agent'(as so amended and supplemented, the "Agreement"), executed pursuant to the Resolutions of Issuance, or become valid or obligatory for any purpose, until the certificate of authentication hereon shall have been dated and signed by the Paying Agent. Capitalized undefined terms used in this Group Two Bond shall have the meanings ascribed thereto in the Agreement. Notwithstanding anything to the contrary contained herein, or in the Agreement, the actual rate of interest to be borne by the Group Two Bonds (including this Group Two Bond) shall be adjusted as of each September 1 to the a rate per annum such that the sum of (i) the product of such rate (expressed as a decimal) times the principal amount of Group Two Bonds Outstanding as of the close of business on such September 1, plus (ii) the amount to be deposited, pursuant to the Agreement, on the following September 3, in the Redemption Account (Group Two) established under the Agreement from amounts transferred by the Authority Trustee from the Surplus Fund established under the Authority Indenture, is equal to the.product of the nominal rate (express as a decimal) times the principal amount of Group Two Bonds Outstanding as of the close of business on such September 1. This Group Two Bond is one of several annual series of Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group Two (the "Group Two Bonds") of like date, tenor and effect, but differing in amounts, maturities and interest rates, issued by said City under the Act and the Agreement for the purpose of providing means for paying for the refunding of the bonds as more particularly described in said proceedings, and is secured by the moneys in the redemption fund (as may be limited by the Agreement) and by the unpaid portion of the Reassessments made for the payment of said reftmding, and, including principal and interest, is payable exclusively out of said fund. Notwithstanding the foregoing, the Group Two Bonds shall be payable solely from and secured solely by the Reassessments (including prepayments thereof) on the parcels of real property within the Reassessment District designated by the City, pursu.ant to the Agreement, to be represented by the Group Two Bonds (the "Designated Parcels (Group Two)"), together with interest and any penalties on such Reassessments, and any other amounts (including proceeds of D-2 DOCSLA1:258287.4 42081-4-TH6-08/10/98 the sale of the Group Two Bonds) held in any account established under the Agreement for the Group Two Bonds. Reassessments (including prepayments thereof) on parcels of real property within the Reassessment District other than the Designated Parcels (Group Two), together with interest and any penalties on such Reassessments, and any amounts held in any fund or account established under the Agreement other than such accounts established specifically for the Group Two Bonds, secure certain other Bonds issued or to be issued under the Agreement and shall not constitute a source of payment for the Group Two Bonds. Reference is hereby made to the Agreement and all agreements supplemental thereto for a description of the rights thereunder of the owners of the Group Two Bonds, of the nature and extent of the Reassessments, of the rights, duties and immunities of the Fiscal Agent and the Paying Agent and of the rights and obligations of the City thereunder; and all of the terms of the Agreement are hereby incorporated herein and constitute a contract between the City and the Registered Owner hereof, and to all of the provisions of which Agreement the Registered Owner hereof, by acceptance hereof, assents and agrees. The Group Two Bonds maturing on or after September 2, 20m, shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after September 2, 20__, at the following respective redemption prices (expressed as percentages of the principal amount of the Group Two Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price The Group Two Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayments of principal of the Reassessments on Designated Parcels (Group Two), as more particularly set forth in the Agreement, at the follo~,ing respective redemption prices (expressed as percentages of the principal amount of the Group Two Bonds to be redeemed), plus accrued interest thereon to the date of redemption. Redemption Dates Redemption Price The Group Two Bonds shall be subject to mandatory sinking fund redemption,, in part, on September 2 in each year, commencing ., at a redemption price equal to the principal amount of the Group Two Bonds to be redeemed, without premium, plus accrued DOCSLA'1:258287.4 42081-4-T1t 6-08/10/98 D-3 interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Agreement. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective owners of any Group Two Bonds designated for redemption, at their respective addresses appearing on the Registration Books, at least 30 but not more than 60 days prior to the redemption date; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Group Two Bonds or the cessation of the accrual of interest thereon. The redemption price of the Group Two Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Trust Office of the Paying Agent. From and after the date fixed for redemption of any Group Two Bonds, interest on such Group Two Bonds will cease to accrue. The Group Two Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in the Agreement, Group Two Bonds may be exchanged at the Trust Office of the Paying Agent for a like aggregate principal amount and maturity of fully registered Group Two Bonds of other authorized denominations. This Group Two Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office of the Paying Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Agreement, and upon'surrender and cancellation of this Group Two Bond. Upon such transfer a new fully registered Group Two Bond or Group Two Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City, the Fiscal Agent and the Paying Agent may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City, the Fiscal Agent and the Paying Agent shall not be affected by any notice to the contrary. The Agreement and the rights and obligations of the City and of the owners of the Bonds and of the Fiscal Agent may .be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Agreement. The Bonds (including the GrOup Two Bonds) are Limited Obligation Bonds because, under the Agreement, the City is not obligated to advance funds from the City treasury to cure any deficiency which may occur in the redemption fund for the Bonds; provided, however, the City is not prevented, in its sole discretion, from so advancing funds. DOCSLA1:258287.4 42081-4-T1t6-08/10/98 D-4 IN WITNESS WHEREOF, said City has caused this Group Two Bond to be signed in its name and on its behalf by the facsimile signatures of its Treasurer and City Clerk, and has caused its corporate seal to be reproduced in facsimile hereon all as of the Dated Date identified above. CITY OF TUSTIN By: Treasurer (SEAL) Attest: By: City Clerk DOCSLA1:258287.4 42081-4-TH6-08/10/98 D-5 CERTIFICATE OF AUTHENTICATION This is one of the Group Two Bonds described in the within-mentioned Agreement and registered on the Registration Books. Date: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent By: Authorized Signatory I)OCSLA i :258287.4 42081-4-1'!t6-08/! (}/98 D-6 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 Group Two Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Paying Agent with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor.. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Group Two Bond in every particular without alteration or enlargement or any change whatsoever. DOCSLA 1:258287.4 42081-4-TIt6-08/10/98 D-7 EXHIBIT C DESIGNATED PARCELS (GROUP TWO) The assessor's parcel numbers of the parcels of real property within the Reassessment District designated by the City, pursuant to Section 7.01(e) of the Agreement, to represent the Group Two Bonds are as follows: Assessor Parcel Number Assessment Parcel Number Assessor Parcel Number Assessment Parcel Number E-1 Assessor Parcel Number Assessment Parcel Number Assessor Parcel Number Assessment Parcel Number DOCSLA i :258287.4 42081-4-T1t6-08/10/98 E-2 BOND PURCHASE AGREEMENT by and between the CITY OF TUSTIN and the TUSTIN PUBLIC FINANCING AUTHORITY Dated as of ., 1998 DOCSLA ! :260245.3 42081-4-TH6-08/10/98 BOND PURCHASE AGREEMENT THIS BOND PURCHASE AGREEMENT (this "Bond Purchase Agreement") is entered into as of , 1998, by and between the Tustin Public Financing Authority (the "Authority") and the City of Tustin (the "City"). WITNESSETH: WHEREAS, the Authority is a joint exercise of powers authority duly organized and existing under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Act"), and is authorized pursuant to Article 4 of the Act to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations to provide financing or refinancing for public capital improvements of local agencies within the State of California (the "State"); WHEREAS, the City is issuing $ aggregate principal amount of its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin 'Ranch), Fixed Rate Bonds, Group Two (the "Group Two Bonds"), pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996, by and between the City and State Street Bank and Trust Company of California, N.A., as fiscal agent (the "Fiscal Agent"), as amended and supplemented by a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the FiScal Agent, and a Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, by and between the City and the Fiscal Agent, and a Third Supplemental Fiscal Agent Agreement, dated as of ,1998 (the "Third Supplemental Agreement"), by and between the City and the Fiscal Agent (as so amended and supplemented, the "Fiscal Agent Agreement"); WHEREAS, the Authority desires to assist the City with the Group Two Bonds financing by purchasing the Group Two Bonds from the City; WHEREAS, in order to provide the funds necessary to purchase the Group Two Bonds from the City, the Authority has authorized the issuance of the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series C (the "Series C Bonds"), in the aggregate principal amount of $ ., pursuant to an Indenture of Trust, dated as of February 1, 1996, by and between the Authority and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Indenture of Trust, dated as of November 1, 1997, by and between the Authority and the Trustee, and a Second Supplemental Indenture of Trust, dated as of ., 1998, by and between the Authority and the Trustee (as so amended and supplemented, the "Indenture"); WHEREAS, the Authority and the City have found and determined that the sale of the Group Two Bonds to the Authority will result in substantial public benefits to the City, namely, the interest savings with respect to the Group Two Bonds to be achieved by reason of the credit rating to be assigned to the Series C Bonds; and DOCSLA 1:260245.3 42081-4-T}!6-08/10/98 WHEREAS, the Series C Bonds are being purchased from the Authority pursuant to a Bond Purchase Agreement, dated ,1998 (the "Authority Purchase Agreement"), by and between the Authority and PaineWebber Incorporated (the "Underwriter"); wHEREAS, the Authority and the City desire to enter into this Agreement providing for the sale of the Group Two Bonds by the City to the Authority and containing the other agreements herein set forth; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the Authority and the City agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement. Section 2. Purchase and Sale of Group Two Bonds. (a) Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the City hereby agrees to sell to the Authority, and the Authority hereby agrees to purchase from the City, all (but not less than all) of the $ aggregate principal amount of the Group Two Bonds. The Group Two Bonds shall mature on September 2, 2013 and shall bear interest at the nominal rate of % per annum. (b) The Group Two Bonds and interest thereon shall be payable from annual assessments levied on the Designated Parcels (Group Two) and collected in accordance with the Fiscal Agent Agreement and the proceedings relating thereto. The Group Two Bonds shall be substantially in the form described in, shall be executed, delivered and secured under and pursuant to, and shall be payable and subject to redemption as provided in, the Fiscal Agent Agreement. The proceeds of the Group Two Bonds, together with other available funds, will be used by the City to (i) pay the Purchase Price of the Series A Bonds being converted to Fixed Rate Bonds on the Conversion Date (Group Two), (ii) pay costs of issuance relating to the Group Two Bonds and the Series C Bonds, including the premium for the municipal bond insurance policy securing the Series C Bonds, and (iii) fund the Reserve Account (Group Two) established under the Fiscal Agent Agreement. The Fiscal Agent Agreement and this Bond Purchase Agreement are collectively referred to as the "Legal Documents". (c) The City hereby ratifies, confirms and approves the Preliminary Official Statement of the Authority, dated , 1998, relating to. the Series C Bonds, which contains certain information about the City, the City's Reassessment District No. 95-1 (Tustin Ranch), the City's Reassessment District No. 95-2 (Tustin Ranch), the Fiscal Agent Agreement and the Group Two Bonds (which, together with the cover page and all appendices thereto, is referred to herein as the "Preliminary Official Statement"), which Preliminary Official Statement the City deemed final and so certified 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 information permitted to be omitted therefrom by Rule 15c2-12. The City hereby agrees to assist the Authority in the preparation of a final official 'statement (the "Official Statement"), consisting of the Preliminary Official Statement, with such changes as may be made thereto with the approval of the Authority, the City and the Underwriter, so that the Authority may deliver or cause to be delivered to the Underwriter, no later than the earlier of the day prior to the Closing DOCSI..A 1:260245.3 42081 4-TH6-08/10/98 -2- Date (as hereinafter defined) or seven business days after the date the Underwriter agrees to purchase the Series C Bonds, copies of the Official Statement in such reasonable quantity as the Underwriter shall request. The City hereby approves of the use and distribution by the Underwriter of the Official Statement in connection with the offer and sale of the Series C Bonds. (d) The aggregate purchase price for the Group Two Bonds shall be $ (being the principal amount of the Group Two Bonds, !ess a purchaser's discount of $ and less original issue discount of $ ), which shall be payable solely from proceeds of sale of the Series C Bonds. (e) At ~ a.m., Califomia time, on ., 1998, or at such other time or on such other date as the Authority, the City and the Underwriter may mutually agree upon (the' "Closing Date"), at the offices of Orrick, Herrington & Sutcliffe LLP, in Los Angeles, California, the City shall deliver or cause to be delivered to the Authority, the Group Two Bonds in the form of a single fully registered certificate (which may be typewritten), registered in the name of the Trustee, as assignee of the Authority, duly executed and authenticated, and the other documents mentioned herein. The Authority shall accept such delivery and pay the purchase price of the Group Two Bonds as provided in subparagraph (d) above in immediately available funds (such delivery and payment being herein referred to as the "Closing"). Section 3. Representations and Warranties of the City. The City hereby makes to the Authority the representations and warranties made by the City to the Underwriter in the City's 'Representation Letter, dated as of , 1998 (the "Representation Letter"), the form. of which is attached to the Authority Purchase Agreement, to the same extent as if such representations and warranties were set forth in full herein. Section 4. Conditions to the Obligations of the Authority. The Authority has entered into this Bond Purchase Agreement in reliance upon the representations, warranties and agreements of the City contained herein and to be contained in the documents and instruments to be delivered on the Closing Date, and upon the performance by the City of its obligations hereunder, both as of the date hereof and as of the Closing Date. Accordingly, the Authority's obligations under this Agreement to purchase, to accept delivery of and to pay for the Group Two Bonds shall be subject to the performance by the City of its obligations to be perfOrmed hereunder and under such documents and instruments at or prior to the Closing Date, and shall also be subject to the following conditions: (a) The representations and warranties of the City contained herein shall be true, complete and correct on the date hereof and on and as of the Closing Date, as if made on the Closing Date; (b) On the Closing Date, the Legal Documents shall be in full force and effect and shall not have been amended, modified or supplemented, and the Official Statement shall not have been'amended, modified or supplemented, except in either case as may have been agreed to by both the Authority and the Underwriter; DOCSLA 1:260245.3 42081-4-TH6-08/10/98 -3- (c) As of the Closing Date, all official action of the City relating to the Group Two Bonds shall be in full force and effect, and there shall have been taken all such actions as, in the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel ("Bond Counsel"), shall be necessary or appropriate in connection therewith, with the issuance of the Series C Bonds and the Group Two Bonds, and with the transactions contemplated by the Legal Documents, all as described in the Official Statement; (d) Between the date hereof and the Closing Date, the market price or marketability, at the initial offering price or prices set forth in the Official Statement, of the Series C Bonds shall not have been materially adversely affected, in the reasonable judgment of the Underwriter, by reason of any of the following: (i) an amendment to the Constitution of the United States or the constitution of the State shall have been past or legislation enacted (or resolution passed) by or introduced or pending legislation amended in the Congress or recommended for passage by the President of the United States, the Speaker of the House of Representatives, the President Pro Tempore of the Senate, the Chairman or ranking minority member of the Committee of Ways and Means of the House of Representatives or the Chairman or ranking minority member of the Committee on Finance of the Senate, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or press release issued or made (A) by or on behalf of the Treasury Department of the United States or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such interest as would be received by the owners of the Series C Bonds, (B) by or on behalf of the State or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of imposing California personal income taxation upon such interest as would be received by the owners of the Series C Bonds, or (C) by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or by or on behalf of the State or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of changing the federal or State income tax rates, respectively; (ii) the declaration of war or engagement in major military hostilities by the United States or the occurrences of any other national emergency or calamity relating to the effective operation of the government of the United States; (iii) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange; (iv) the imposition by the New York Stock Exchange or other national securities exchange or any governmental authority, of any material restrictions not now in force with respect to the Series C Bonds or obligations of the general character of the Series C Bonds, or the material increase of any such restrictions now in force; (v) an amendment to the Constitution of the United States or the constitution of the State shall have been past or, legislation enacted (or resolution passed) by or DOCSLA 1:260245.3 42081-4-TH6-08/10/98 -4- introduced or pending legislation amended in the Congress or recommended for passage by the President of the United States, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed) or press release issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Series C Bonds, or the Series C Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Fiscal Agent Agreement or the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended, or that the execution, offering or sale of obligations of the general character of the Series C Bonds, or of the Series C Bonds, including any or all underlying arrangements, as contemplated hereby or by the Official Statement, otherwise is or would be in violation of the federal securities laws as amended and then in effect; (vi) the withdrawal or downgrading of any rating of the Series C Bonds by a national rating agency; (vii) any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (e) On the Closing Date, the Series C Bonds shall have been issued and delivered to the Underwriter and all of the conditions to closing contained in the Authority Purchase Agreement shall have either been satisfied or waived; and (f) At or prior to the Closing Date, the Authority and the Underwriter shall have received the following documents, in each case satisfactory in form and substance to the Authority and the Underwriter: (i) Two copies of the Third Supplemental Agreement, duly executed and delivered by the parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Authority and the Underwriter; (ii) The approving opinion, dated the Closing Date and addressed to the City, of Bond Counsel approving, without qualification, the validity of the Group Two Bonds, and a letter of such counsel, dated the Closing Date and addressed to the Authority and the Underwriter to the effect that such opinion may be relied upon by the Authority and the Underwriter to the same extent as if such opinion were addressed to them; (iii) Copies of the Fiscal Agent Agreement, certified by the City Clerk; (iv) The opinion of the City Attorney, dated the Closing Date and addressed to the Authority and the Underwriter, to the effect set forth in Section 3(e)(v)of the Authority Purchase Agreement; DOCSLA 1:260245.3 42081-4-T}t6-08/10/98 -5- (v) The opinion, dated the Closing Date and addressed to the City, the Underwriter and the Authority, of counsel to the Fiscal Agent, to the effect set forth in Section 3(e)(ix) of the Authority Purchase Agreement; (vi) A certificate, dated the Closing Date, signed by a dul~, authorized official of the City, in form and substance satisfactory to the Authority and the Underwriter, to the effect that the representations and warranties of the City contained in this Bond 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; (vii) A certificate, dated the date of Closing, signed by a duly authorized official of the Fiscal. Agent, satisfactory in form and substance to the Authority and the Underwriter, to the effect set forth in Section 3(e)(x) of the Authority Purchase Agreement; (viii) Two certified copies of the general resolution of the Fiscal Agent authorizing the execution and delivery of the Fiscal Agent Agreement by the Fiscal Agent; and (ix) Such additional legal opinions, certificates, proceedingsl instruments or evidences thereof and other documents as the Authority, the Underwriter or Bond Counsel may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the representations of the City herein and of the statements and information contained in the Official Statement, and the due performance or satisfaction by the Fiscal Agent and the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by any of them in connection with the transactions contemplated hereby and by the Legal Documents. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Bond Purchase Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Authority, but the approval of the Authority shall not be unreasonably withheld. Receipt of, and payment for, the Group Two Bonds shall constitute evidence of the satisfactory nature of such as to the Authority. The performance of any and all obligations of the City hereunder and the performance of any and all conditions contained herein for the benefit of the Authority may be waived by the Authority in its sole discretion. If the City shall be unable to satisfy the conditions to the obligations of the Authority to purchase, accept delivery of and pay for the Group Two Bonds contained in this Bond Purchase Agreement,' or if the obligations of the Authority to purchase, accept delivery of and pay for the Group Two Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate, and neither the Authority nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Authority set forth in Section 5 hereof shall continue in full force and effect. Section 5. Expenses. The Authority shall be under no obligation to pay, and the City shall pay (a) the cost of the preparation of the Group Two Bonds and the Series C Bonds, (b) the DOCSLA 1:260245.3 42081-4-TH6-08/10/98 -6- fees and disbursements of Bond Counsel, (c) the fees and disbursements of accountants, advisers and of any other experts or consultants retained by the City, and (d) any other expenses inCident to the issuance of the Group Two Bonds and the Series C Bonds or the performance of the City' s obligations hereunder. Section 6. Benefits; Survival. This Bond Purchase Agreement is made solely for the benefit of the City, the Authority and the Underwriter, and no .other person shall acquire or have any right hereunder or by virtue hereof. All of the City's representations, warranties and agreements contained in this Bond Purchase Agreement shall remain operative and in full force and effect regardless of (a) any investigations made by or on behalf of the Authority, or (b) delivery of and payment for the Group Two Bonds pursuant.to this Agreement. The agreements contained in this Section shall survive any termination of this Bond Purchase Agreement. Section 7. Counterparts. This Bond 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. Section 8. Governing Law. The validity, interpretation and performance of this Bond Purchase Agreement shall be governed by the laws of the State. DOCSLA 1:260245.3 42081-4-TH64)8/10/98 -7- IN WITNESS WHEREOF, the Authority and the City have each caused this Bond Purchase Agreement to be executed by their duly authorized officers all as of the date first above written. TUSTIN PUBLIC FINANCING AUTHORITY By: G. W. Jeffries Treasurer CITY OF TUSTIN By: Ronald A. Nault Finance Director DOCSLA 1:260245.3 42081-4-TH6-08/10/98 -8- TABLE OF CONTENTS Page Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. Definitions .................................................................................................. 2 Purchase and Sale of Group Two Bonds ................................................... 2 Representations and Warranties of the City ............................................... 3 Conditions to the Obligations of the Authority ......................................... 3 Expenses .................................................................................................... 6 Benefits; Survival ....................................................................................... 6 Counterparts ............................................................................................... 7 Governing Law .......................................................................................... 7 DOCSLA1:260245.3 4208 !-4-TH64)8/10/98' -i- An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add text after the Table of Contents/Authorities. Deleting this break will cause Table of Contents/Authorities headers and footers to appear on any pages following the Table of Contents/Authorities. DOCSLA 1:260245.3 42081-4-T1-16-08/10/98 CONTINUING DISCLOSURE AGREEMENT (SERIES ¢) by and between CITY OF TUSTIN and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee Dated as of .,, 1998 TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (TUSTIN RANCH) SERIES C DOCSLAi :258296.3 42081-4-Tl16-08/10/98 CONTINUING DISCLOSURE AGREEMENT (SERIES C) THIS CONTINUING DISCLOSURE AGREEMENT (SERIES C) (this "Disclosure Agreement") is made and entered into as of , 1998, by and between STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States, as Trustee (the "Trustee"), and the CITY OF TUSTIN, a general law city and municipal corporation organized and existing under and by virtue of the laws of the State of California (the "City"). WITNESSETH: WHEREAS, pursuant to the Indenture of Trust, dated as of February 1, 1996, as by and between the Tustin Public Financing Authority (the "Authority") and the Trustee, as amended and supplemented by the First Supplemental Indenture of Trust, dated as of November 1, 1997, by and between the Authority and the Trustee and the Second Supplemental Indenture of Trust (the "Second Supplemental Indenture"), dated as of ., 1998, by and between the Authority and the Trustee (as so amended and supplemented, the "Indenture"), the Authority issued its Revenue Bonds (Tustin Ranch), Series C (the "Series C Bonds"), in the aggregate principal amount of $ ; WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Trustee for the benefit of the holders and beneficial owners of the Series C Bonds and in order to assist the underwriter of the Series C Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized'undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized terms shall have the following meanings: "Act" means, collectively, the Improvement Bond Act of 1915, as amended, being Division 10 of the Califomia Streets and Highways Code, and the Refunding Act of 1984 for 1915 Improvement Act Bonds, as amended being Division 11.5 of the California Streets and Highways Code. "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 of this Disclosure Agreement. "Annual Report Date" means the date in each year that is eight months after the end of the City's fiscal year, which date, as of the date of this Disclosure Agreement, is March 1. DOCSLA 1:258296.3 42081 4-TH6-08/10/98 "Assessment Bonds" means the Assessment Bonds (95-1) and any Assessment Bonds (95-2) acquired pursuant to Section 3.04 of the Indenture. "Assessment Bonds (95-1)" means the City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-1 (Tustin Ranch), which are issued under and pursuant to the Fiscal Agent Agreement (95-1). "Assessment Bonds (95-2)" means the City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), which are issued under and pursuant to the Fiscal Agent Agreement (95-2) and which bear interest at a fixed rate. "Authority Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch) issued under the Indenture, and includes the Series A Bonds, the Series B, the Series C Bonds and any additional bonds issued thereunder in accordance with the terms thereof and ranking on a parity with the Series A Bonds, the Series B Bonds and the Series C Bonds. "Disclosure Representative" means the Finance Director of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "Dissemination Agent" means the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the Trustee a written acceptance of such designation. "Fiscal Agent Agreement (95-1)" means the Fiscal Agent Agreement, dated as of February 1, 1996, by and between the City and State Street Bank and Trust Company of California, N.A., as Fiscal Agent, as originally executed or as the same may from time to time be amended or supplemented in accordance with the terms thereof, under and pursuant to which the Assessment Bonds (95-1) are issued. "Fiscal Agent Agreement (95-2)" means the Fiscal Agent Agreement, dated as of February 1, 1996, by and between the City and State Street Bank and Trust Company of California, N.A., as Fiscal Agent, as originally executed or as the same may from time to time be amended or supplemented in accordance with the terms thereof, under and pursuant to which the Assessment Bonds (95-2) are issued. "Group of Assessment Bonds (95-2)" means a group of Assessment Bonds (95-2), registered in the name of the Trustee, that have been designated, pursuant to Section 7.01 (e) of the Fiscal Agent Agreement (95-2), to represent specified parcels of real property within the Reassessment District (95-2). "Indenture" means the Indenture of Trust, dated as of February 1, 1996, by and between the Authority and the Trustee, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Indenture. DOCS LA 1: 258296.3 4208 I-4-T!t6-08/! 0/98 2 "Listed Events" means any of the events listed in Section 4(a) hereof. "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" means the Official Statement, dated the Series C Bonds. , 1998, relating to "Participating Underwriter" means any of the original underwriters of the Series C Bonds required to comply with the Rule in connection with offering of the Series C Bonds. "Repository" means each National Repository and each State Repository. "Reassessment District (95-1)" means the area designated "Reassessment District No. 95-1 (Tustin Ranch)", formed by the City under the Act. "Reassessment District (95-2)" means the area designated "Reassessment District No. 95-2 (Tustin Ranch)", formed by the City under the Act. "Reassessments (95-1)" means the reassessments levied within Reassessment District (95-1) by the City under the proceedings taken pursuant to the Act. "Reassessments (95-2)" means the reassessments levied within Reassessment District (95-2) by the City under the proceedings taken pursuant to the Act. "Reassessments" means, collectively, the Reassessments (95-1) and the Reassessments (95-2). "Reserve Requirement (95-1)" has the meaning ascribed to Reserve Requirement in the Fiscal Agent Agreement (95-1). "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. "Series A Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series A, issued under the Indenture. "Series B Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B, issued under the Indenture, "Series C Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series C, issued under the Indenture. "State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the DOCSLA 1:258296.3 4208 !-4-TH6-08/10/98 3 ' Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. "Subject Area" means all of Reassessment District (95-1) and those portions of Reassessment District (.95-2) upon which are levied Reassessments (95-2) that secure Assessment Bonds (95-2) that are registered in the name of the Trustee. "Trustee" means State Street Bank and Trust Company of California, N.A., a national banking association organized and existing under the laws of the United States of America, as Trustee under the Indenture, or any successor thereto as Trustee thereunder as provided therein. Section 2. Provision of Annual Reports.. (a) The City shall, or shall cause the Dissemination Agent to, provide to each Repository an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date in each year, commencing with the Annual Report for the 1997-98 fiscal year. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may incltide 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 not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 4(f) hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the City shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the City and the Dissemination Agent to determine if the City is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Trustee shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if.any, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) file a report with the City and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. DOCSLA 1:258296.3 4208 ! -4-Tl16-08/10/98 4 Section 3. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) The City's audited financial statements prepared in accordance with generally accepted accounting principles as .promulgated to apply to .governmental entities from time to time by the Governmental Accounting Standards Board. If' the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to that used for the City's audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The following information: (i) The principal amount of Series C Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (ii) The principal amount of Authority Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (iii) The principal amount of Assessment Bonds outstanding as of the September 30 next preceding the Annual Report Date. (iv) The balance in the Improvement Fund established under the Fiscal Agent Agreement (95-1) as of the September 30 next preceding the Annual Report Date, and a statement as to whether or not such amount will be sufficient to pay the costs of the improvements intended to be paid therefrom. (v) The balance in the Reserve Fund established under the Fiscal Agent Agreement (95-1), and a statement of the Reserve Requirement (95-1) as of the September 30 next preceding the Annual Report Date. (vi) The balance in each Reserve Account established for a Group of Assessment Bonds (95-2) under the Fiscal Agent Agreement (95-2), and a statement of the reserve requirement applicable to each such Reserve Account as of the September 30 next preceding the Annual Report Date. (vii) The total assessed value of all parcels within the subject Area on which the Reassessments are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding 'the Annual Report Date, and a statement of assessed value-to-lien ratios therefor, either by individual parcel or by categories (e.g. "below 3:1", "3:1 to 4:1" etc.). (viii) The Reassessment delinquency rate for the Subject Area, as shown · on the assessment roll of the Orange County Assessor last equalized prior to the DOCSLA 1:258296.3 4208 I-4-Tt16-08/! 0/98 September 30 next preceding the Annual Report Date, the number of parcels within the Subject Area delinquent in payment of Reassessments, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the City; provided, however, that parcels with delinquencies of $2,000 or less may be grouped together and such information may be provided by category. (ix) The status of Reassessment foreclosure proceedings and a summary of the results of any foreclosure sales as of the September 30 next preceding the Annual Report Date. (x) The identity of any property owner representing more than 5% of the Reassessment levy delinquent in payment of Reassessments levied within the Subject Area, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date. (xi) A land ownership summary listing property owners responsible for more than 5% of the Reassessment levy within the Subject Area, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date. (xii) The number of building permits issued by the City for new construction within the Subject Area during the one year period ending on the September 30 next preceding the Annual Report Date. In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the 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 submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 4. Reportin_~ of Significant 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 Series C Bonds, if material: (i) Principal and interest payment delinquencies. DOCSLA1:258296.3 4208 !-4-Ttt6-08/i 0/98 (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the City promptly notify the Trustee in writing whether or not to report the event pursuant to subsection (f). (c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the City determines that the Listed Event would not be material under applicable Federal securities law, the City shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence pursuant to subsection (f). (f) If the Trustee has been instructed by the City to report the occurrence of a Listed Event, the Trustee shall file a notice of such occurrence with the Municipal Securities DOCSLA 1:258296.3 4208 !-4-Ttt6-08/! 0/98 7 Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture. Section 5. Termination of Reporting Obligation. The City's obligations under this Disclosure Agreement shall terminate upon the legal' defeasance, prior redemption or payment in full of all of the Series C Bonds. If such termination occurs prior to the final maturity of the Series C Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 4(f) hereof. Section 6. Dissemination Agent. State Street Bank and Trust Company of California, N.A., is hereby appointed as the initial Dissemination Agent. The City may, from time to time, appoint or engage a successor Dissemination Agent to assist it in carrying out its obligations under this Disclosure A~eement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 7. Amendment~ Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by 'the City), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment-or waiver relates to Sections 2(a), 3 or 4(a) 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 Series C Bonds, or 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 Series C 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 (i) is approved by holders of the Series C Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of holders of the Series C Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. DOCSLA 1:258296.3 42081-4-T116-08/! 0/98 8 If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial statements or .information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 4(f) hereof. Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 9. Default. In the event of a failure of the City or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall), or any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Dissemination Agent shall be entitled to the protections therein as if it were the Trustee. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement and shall not be responsible for the content of any of the reports or financial statements delivered by the City pursuant to this Disclosure Agreement. Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Trustee, the Dissemination Agent, the Participating Underwriters and holders and DOCSLA 1:258296.3 4208 I-4-TH6-08/! 0/98 9 beneficial owners from time to time of the other person or entity. Series C Bonds', and shall create no rights in any Section 12. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be. an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF TUSTIN By: Ronald A. Nault Finance Director STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: Authorized Officer I)OCSLA 1:258296.3 4208 I-4-Ttt6-08/I 0/98 10 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Tustin Public Financing Authority Name of Bond Issue: Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series C Date of Issuance: ,1998 NOTICE IS HEREBY GIVEN that the City of Tustin (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement (Series C), dated as of , 1998, by and between the City and State Street Bank and Trust Company of California, N.A., as Trustee. [The City anticipates that the Annual Report will be filed by .] Dated: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee, on behalf of the City of Tustin cc: City of Tustin I)OCSLA1:258296.3 42081-4-T!t6-08/I 0/98 A-1 Preliminary'Official Statement Dated ,1998 In the opinion of Orrick, Herrir °c Sutcliffe LLP, Bond Counsel, based upon an r ~s of existing laws, regulations, rulings and court decisions' and assuming, a Jthcr matters, compliance with certain covenant 'est on the Series C Bonds is excluded from gross income for federal income tax purpo~,,o under Section 103 of the Internal Revenue Code o, ~ ~6 and is exemp, t from State of California personal income taxes. In the further opinion of Bond Counsel, imerest on the Series C Bonds is not a preference ~tem for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series C Bonds. See "TAX MATI'ERS" herein. [NEW ISSUE - BOOK-ENTRY ONLY RATINGS: Moody's:_ S&P:_ (See "RATINGS" herein) $ * TUSTIN PUBLIC' FINANCING AUTHORITY REVENUE BONDS (Tustin Ranch) Series C Bank Qualified Bonds Dated: Date of Delivery Due: September 2, as shown below The $ * Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series C (the "Series C Bonds") are being issued by the Tustin Public Financing Authority (the "Authority") pursuant to the Indenture of Trust, dated as of February 1, 1996, by and between the Authority and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), as amended and supplemented by the First Supplemental Indenture of Trust, dated as of November 1, 1997, and the Second Supplemental Indenture of Trust, dated as of , 1998 (as so amended and supplemented, the "Indenture"), and will be secured as described herein. The Series C Bonds will be on a parity with the Authority's previously issued Revenue Bonds (Tustin Ranch) Series A (the "Series A Bonds"), Reveneue Bonds (Tustin Ranch) Series B (the "Series B Bonds") and any additional bonds ("Additional Bonds") issued by the Authority pursuant to the Indenture. The Series A Bonds, the Series B Bonds, the Series C Bonds and any such Additional Bonds are collectively referred to as the "Bonds." The Series C Bonds are being issued to purchase the City of Tustin Limited Obligation Improvement Bonds Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group Two (the "Group Two Bonds"). The Group Two Bonds are being issued by the City of Tustin (the "City") pursuant to the Fiscal Agent Agreement, dated as of February 1, 1996, by and between the City and State Street Bank and Trust Company of California, N.A., as fiscal agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, the Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997, and the Third Supplemental Fiscal Agent Agreement, dated as of ,1998, and will be secured by certain unpaid reassessments (the "Group Two Reassessments') levied by the City. The Series C Bonds will be issued in book-entry form, initially registered in the name of Cede & Co., New York, New York, as nominee of The Depository Trust Company ("DTC"), New York, New York. Interest on the Series C Bonds, payable at the rates set forth below, will be payable on September 2 and March 2 of each year, commencing , 199 . Purchasers will not receive certificates representing their interest in the Series C Bonds. Individual purchases will be in principal amounts of $5,000 or in any integral multiple of $5,000. Payments of principal and interest will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Series C Bonds. The Series C Bonds will mature on September 2 in the years and in the amounts as shown on the Maturity Schedule set forth below. The Series C Bonds are subject to redemption prior to maturity as set forth herein. See "THE SERIES C BONDS - Redemption of the Series C Bonds" herein. The Bonds are payable solely from Revenues of the Authority, consisting primarily of debt service payments received from the City by the Trustee, as the owner of certain assessment bonds (the "Assessment Bonds") of the City, including the Group Two Bonds. The Assessment Bonds are secured by certain unpaid reassessments, including the Group Two Reassessments, as more fully described herein. Payments under the Assessment Bonds are calculated to be sufficient to permit the Authority to pay the principal of, premium, if any, and interest on the Bonds when due. The City has determined that it will not obligate itself to advance funds from its treasury to cover any delinquency on the Assessment Bonds. THE BONDS ARE LIMITED OBLIGATIONS ~F THE AUTHORITY AND ARE PAYABLE SOLELY FROM THE REVENUES AND OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. THE BONDS DO NOT CONSTrrUTE A DEBT OR LIABILITY OF THE CITY OR OF THE STATE OF CALIFORNIA, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLmCAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE ASSESSMENT BONDS ARE LIMITED OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM THE REASSESSMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT PURSUANT TO WHICH SUCH ASSESSMENT BONDS ARE ISSUED. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE ASSESSMENT BONDS. The scheduled payment of principal of and interest on the Series C Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Series C Bonds by FINANCIAL SECURITY ASSURANCE INC. [Logo] This cover page contains information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement, including the section entitled "SPECIAL RISK FACTORS", for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in making an informed investment decision about the Series C Bonds. .~ MATURITY SCHEDULE $.~Serial Series C Bonds Maturity Price/ Maturity Price/ (September 2) Principal Interest Yield (Septem~ 2) Principal Interest Yield 1999 2005 2000 2006 2001 2007 2002 2008 2003 2009 $ % Term Series C Bonds due September 2, 2013 Price: The Series C Bonds are offered, when, as and if issued and accepted by the Underwriter, subject to approval as to their validity by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the Authority and the City by Woodruff, Spradlin & Smart, a Professional Corporation, Orange, California. It is anticipated that the Series C Bonds will be available for delivery in book-entry form in New York, New York, on or about ,1998. Dated: ,1998 * Preliminary, subject to change. DOCSLA1:258245.3 d2flgl .~.TI-16-flR/11/OR PaineWebber Incorporated TUSTIN PUBLIC FINANCING AUTHORITY and CITY OF TUSTIN (Orange County, California) MEMBERS OF THE AUTHORITY COMMISSION AND CITY COUNCIL Thomas R. Saltarelli, Chair/Mayor Tracy Wills Worley, Vice Chair/Mayor Pro Tem Mike Doyle, Cornmissioner/Councilmember Jim Potts, Commissioner/Councilmcmber Seffcry M. Thomas, Commissioner/Councilmember AUTHORITY OFFICERS AND CITY STAFF William A. Huston, Executive Director/City Manager George W. Jeffries, Authority Treasurer/City Treasurer Christine Shingleton, Assistant Executive Director/Assistant City Manager Pamela Stoker, Authority Secretary/City Clerk Ronald A. Nault, City Finance Director Tim Serlet, City Public Works Director PROFESSIONAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California City Attorney Lois E. Jeffrey Woodruff, Spradlin & Smart A Professional Corporation Orange, California Reassessment Consultant MuniFinancial, Inc. Temecula, California Trustee State Street Bank and Trust Company of California, N.A. Los Angeles, California DOCSLA1:258245.3 42081-3-TH6-08/11/98 No dealer, broker, salesperson' or other person has been authorized to give any information or to make any representations, other than as contained in this Official Statement, and if given or made, such other information or representations 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 Series C Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtain from the Authority, the City, and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of such by the Authority or the City. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that them' has been no Change in the affairs of the Authority, the City, the Fixed Rate Subject Area (as defined herein), or any property owner since the date hereof. The discussion and information herein relating to the Series C Bonds, the Fixed Rate Subject Area, the Authority, and the City do not purport to be comprehensive or definitive. All references to the Series C Bonds are qualified in their entirety by reference to the Indenture setting forth the terms and descriptions thereof. The summaries and references to any code, act, resolution, the Indenture or the Fiscal Agent Agreements (as defined herein), and to other statutes and documents in this Official Statement do not purport to be comprehensive or definitive, and are qualified in their entirety by reference to each statute and document. OTHER THAN WITH RESPECT TO INFORMATION CONCERNING FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY") CONTAINED UNDER THE CAPTIONS "BOND INSURANCE POLICY" AND "FINANCIAL SECURITY ASSURANCE INC." HEREIN, NONE OF THE INFORMATION IN THIS OFFICIAL STATEMENT HAS BEEN SUPPLIED OR VERIFIED BY FINANCIAL SECURITY AND FINANCIAL SECURITY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION; (II) THE VALIDITY OF THE SERIES C BONDS; OR (III) THE TAX EXEMPT STATUS OF THE INTEREST ON THE SERIES C BONDS. IN CONNECTION WITH THIS BOND UNDERWRITING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES C BONDS DESCRIBED HEREIN AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DOCSLA1:258245.3 42081-3-TH6-08/11/98 -i- INSERT LOCATION MAP DOCSLA1:25824-~.3 42081-3-TH6-08/11/98 -ii- TABLE OF CONTENTS Paee INTRODUCTION ......................................................................................................................... 1 CONTINUING DISCLOSUR~ ................................................................................................... :. 4 THE PLAN OF FINANCING .................... · ......................................................................... 4 ESTIMATED SOURCES AND USES .......................................................................................... 5 Series C Bonds ................................................................................................................... 5 Group Two Bonds .............................................................................................................. 6 THE SERIES C BONDS ............................................................................................................... 6 Description of the Series C Bonds ..................................................................................... 6 Redemption of the Series C Bonds .................................................................................... 7 Transfers and Exchange, ..................................................................................... : ............. ,9 Book-Entry System ........' .................................................................................................. 10 ' 13 Debt Service Schedule .................................................................. , .................................. SECURITY FOR THE BONDS .................................................................................................. 13 General ............................................................................................................................. 13 Payments of Assessment Bonds ....................................................................................... 15 Debt Service Reserves ..................................................................................................... 16 Additional Authority Bonds ......................... ' .................................................................... 17 Additional Assessment Bonds ......................................................................................... 20 Covenant for Superior Court Foreclosure ........................................................................ 20 Priority of Lien ................................................................................................................. 21 BOND INS~C£ .................................................................................................................. 22 METHOD OF REASSESSMENT ............................................................................................... 23 THE FIXED RATE SUBJECT AREA ........................................................................................ 23 General ............................................................................................................................. 23 Status of Public Improvements Designated Parcels ......................................................... 24 Location and Terrain of the Fixed Rate Subject Area ..................................................... 24 Land Uses and Development Status ................................................................................ 25 Largest Landowners by Reassessment Amount ............................................................... 26 Debt Service Coverage ..................................................................................................... 27 -i- DOCSLA1:258245.3 42081-3-TH6-08/11/98 TABLE OF CONTENTS (continued) Page Delinquency History ........................................................................................................ 28 Estimated Value-to-Lien Ratios ....................................................................................... 29 Direct and Overlapping Debt ........................................................................................... 30 Status of Development ..................................................................................................... 35 SPECIAL RISK FACTORS ........................................................................................................ 38 The Bonds are Limited Obligations of the Authority ..................................... ~ ................ 38 The Reassessments are Not Personal Obligations of the Property Owners ..................... 38 The Assessment Bonds are Limited Obligations of the City ........................................... 39 Bankruptcy and Foreclosure Delays ................................................................................ 39 Existence of Undeveloped Property ................................................................................. 40 Price Realized Upon Foreclosure ..................................................................................... 41 Uncertainties of Future Development .............................................................................. 41 Direct and Overlapping Indebtedness .............................................................................. 42 Earthquakes ...................................................................................................................... 43 Drought Conditions .......................................................................................................... 43 Land Values ..................................................................................................................... 43 Hazardous Substances ...................................................................................................... 44 Endangered and Threatened Species ................................................................................ 45 Cumulative Burden of Parity Taxes, Special Assessments and Development Costs ...... 45 Loss of Tax Exemption .................................................................................................... 45 California Constitution Article XIIIC and Article XIIID ................................................ 46 QUALIFIED TAX-EXEMPT OBLIGATIONS .......................................................................... 47 THE AUTHORITY ..................................................................................................................... 47 THE CITY ................................................................................................................................... 47 CONCLUDING INFORMATION .............................................................................................. 47 Underwriting .................................................................................................................... 47 Legal Opinion .................................................................................................................. 48 Tax Matters ......................................... : ............................................................................ 48 -ii- DOCSLA1:258245.3 42081-3-TH6-08/11/98 TABLE OF CONTENTS (continued) Paee Bank Qualified Bonds ...................................................................................................... 49 No Litigation .................................................................................................................... 50 Ratings ............................................................................................................................. 50 Miscellaneous .................................................................................................................. 50 APPENDIX A - Summary of Indenture and Fiscal Agent Agreements APPENDIX B - Proposed Form of Opinion of Bond Counsel APPENDIX C - Continuing Disclosure Agreement APPENDIX D - Insurance Policy Specimen DOCSLA1:258245.3 42081-3-TH6-08/11/98 -iii- Paee DOCSLA1:258245.3 42081-3-TH6-08/11/98 -i- ~t TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (Tustin Ranch) Series C INTRODUCTION This Official Statement, including the cover, inside cover, the table of contents and the Appendices, is provided to furnish information in connection with the sale by the Tustin Public Financing Authority (the "Authority") of its $ aggregate principal amount of Revenue Bonds (Tustin Ranch), Series C (the "Series C Bonds"). The Series C Bonds will be issued by the Authority pursuant to an Indenture of Trust, dated as of February 1, 1996 (the "Original Indentu/e"), as amended and supplemented by a First Supplemental Indenture of Trust, dated as of November 1, 1997 (the "First Supplemental Indenture"), and by a Second Supplemental Indenture of Trust, dated as of ., 1998 (the "Second Supplemental Indenture"), each by and between the Authority and State Street Bank and Trust Company of Califomia, N.A., as trustee (the "Trustee") (as so amended, the "Indenture"). .. .The proceeds from the sale of the Series C Bonds will be used to purchase $ aggregate principal amount of City of Tustin Limited Obligation Improvement Bonds, Reassessment District 'No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group Two (the "Group Two Bonds"). The Group Two Bonds are being issued by the City of Tustin (the "City") pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996 (the "Original 95-2 Agreement"), as amended and supplemented by a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996 (the ''First Supplemental 95-2 Agreement"), a Second Supplemental Fiscal Agent Agreement, dated as of November 1, 1997 (the "Second SupPlemental 95-2 Agreement"), and a Third Supplemental Fiscal Agent Agreement, dated as of , 1998 (the Third Supplemental 95-2 Agreement), each by and between the City and State Street Bank and Trust Company of California, N.A., as fiscal agent (the "95-2 Fiscal Agent") (so amended, the "95-2 Fiscal Agent Agreement"). On February 29, 1996, the Authority issued its $35,705,000 aggregate principal amount of Tusfin Public Financing Authority Revenue Bond~ (Tustin Ranch), Series A (the "Series A Bonds"), pursuant to the Original Indenture. The proceeds of the Series A Bonds were used to purchase $35,705,000 aggregate principal amount of City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-1 (Tustin Ranch) (the "Assessment Bonds (95- 1)"). The Assessment Bonds (95-1) were issued pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (the "Refunding Law") and the Improvement Bond Act of 1915 (the Preliminary, subject to change DOCSLA1:258245.3 42081-3-TH6-08/11/98 "1915 Act" and together with the Refunding Law, the "Act") and a Fiscal Agent Agreement, dated as of February 1, 1996 (the "95-1 Fiscal Agent Agreement"), by and between the City and State Street Bank and Trust Company of California, N.A., as' fiscal agent (the "95-1 Fiscal Agent"). The 95-1 Fiscal Agent Agreement and the 95-2 Fiscal Agent Agreement are herein referred to collectively as the "Fiscal Agent Agreements". The 95-1 Fiscal Agent and the 95-2 Fiscal Agent are herein referred to collectively as the "Fiscal Agent". On November 1, 1997, the Authority issued its $3,300,000 aggregate principal amount of TUstin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds"), pursuant to' the First Supplemental Indenture. The proceeds of the Series B Bonds were used to purchase $3,300,000,000 aggregate principal amount of the City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-1 (Tustin Ranch), Fixed Rate Bonds, Group One (the "Group One Bonds"). The Assessment Bonds (95-1) are secured by unpaid reassessments (the "95-1 Reassessments") levied on all taxable parcels within the City's Reassessment District No. 95-1 (Tustin Ranch) ("Reassessment District No. 95-1"). The Group One Bonds are secured by 'unpaid reassessments (the "Group One Reassessments") levied on certain parcels (the "Group One Designated Parcels") within the City's Reassessment District No. 95-2 (Tustin Ranch) ("Reassessment District No. 95-2"). The Group Two Bonds are secured by unpaid reassessments (the "Group Two Reassessments") levied on certain parcels (the "Group Two Designated Parcels") within the City's Reassessment District No. 95-2 (Tustin Ranch) ("Reassessment District No. 95- 2"). The Group One Bonds are secured only by reassessments levied on the Group One Designated Parcels and not by reassessments levied on any other parcels within Reassessment District No. 95-2. Similarly, the Group Two Bonds are secured only by reassessments levied on the Group Two Designated Parcels and not by reassessments levied on any other parcels within Reassessment District No. 95-2. The Assessment Bonds (95-1), the Group One Bonds and the Group Two Bonds are herein referred to collectively as the "Fixed Rate Assessment Bonds." The 95-1 Reassessments, the Group one Reassessments and the Group Two Reassessments are herein referred to collectively as the "Fixed Rate Reassessments." Reassessment District No. 95-1 and Reassessment District No. 95-2' are herein referred to collectively as the "Reassessment Districts." Reassessment District No. 95-1, the Group One Designated Parcels and the Group Two Designated Parcels are herein referred to collectively as the "Fixed Rate Subject Area." 'The Series C Bonds are on a parity with the Series A Bonds and the Series B Bonds. Pursuant to the Indenture, the Authority may issue additional bonds ("Additional Bonds") on a parity with the Series A Bonds, Series B Bonds and Series C Bonds. The Series A Bonds, Series B Bonds, Series C Bonds and any such Additional Bonds are herein collectively referred to as the "Bonds." The Bonds are secured by all amounts derived from the Assessment Bonds (95-1), the Group one Bonds, the Group Two Bonds or any other Reassessment District No. 95-2 fixed rate DOCSLA1:258245.3 42081-3-TH6-08/11/98 bonds ("Assessment Bonds (95-2)") issued pursuant to the 95-2 Fiscal Agent Agreement and acquired by the Authority pursuant to the Indenture, including but not limited to all payments of principal thereof, premium, if any, and interest thereon (the "Revenues"). The Assessment Bonds (95-1), Group One Bonds, Group Two Bonds and any such Assessment Bonds (95-2) are herein collectively referred to as the "Assessment Bonds." Pursuant to the Indenture, the Authority has assigned to the Trustee, for the benefit of the Owners fi.om time to time of the Bonds, all of the Revenues and all fight, title and interest of the Authority in the Assessment Bonds. See "SECURITY FOR THE BONDS" herein. The scheduled payment of principal of and interest on the Series C Bonds when due will be guaranteed under a Municipal Bond Insurance Policy (the "Policy") to be issued concurrently with the delivery of the Series C Bonds by Financial Security Assurance Inc. ("Financial Security" or the "Bond Insurer"). See "BOND INSURANCE" herein. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM THE REVENUES AND OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE CITY OR OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. The City is located in central Orange County, about 40 miles southeast of Los Angeles and 80 miles north of San Diego. The City spans approximately 11.2 square miles and adjoins the cities of Irvine, Orange and Santa Ana, as well as unincorporated areas of the County of Orange. As of ,1998, the City's current population was estimated at , representing an approximate % increase fi.om January 1, 1995. The Fixed Rate Subject Area is generally bounded by the Santa Ana Freeway (Interstate 5), Browning Avenue and Tustin Ranch Road, Santiago Canyon Road, and Jamboree Road. Reassessment District No. 95-1 is comprised of approximately 4,528 assessed parcels and covers approximately 2,782 acres. Reassessment District No. 95-2 is comprised of approximately 108 assessed parcels covering approximately 1,446 acres, of such parcels, totaling approximately ~ acres, constitute the Group Two Designated Parcels. See "FIXED RATE SUBJECT AREA" herein. Brief descriptions' of the Fixed Rate Subject Area, the Series C Bonds, the Assessment Bonds, the Indenture and the Fiscal Agent Agreements are included in this Official Statement. The descriptions of the Series C Bonds, the Assessment Bonds, and other documents are qualified in their entirety by reference to them. Copies of such documents may be obtained fi.om the City at 300 Centennial Way, Tustin, Califomia 92680, Attention: Finance Department; and, during the initial public offering period, from PaineWebber Incorporated at 725 South Figueroa Street, 41st 3 DOCSLA1:258245.3 .42081-3-TH6-08/11/98 Floor, Los Angeles, California 90017, Attention: Public Finance Department, and, after initial delivery of the Series C Bonds, at the principal corporate trust office of the Fiscal Agent at 725 South Figueroa Street, Suite 3100, Los Angeles, California 90017. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. CONTINUING DISCLOSURE The Authority has determined that no financial or operating data concerning the Authority (other than the balance in certain fimds and accounts established under the Indenture) is material to any decision to purchase, hold or sell the Series C Bonds, and the Authority will not provide any such information. The City has undertaken all' responsibilities for any continuing disclosure to Bond Owners as described below, and the Authority shall have no liability to the Owners of the Bonds or any other person with respect to such disclosure. The City has covenanted for the benefit of holders and beneficial owners of the Series C Bonds (1) to provide certain financial information and operating date (the "Annual Report") relating to the City and the property in the Fixed Rate Subject Area not later than eight (8) months after the end of the City's Fiscal Year (which currently would be March 1), commencing with the report for the 1997-98 Fiscal Year, and (2) to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Trustee on behalf of the City, with each Nationally Recognized Municipal Securities Information Repository and with each State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the City with the Municipal Securities Rulemaking Board and with each State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the Continuing Disclosure Agreement. See "APPENDIX E - Continuing Disclosure Agreement." These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the "Rule"). The City has not failed to comply in all material respects with any previous undertaking with respect to the Rule to provide annual reports or notices of material events. THE PLAN OF FINANCING The Series C Bonds are being issued under the Indenture in order to purchase the Group. Two Bonds. On February 29, 1996, pursuant to the Original 95-2 Agreement, the City issued $41,500,000 aggregate principal amount of City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series A (the "Adjustable Assessment Bonds (95- 2)") as Adjustable Rate Bonds (as defined in the Original 95-2 Agreement). Under the Original 95- 2 Agreement, a portion of the Adjustable Assessment Bonds (95-2) are required to be converted to Fixed Rate Bonds when titles are transferred by The Irvine Company to third parties with respect to properties upon which the reassessments securing such Adjustable Assessment Bonds (95-2)' are levied. On the delivery date, $ aggregate principal amount of the Adjustable Assessment Bonds (95-2) are being purchased with the proceeds of the Group Two Bonds. The Group Two Bonds consist of two components: the Group Two Fixed Rate Bonds and the Series 4 DOCSLA1:258245.3 42081-3-TH6-08/11/98 Two Bonds (each defined below). As the Adjustable Assessment Bonds (95-2) are purchased, such Adjustable Assessment Bonds will be canceled and reissued as Fixed Rate Bonds designated as the "Group Two Fixed Rate Bonds." Additionally, the 95-2 Fiscal Agent Agreement provides that, in connection with the conversion (or purchase and reissuance) of each group of Adjustable Assessment Bonds (95-2) to Fixed Rate Bonds, the City may, subject to the requirements of the Act and upon compliance with the provisions of the 95-2 Fiscal Agent Agreement, establish one or more series of bonds by supplemental agreement. In connection with the reissuance of the Group Two Fixed Rate Bonds, the City is issuing an additional series of bonds in the aggregate principal mount of $ , designated as the "Series Two Bonds," as Related Additional Bonds to the Group Two Fixed Rate Bonds. The 95-2 Fiscal Agent Agreement defines "Related Additional Bonds" as, with respect to a group of Fixed Rate Bonds, the additional series of bonds which is being issued in connection with the conversion of such group of Fixed Rate Bonds and which is designated by the City to represent the same parcels as such additional Series of Bonds. As such, both the Group Two Fixed Rate Bonds and the Series Two Bonds are designated to represent the Group Two Designated Parcels pursuant to the 95-2 Fiscal Agent Agreement. In order to provide for the authentication and delivery of the Group Two Bonds, and to establish and declare the terms and conditions upon which the Group Two Bonds are issued and secured, the City and the.95-2 Fiscal Agent are entering into the Second Supplemental 95-2 Agreement. ESTIMATED SOURCES AND USES Series C Bonds The estimated sources and uses of proceeds of sale of the Series C Bonds are as follows: Sources Principal Amount of Series C Bonds Less Original Issue Discount Less Underwfiter's Discount Total Sources: Uses Program Fund°) Total Uses: $ ( ) ( ) $ Applied to the purchase of $ principal amount of Group Two Bonds. DOCSLA1:258245.3 42081-3-TH6-08/11/98 Group Two Bonds The estimated sources and uses of proceeds of sale of the Group Two Bonds are as follows: Sources Principal Amount of Group Two Bonds Less Original Issue Discount Less Purchaser's Discount Transfer from Capitalized Interest Account under 95-2 Fiscal Agent Agreement Transfer from Interest Reserve Fund under 95-2 Fiscal Agent Agreement Total Sources: Uses Purchase of Adjustable Assessment Bonds (95-2)o) Total Uses: $ ( ) ( ) $ aggregate principal amount of Adjustable Assessment Bonds (95-2) will be purchased with the proceeds of the Group Two Fixed Rate Bonds, and the remaining $__ aggregate principal amount will be purchased with moneys constituting other sources. An amount equal to the Reserve Requirement (Group Two). To pay costs of issuance, including legal fees, printing fees and Bond Insurance Policy premium. THE SERIES C BONDS Description of the Series C Bonds The Series C Bonds will be issued in the aggregate principal amount of $ . The Series C Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Series C Bonds will be dated their date of delivery. The Series C Bonds will bear interest at the rates per annum and will mature, subject to the redemption provisions set forth below, on the dates and in the principal amounts, all as set forth on the cover page hereof. Interest on the Series C Bonds is payable semiannually on March 2 and September 2 of each year, commencing ,1998 (each an "Interest Payment Date") to the persons in whose names ownership of the Series C Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided in the Indenture. Such interest will be paid by check of the TruStee mailed by first class mail, postage prepaid on each Interest Payment Date to the Series C Bond Owners at their respective addresses shown on the Registration Bonds as of the close of business on the preceding Record Date. Interest on the Series C Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. DOCSLA1:258245.3 42081-3-TH6-08/11/98 Principal of, and premium, if any, on the Series C Bonds will be payable upon presentation and surrender thereof at the principal corporate trust office (the "Trust Office") of the Trustee in Los Angeles, California. Principal of and premium, if any, and interest on the Series C Bonds will be paid in lawful money of the United States of America. The Series C Bonds will be issued in book-entry form, initially registered in the name of Cede & Co., New York, New York, as nominee of The Depository Trust Company ("DTC"), New York, New York. Payment of interest with respect to. any Series C Bond registered as of each Record Date in the name of Cede & Co. will be made by wire transfer of same-day funds to the account of Cede & Co. See "Book-Entry System" herein. Redemption of the Series C Bonds Optional Redemption The Series C Bonds maturing on or after September 2, 20 , are subject to optional redemption in whole, or in part in authorized denominations, among maturities on such basis as shall be designated by the Authority in a Written Certificate of the Authority filed with the Trustee, on any Interest Payment Date on or after September 2, 20 , at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series C Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price Mandatory Redemption From Principal Prepayments The Series C Bonds are subject to mandatory redemption, in whole, or in part in authorized denominations, on any Interest Payment Date, from and to the extent of any Principal Prepayments with respect to the Group Two Bonds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series C Bonds to be redeemed), plus accrued interest thereon to the date of redemption: DOCSLA1:258245.3 42081-3-TH6-08/11/98 Redemption Dates Redemption Price The principal amount of Series C Bonds to be redeemed fi.om Principal Prepayments with respect to the Group Two Bonds Will be the greatest principal amount of Series C Bonds, the Redemption Price of which is less than or equal to such Principal Prepayments, as specified in a Written Request of the Authority delivered to the Trustee. In the event that the 95-2 Fiscal Agent shall mail notice of the redemption of any Group Two Bonds which will produce Principal Prepayments, the Trustee will concurrently mail notice of the redemption of Series C Bonds, such redemption to occur on the date fixed for such redemption of the Group Two Bonds. The proceeds of any such redemption of the Group Two Bonds will be applied by the Trustee to pay the Redemption Price of Series C Bonds on the date of such redemption of the Group Two Bonds. For purposes of the selection of Series C Bonds for mandatory redemption, the Series C Bonds will be selected for redemption among maturities by the Authority (evidenced pursuant to a Written Certificate of the Authority delivered to the Trustee at least 60 days prior to the redemption. date or such later date as shall be acceptable to the Trustee) on such basis that the remaining payments of principal of and interest on the Group Two Bonds, together with other available Revenues attributable thereto, will be sufficient on a timely basis to pay debt service on the Series C Bonds, as shall be demonstrated in a report of an Independent Financial Consultant filed with the Trustee. Mandatory_ Sinking Fund Redemption The Series C Bonds maturing on September 2, 20__ are subject to mandatory sinking fund redemption, in part, on September 2 in each year, commencing September 2, 20__, at a Redemption Price equal to the principal amount of the Series C 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: Redemption Date (September 2) Principal Amount * Maturity DOCSLA1:258245.3 42081-3-TH6-08/11/98 The Series C Bonds maturing on September 2, 20__ are subject to mandatory sinking fund redemption, in part, on September 2 of 20__, 20__ and 20___, at a Redemption Price equal to the principal mount of the Series C Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respectiVe principal mounts in the respective years as follows: Redemption Date (September 2) Principal Amount ' Maturity If some but not all of the Series C Bonds maturing on September 2, 20__ or September 2, 20__ are optionally redeemed, the principal amount of Series C Bonds maturing on September 2, 20__ or September 2, 20__ to be redeemed pursuant to mandatory sinking fund redemptions on any subsequent September 2 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 Series C Bonds matUring on September 2, 20__ or September 2, 20__ so optionally redeemed. If some but not all of the Series C Bonds maturing on September 2, 20__ or September 2, 20__ are redeemed pursuant to mandatory redemption from Principal Prepayments, the principal amount of Series C Bonds maturing on September 2, 20__ or September 2, 20__ to be subsequently redeemed pursuant to mandatory sinking fund redemptions will be reduced by the aggregate principal amount of the Series C Bonds maturing on September 2, 20__ or September 2, 20__ so mandatorily redeemed from Principal Prepayments, such reduction to be allocated as nearly as practicable on'a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Authority, notice of which determination will be given by the Authority to the Trustee at least 45 days prior to such redemption date. Transfers and Exchange So long as the Series C Bonds remain in book-entry, transfer and exchange of any of the Series C Bonds will be accomplished in accordance with the provisions of such book-entry system. In the event of termination of such book-entry system with respect to the Series C Bonds, then any Series C Bond may be transferred upon the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Series C Bond' for 9 DOCSLA1:2582453 42081-3-TH6-08/11/98 cancellation, accompanied by delivery of a written instrument of transfer, duly 'executed in a form acceptable to the Trustee. Whenever any Series C Bond or Bonds are surrendered for transfer, the Authority will execute and the Trustee will authenticate and deliver a new Series C Bond or Bonds for a like aggregate principal amount of the same series and maturity, in any authorized denomination. The Trustee will require the Series C Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Series C Bonds of the same series and maturity, of other authorized denominations. The Trustee will require the payment by the Series C Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee will not be obligated to make any transfer or exchange of Series C Bonds during the period established by the Trustee for the selection of Series C Bonds for redemption, or with respect to any Series C Bonds selected for redemption. Book-Entry System DTC will act as securities depository for the Series C Bonds. The Series C Bonds will be issued as fully-registered bonds in the name of Cede & Co. (DTC's partnership nominee). One fully-registered Series C Bond will be issued for each maturity of the Series C Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC 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 securities that its participants (the "Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to~ others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of the Series C Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series C Bonds on DTC's records. The ownership interest of each actual purchaser of each Series C Bond ("Beneficial Owner") is in mm to be 10 DOCSLAI:258245.3 42081-3-TH6-08/11/98 recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which Beneficial Owners entered into the transaction. Transfers of ownership interests in the Series C Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series C Bonds, except in the event that use of the book-entry system for the Series C Bonds is discontinued. To facilitate subsequent transfers, all Series C Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Series C Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series C Bonds; DTC's records reflect only the identity of the Direct Partnerships to whose accounts sUch securities are credited, which may or maY not be the Beneficial Owners. The 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 which may be in effect fi'om time to time. Redemption notices will be sent to Cede & Co. 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. will consent or vote with respect to the Series C Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to an issuer 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 the Series C Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, mandatory sinking fund payments and interest payments on the Series C Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on payment dates in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the date payable. Payments by Participants to Beneficial ~ers 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 Authority subject to any statutory or regulatory requirements which may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Authority or the Trustee, disbursement of DOCSLA1:258245.3 42081-3-T1t6-08/11/98 11 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. The Authority, the City and the Underwriter cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium with respect to the Series C Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Authority, the City and the Underwriter are not responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Series C Bonds or an error or delay relating thereto. The foregoing description of the procedures and record-keeping with respect to beneficial ownership interest in the Series C Bonds, payment of principal, interest and other payments on the Series C Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Series C Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. DTC may discontinue providing its services with respect to the Series C Bonds at any time by giving notice to the Trustee and discharging its responsibilities with respect thereto under applicable law or the Authority may terminate participation in the system of book- entry transfers through DTC or any other securities depository at any time. In the event that the book-entry system is discontinued, replacement Series C Bond certificates will be printed and delivered. DOCSLA1:258245.3 42081-3-TH6-08/11/98 12 Debt Service Schedule The schedule of annual debt service payments for the Series C Bonds is as follows: Annual Year Debt (September 2) Principal Interest Service 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Totals: SECURITY FOR THE BONDS General The Bonds, including the Series C Bonds, are limited obligations of the Authority payable solely fi.om the Revenues and other assets pledged therefor under 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 in the Indenture, all of the Revenues and any other amounts held in any fund or account established pursuant to the Indenture are pledged by the Authority to secure payment of the principal of and interest on the Bonds. Said pledge constitutes a first lien on and security interest in such assets. Revenues are defined in the Indenture to mean all amounts derived fi.om or with respect to the Assessment Bonds, which, as of the date of delivery of the Series C Bonds, consist of the Assessment Bonds (95-1), the Group One Bonds and the Group Two Bonds, including but not limited to all payments of principal thereof, premium, if any, and interest thereon. DOCSLA1:258245.3 42081-3-TH6-08/11/98 13 Pursuant to the Indenture, the Authority transfers in trust and assigns to the Trustee, for the benefit of the Owners fi.om time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the Assessment Bonds. Under the Indenture, the Trustee is entitled to and will collect and receive all of the Revenues, and any Revenues collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority and will forthwith be paid by the Authority to the Trustee. The Trustee also will be entitled to and may take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authohty or separately, all of the rights of the Authority and all of the obligations of the City under and with respect to the Assessment Bonds. In accordance with the provisions of the Indenture, the Trustee is the registered Owner of the Assessment Bonds (95-1) and the Group One Bonds and, upon the issuance thereof, will be the registered Owner of the Group Two Bonds and will therefore receive fi.om the Fiscal Agent the payments of the principal of and the premiums, if any, and interest on the Assessment Bonds. Pursuant to the Act, the City is required annually to transmit to the Auditor of the County of Orange (the "County") the respective amounts of individual Fixed Rate Reassessment installments on all unpaid Fixed Rate Reassessments, the sum of which individual Fixed Rate Reassessment installments is sufficient to pay the principal of and interest on the Fixed Rate Assessment Bonds as such principal and interest become due and payable. Said Fixed Rate Reassessment installments are then billed on the regular County property tax bills and are remitted to the City in accordance with established procedures for such remittances. Assuming timely payment by the respective property owners of the obligations (including the Fixed Rate Reassessment installments) billed on the regular County property tax bills, and further assuming timely remittance by the County to the City of the amount of such Fixed Rate Reassessment installments thereby collected, the City will have sufficient funds fi.om the Fixed Rate Reassessment installments to make timely payment to the Fiscal Agent of each March 2 interest payment and each September 2 principal and interest payment on the Fixed Rate Assessment Bonds, as the same become due and payable. See "SPECIAL RISK FACTORS" herein for a discussion of factors which could affect the collection of Fixed Rate Reassessment installments. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM THE REVENUES AND OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE CITY OR OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. DOCSLA1:258245.3 42081-3-TH6-08/11/98 4 Payments of Assessment Bonds The Assessment Bonds (95-1), the Group One Bonds and the Group Two Bonds are secured by the unpaid 95-1 Reassessments, the unpaid Group One Reassessments and the unpaid Group Two Reassessments, respectively, levied upon private property within Reassessment District No. 95-1, Group One Designated Parcels and the Group Two Designated Parcels, respectively, pursuant to the Act. Such unpaid 95-1 Reassessments, Group one Reassessments and Group TWo Reassessments (together with interest thereon), and moneys in the Redemption Fund established for the Assessment Bonds (95-1) and those in the Redemption Accounts established for the Group One Bonds and the Group Two Bonds (respectively, "Redemption Account (Group one)" and the "Redemption Account (Group Two)"), constitute a trust fund for the redemption and payment of the principal of, premium, if any, and interest on the Assessment Bonds (95-1), the Group One Bonds and the Group Two Bonds respectively. Principal of, premium, if any, and interest on the Assessment Bonds (95-1) are payable exclusively out of the Redemption Fund established under the 95-1 Fiscal Agent Agreement. Principal of, premium, if any, and interest on the Group One Bonds are payable exclusively out of the Redemption Account (Group One) within the Redemption Fund established under the 95-2 Fiscal Agent Agreement. Principal of, premium, if any, and interest on the Group Two Bonds are payable exclusively out of the Redemption Account (Group Two) within the Redemption Fund established under the 95-2 Fiscal Agent Agreement. THE OBLIGATIONS OF THE CITY UNDER THE ASSESSMENT BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY, BUT ARE LIMITED OBLIGATIONS, PAYABLE SOLELY FROM THE FIXED RATE REASSESSMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE RESPECTIVE FISCAL AGENT AGREEMENTS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDMSION THEREOF, IS PLEDGED TO THE PAYMENT OF THE FIXED RATE ASSESSMENT BONDS. The Fixed Rate Reassbssments levied in the Fixed Rate Subject Area and each installment thereof and any interest and penalties thereon constitute liens against the parcels of land on which they are levied until the same are paid. The liens imposed in the Fixed Rate Subject Area are subordinate to fixed special assessment liens previously imposed upon'the same property but have priority over 'existing and furore private liens and over any fixed special assessment liens which hereafler be created against the property. Such liens are co-equal to and independent of the lien for general property taxes and special taxes. While there are no prior special assessment liens on any of the parcels of land in the Fixed Rate Subject Area, there are liens for special taxes and the recurring lien for general property taxes. See "THE FIXED RATE SUBJECT AREA - Estimated Direct and Overlapping Debt" herein. ALTHOUGH THE UNPAID FIXED RATE REASSESSMENTS CONSTITUTE LIENS ON THE PARCELS OF LAND ASSESSED, THEY DO NOT CONSTITUTE A PERSONAL INDEBTEDNESS OF THE RESPECTIVE PROPERTY OWNERS. THERE IS NO 15 DOCSLA1:258245.3 42081-3-TH6-08/11/98 ASSURANCE THAT PRESENT PROPERTY OWNERS WILL REMAIN THE PROPERTY OWNERS, THAT PROPERTY OWNERS WILL BE FIN~CIALLY ABLE TO PAY THEIR FIXED REASSESSMENTS, OR THAT PROPERTY OWNERS WILL IN FACT PAY SUCH FIXED REASSESSMENTS EVEN THOUGH FINANCIALLY ABLE TO DO SO. Under provisions of the Act, Fixed Rate Reassessment installments sufficient to meet annual payments of principal of and interest on the Fixed Rate Assessment Bonds are to be collected on the regular property tax bills sent by the County Tax Collector to owners of the parcels of' land against which there are unpaid Fixed Rate Reassessments. Annual installments of 95-1 Reassessments are to be paid into the Redemption Fund for the Assessment Bonds (95-1), which will be held by the 95-1 Fiscal Agent and used to 'pay the principal of and interest on the Assessment Bonds (95-1) as they become due. Annual installments of the Group One Reassessments and of the Group Two Reassessments are to be paid into the Redemption Account (Group One) and the Redemption Account (Group Two) respectively, which will be held by .the 95-2 Fiscal Agent and used to pay the principal of and interest on the Group One Bonds and the Group Two Bonds respectively, as they become due. The installment billed against each parcel of land within Reassessment District No. 95-1, the Group One Designated Parcels or the Group Two Designated Parcels each year represents a pro-rata share of the total principal and interest coming due on all of the Assessment Bonds (95-1), the Group One Bonds and the Group Two Bonds, as the case may be, that year. The amount billed against each parcel of land within Reassessment District No. 95-1, the Group One Designated Parcels or the Group Two Designated Parcels is based on the percentage which the unpaid 95-1 Reassessment, Group One Reassessments or Group Two Reassessment, as the case may be, against the parcel bears to the total of unpaid 95-1 Reassessments or Group Two Reassessment, as the case may be, within Reassessment District No. 95-1, Group One Designated Parcels or Group Two Designated Parcels, plus an administrative charge of the City. The failure of a property owner to pay an annual 95-1 Reassessment installment, Group One Reassessment installment or Group Two Reassessment installment, as the case may be, will not result in an increase in 95-1 Reassessment installments, Group One Reassessment installments, or Group Two Reassessment installments, as the case may be, against other property in the 95-1 Reassessment District, Group One Designated Parcels or Group Two Designated Parcels, as the case may be. In the event of delinquencies of a certain amount respecting any installment of an unpaid Fixed Rate Reassessment, and with respect to ali delinquencies in certain circumstances, as prescribed in each Fiscal Agent Agreement, the City has covenanted to institute superior court foreclosure proceedings to enforce payment of such delinquencies. See "Covenant for Superior Court Foreclosure" herein. Debt Service Reserves Pursuant to the 95-1 Fiscal Agent Agreement, a Reserve Fund has been established for the Assessment Bonds (95-1) in the amount of the Reserve Requirement (as defined in the 95-1 Fiscal 16 DOCSLA1:258245.3 42081-3-TH6-08/11/98 Agent Agreement), presently $ , and pursuant to the 95-2 Fiscal Agent Agreement, a Reserve Account (Group One) and a Reserve Account (Group Two) within the Reserve Fund have been established for the Group One Bonds and the Group Two Bonds, respectively, in the amount of the Reserve Requirement (Group One) (as defined in the Second Supplemental 95-2 Agreement), presently $ .., and of the Reserve Requirement (Group Two) (as defined in the Third Supplemental 95-2 Agreement), presently $ . Pursuant to the 95-1 Fiscal Agent Agreement, transfers will be made fi.om the Reserve Fund to the Redemption Fund established under the 95-1 Fiscal Agent Agreement in the event of a deficiency in such Redemption Fund. The amount so advanced will be reimbursed to the Reserve Fund from the proceeds of redemption or sale Of the parcel for which payment or reimbursement of any delinquent 95-1 Reassessment was made from such Reserve Fund. Transfers will be made pursuant to the 95-2 Fiscal Agent Agreement fi'om the Reserve Account (Group One) to the Redemption Account (Group One) under the 95-1 FisCal Agent Agreement and fi'om the Reserve Account (Group Two) to the Redemption Account (Group Two) under the 95-2 Fiscal Agent Agreement in the event of a deficiency in such Redemption Account. The amount so advanced will be reimbursed to the Reserve Account (Group One) or the Reserve Account (Group Two), as applicable, fi'om the proceeds of redemption or sale of the parcel for which payment or reimbursement of, as applicable, any delinquent Group One Reassessment was made fi.om the Reserve Account (Group One) or any delinquent Group Two Reassessment was made fi.om the Reserve Account (Group Two). If any 95-1 Reassessment, Group One Reassessment or Group Two Reassessment is prepaid before final maturity of the related Fixed Rate Assessment Bonds, the City is authorized by the applicable Fiscal Agent Agreement to reduce the amount in the Reserve Fund, Reserve Account (Group One) or Reserve Account (Group Two), as applicable, and transfer to the applicable Prepayment Account an amount in the proportion in which the 95-1 Reassessment, Group One Reassessment or Group Two Reassessment prepaid bears to the total original unpaid 95-1 Reassessments, Group One Reassessments or Group Two Reassessments, as the case may be. Upon the conversion of each group of Adjustable Assessment Bonds (95-2) to Fixed Rate Bonds, and the issuance of any Related Additional Bonds, a reserve account will be established for such Fixed Rate Bonds and Related Additional Bonds, if any. There will be deposited in each such reserve account established for each such group of Fixed Rate Bonds so converted and the Related Additional Bonds, if any, an amount equal to the Reserve Requirement for such group of Fixed Rate Bonds and Related Additional Bonds, if any; provided, however, in lieu of such deposit there may be deposited in such reserve account a Reserve Facility in an amount at least equal to such Reserve Requirement. Additional Authority Bonds In addition to the Series A Bonds, Series B Bonds and Series C Bonds, the Authority may, subject to the requirements of the Marks-Roos Bond Pooling Act of 1985 (the "Bond Law"), by Supplemental Indenture establish one or more Series (as defined in the Indenture) of Bonds payable from the Revenues on a parity with the Series A Bonds, Series B Bonds and Series C Bonds and 17 DOCSLA1:258245.3 42081-3-TH6-08/11/98 secured by a lien upon and pledge of Revenues equal to the lien and pledge securing the Series A Bonds, Series B Bonds and Series C Bonds, and the Authority may issue and the Trustee may authenticate and deliver Bonds of any Series so established in such principal amount as shall be determined by the Authority in said Supplemental Indenture, subject to certain conditions set forth in the Indenture, summarized as follows: (1) The Authority shall not be in default under the Indenture. (2) The Bonds of such additional Series shall be payable as to principal annually on September 2 of each year in which principal falls due. The Bonds of such additional Series shall be payable as to interest semiannually on March 2 and September 2 of each year excepting the first year, provided that the first installment of interest may be payable on either March 2 or September 2 and shall be for a period of not longer than twelve months and that the interest shall be payable thereafter semiannually on March 2 and September 2. (3) The Bonds of such additional Series shall be subject to mandatory redemption from Principal Prepayments received with respect to the Assessment Bonds (95-2) being acquired with the proceeds of such Bonds, or with respect to the Assessment Bonds (95-2) theretofore acquired with the proceeds of Outstanding Bonds being refunded with the proceeds of the Bonds of such additional Series, as applicable, on the dates on which and at the redemption prices at which such Assessment Bonds (95-2) may be optionally redeemed or mandatorily redeemed from prepayment ofreassessments pursuant to the 95-2 Fiscal Agent Agreement. (4) Unless such Series of Bonds is being issued solely to retired Outstanding Bonds, a portion of the proceeds of such Series of Bonds shall be applied to acquire Assessment Bonds (95-2) pursuant to a Purchase Agreement. (5) Agreement. No default shall have occurred and be continuing under either Fiscal Agent (6) The aggregate principal amount of Bonds issued under the Indenture shall not exceed any limitation imposed by law or by any Supplemental Indenture. (7) The Authority shall have filed the following documents with the Trustee: (a) An opinion of Bond Counsel substantially to the effect that (i) that such Bond Counsel has examined the Supplemental Indenture and found it to be in compliance with the requirements of the Indenture, (ii) that the execution and delivery of the additional Series of Bonds has been duly authorized by the Authority, (iii) that said additional Series of Bonds, when duly executed by the Authority and authenticated and delivered by the Trustee, will be valid and binding special obligations of the Authority, payable from Revenues as provided in the Indenture, and (iv) that the issuance of such additional Series of Bonds and the application of the proceeds thereof in accordance with the Supplemental Indenture pursuant to which said additional Series of Bonds is 18 DOCSLA1:258245.3 42081-3-TH6-08/11/98 issued will not adversely affect the exclusion from gross income of interest on the Outstanding Bonds; (b) has been met; A certificate of the Authority that the requirement of paragraph (1) above has been met; (c) A certificate of the Fiscal Agent that the requirement of paragraph (5) above (d) A written report of an Independent Financial Consultant demonstrating that (i) the Revenues attributable to the Assessment Bonds (95-2) being acquired with the proceeds of such additional Series of Bonds, or attributable to the Assessment Bonds (95-2) theretofore acquired with the proceeds of Outstanding Bonds being refunded with the proceeds of such additional Series of Bonds, as applicable, will be sufficient in time and amount to pay when due the principal of and interest and premium, if any, on such additional Series of Bonds, (ii) upon the issuance of such additional Series of Bonds, the Revenues will be sufficient in time and amount to pay when due the principal of and interest and premium, if any, on all Outstanding Bonds, (iii) upon the issuance of such additional Series of Bonds, the Revenues in each Bond Year will be at least equal to 120% of the principal of and interest and premium, if any, on all Outstanding Bonds scheduled to be paid in such Bond Year, (iv) upon the issuance of such additional Series of Bonds, the Revenues to be generated from assessments levied on property that is, as of the date of such issuance, Developed Property in each Bond Year will be at least equal to 100% of the principal of and interest and premium, if any, on all Outstanding Bonds scheduled to be paid in such year, (v) upon the issuance of such additional Series of Bonds, no more than 15% (or such greater percentage as is consented to in writing by the Bond Insurer) of the Revenues will be generated from assessments levied on property owned by the largest assessee (other than Irvine Apartment Communities) of assessments levied to pay the Assessment Bonds, or by any Affiliate thereof, (vi) upon the issuance of such additional Series of Bonds, no more than 30% (or such greater percentage as is consented to in writing by Financial Security) of the Revenues will be generated from assessments levied on property owned by the five largest assessees (other than Irvine Apartment Communities) of assessments levied to pay the Assessment Bonds, or by any Affiliate thereof, and (vii) no property, UPon which are levied assessments securing the Assessment Bonds (95-2) being acquired with the proceeds of such additional Series of Bonds, is owned by an owner of property (A) upon which are levied assessments securing Assessment Bonds theretofore acquired pursuant to the Indenture, and (B) that is delinquent in the payment of any installment of an assessment described in clause (A); and (e) Said Supplemental Indenture, duly executed. None of the above limitations or restrictions on the issuance of Additional Bonds will be applicable to any Additional Bonds which are to be issued solely for the purpose of refunding and retiring all of a Series of Bonds issued under the Indenture and then Outstanding, and nothing in the Indenture limits the issuance of any Additional Bonds if, after the issuance and delivery of such 19 DOCSLA1:258245.3 42081-3-TH6-08/11198 Additional Bonds, none of the Bonds theretofore authorized under the Indenture will be Outstanding or the Authority shall have discharged the entire indebtedness on all Bonds Outstanding in one of the ways authorized by the Indenture. Additional Assessment Bonds The 95-2 Fiscal Agent Agreement provides that additional Adjustable Assessment Bonds (95-2) may, and in certain circumstances must, be converted to Fixed Rate Bonds and that Related Additional Bonds may be issued in connection with the conversion of such Fixed Rate Bonds. Such Related Additional Bonds, if any, and Fixed Rate Bonds (together, the "Additional 95-2 Fixed Rate Bonds") would be secured by 95-2 Reassessments on certain parcels (the "Additional 95-2 Fixed Rate Parcels") within Reassessment District No. 95-2 (other than the Group One Designated Parcels or the Group Two Designated Parcels) designed by the City at the time of such conversion to represent such Additional 95-2 Fixed Rate Bonds. Subject to the provisions of the Indenture, such Additional 95-2 Fixed Rate Bonds could be purchased by the Authority with the proceeds of Additional Bonds to be issued pursuant to the Indenture. All Bonds issued under the Indenture, including any such Additional Bonds, are secured on a parity basis by all Revenues derived fi.om payments to the Authority on all Assessment Bonds. No additional Assessment Bonds (95-1) may be issued under the 95-1 Fiscal Agent Agreement and no additional Assessment Bonds (95-2) may be issued upon the security of the unpaid'Group One Reassessments for the Group One Designated Parcels or the unpaid Group Two Reassessments for the Group Two Designated Parcels. See "- Additional Authority Bonds" above and "APPENDIX A- SUMMARY OF INDENTURE AND FISCAL AGENT AGREEMENTS." Covenant for Superior Court Foreclosure If a delinquency occurs in the payment of any Fixed Rate Reassessment installment securing any Fixed Rate Assessment Bonds, the Fiscal Agent will have a duty only to transfer into the related Redemption Fund fi.om the related Reserve Fund, 'Reserve Account (Group One) or Reserve Account (Group Two) (but only to the extent funds are available therein) the amount necessary to pay principal of or interest on such Fixed Rate Assessment Bonds when due. There is no assurance that sufficient funds will be available in the Reserve Fund, Reserve Account (Group One) or Reserve Account (Group Two), as the case may be, for the Assessment Bonds (95-1), Group One Bonds or Group Two Bonds, as applicable, for this purpose. The City has determined, pursuant to Section 8769 of the Califomia Streets and Highways Code, that it will not obligate itself to advance funds fi.om its treasury to cover any delinquency on the Fixed Rate Reassessments or payments on the Fixed Rate Assessment Bonds. The City has covenanted 'in the Fiscal Agent Agreement that it will within 150 days of a delinquency in the payment of Fixed Rate Reassessments or any other reassessments levied on any Additional 95-2 Fixed Rate Parcels ("Additional 95-2 Fixed Rate Reassessments"), or interest thereon, or amounts to pay the continuing costs of the Bonds, forthwith undertake and diligently 20 DOCSLA1:258245.3 42081-3-TH6-08/11/98 prosecute foreclosure proceedings in the manner prescribed in the Act to collect such delinquent amounts; provided, however, that if the amount collected in Reassessment District No. 95-1, on the Group One Designated Parcels or the Group Two Designated Parcels or on any group of Additional 95-2 Fixed Rate Parcels securing any series of Additional 95-2 Fixed Rate Bonds is greater than' 92.5% of the installment of the 95-1 Reassessments, Group One Reassessments, Group Two Reassessments or such Additional 95-2 Fixed Rate Reassessments, as the case may be, and interest thereon, and amounts to pay such continuing costs, to be collected, the City will not be required to undertake such foreclosure proceedings, unless it is determined that any single property owner is delinquent in excess of $25,000 in the payment of such amounts in which case it shall diligently institute, prosecute and pursue such foreclosure proceedings against such property owner as set forth therein. · Upon the redemption or sale of the real property responsible for such delinquencies, the City shall deposit in the Reserve Fund established with respect to the Assessment Bonds (95-1), the Reserve Account (Group One) or the Reserve Account (Group Two) established with respect to the Group One Bonds or Group Two Bonds, respectively, or any other reserve account established with respect to any Additional 95-2 Fixed Rate Bonds, as applicable, fi.om the net proceeds of such redemption or sale, the amount of any delinquency advanced therefrom pursuant to the applicable Fiscal Agent Agreement; provided, however, that if and to the extent that any such deposit would cause the amount on deposit in the Reserve Fund, Reserve Account (Group One), Reserve Account (Group Two), or any other reserve account established with respect to any Additional 95-2 Fixed Rate Bonds, as applicable, to exceed the applicable reserve requirement, such excess shall be deposited in the appliCable Redemption Fund. The balance, if any, of such redemption or sale proceeds shall be disbursed as set forth in the judgment of foreclosure or as required by law. Even though foreclosure is commenced and diligently prosecuted in accordance with the City's covenant of foreclosure, neither the City nor the Authority can provide any assurance that, in the event such foreclosure progresses to the point of a foreclosure sale, there will be any bidder for the subject parcel or parcels. While assessed valuations would indicate that each of the parcels in the Fixed Rate Subject Area has sufficient value to assure meaningful bidding at such foreclosure sale, there is no assurance that such present value will not decline in the future, and neither the City nor the Authority is obligated to be a bidder at such foreclosure sale. In the absence of any outside bidder, the foreclosure sale may not produce money to the City in satisfaction of its foreclosure judgment fi.om which to pay the principal of or the interest on the Assessment Bonds (95-1), Group One Bonds or Group Two Bonds, as appl!cable. See "SPECIAL RISK FACTORS." Priority of Lien The unpaid Fixed Rate Reassessments and each installment thereof and any interest and penalties thereon constitute a lien against each of the respective parcels within the Fixed Rate Subject Area until the same are paid. Such lien is subordinate to all special assessment liens previously imposed upon the same property, but has priority over all private liens and over all 21 DOCSLA1:258245.3 42081-3-TH6-.08/11/98 special assessment liens which may thereafter be created against the same property. However, such lien is on a parity with the lien of general property taxes'and any special taxes imposed, whether prior to the date hereof or in the future, against parcels within the Fixed Rate Subject Area pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (the "Mello-Roos Act"), or other applicable legislation. While there are no prior special assessment liens on any of the parcels of land in the Fixed Rate' Subject Area, there are liens for special taxes and the recto-ring lien for general property taxes. See "THE FIXED RATE SUBJECT AREA - Estimated Direct and Overlapping Debt" herein. BOND INSURANCE Concurrently with the issuance of the Series C Bonds, Financial Assurance will issue its Municipal Bond Insurance Policy for the Series C Bonds. The Policy guarantees the scheduled payment of principal of and interest on the Series C Bonds when due as set forth on the form of the Policy included as Appendix D to this Official Statement. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. Financial Security. Assurance Inc, [to be update] Financial Security is a New York domiciled insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("HoldingS"). Holdings is a New York Stock Exchange listed company whose major shareholders include Fund American Enterprises Holdings, Inc., The Tokio Marine and Fire Insurance Co. Ltd. and U S WEST Capital Corporation. The shareholders of Holdings are not liable for the obligations of Financial Security. At March 31, 1998, Financial Security's total policyholders' surplus and contingency reserves were approximately $808,603,000 and its total unearned premium reserve was approximately $503,683,000 in accordance w/th statutory accounting principles. At March 31, 1998, Financial Security's total shareholders' equity was approximately $923,047,000 and its total net unearned premium reserve was approximately $428,158,000 in accordance with generally accepted accounting principles. The financial statements included as exhibits to the annual and quarterly reports filed by Holdings with the Securities and Exchange Commission are hereby incorporated herein by reference. Also incorporated herein by reference are any such financial statements so filed from the date of this Official Statement until the termination of the offering of the Bonds. Copies of such materials incorporated by reference will be provided upon request to Financial Security: 350 Park Avenue, New York, New York 10022, Attention: Communications Department (telephone (212) 826-0100). The Bond Insurance Policy does not protect investors against changes in market value of the Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable rating or other causes. 'Financial Security makes no representation regarding the Bonds or the 22 DOCSLA1:258245.3 42081-3-TH6-08/11/98 advisability of investing in the Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the District the information presented under this caption for inclusion in the Official Statement. METHOD OF REASSESSMENT The total amount of 95-1 Reassessments, Group One Reassessments and Group Two Reassessments levied in Reassessment District No. 95-1, and on the Group One Reassessment Parcels and the Group Two Designated Parcels, respectively, is equal to the principal mount of the Assessment Bonds (95-1), Group One Bonds and Group Two Bonds, respectively. Said amount of each reassessment was calculated for each of the individual parcels of land within the Fixed Rate Subject Area in proportion to the unpaid existing reassessment on each such parcel. THE FIXED RATE SUBJECT AREA General In legal proceedings concluded in 1986, the City established Assessment District No. 85-1 ("A.D. 85-1"), then comprised of 19 assessed parcels covering a total area of approximately 522 acres. A.D. 85-1 is bounded by the Santa Ana Freeway (Interstate 5), Browning Avenue, Irvine Boulevard and Jamboree Road. In legal proceedings concluded in 1988, the City established Assessment District No. 86-2 ("A.D. 86-2" and together with A.D. 85-1, the "Prior Districts"), then comprised of 56 assessed parcels covering a total area of approximately 2,260 acres, 1,440 of which were within the City boundary and the remaining portion of which were located primarily in an unincorporated area of the County (to the northeast of the City), with a small portion of A.D. 86-2 falling within the southeastern border of the City of Orange. A.D. 86-2 is bounded by Irvine Boulevard, Tustin Ranch Road, Santiago Canyon Road, and Jamboree Road. In August, 1986, the City issued $50,650,000 principal amount of variable rate improvement bonds for A.D. 85-1, and in September, 1988, the City issued $81,400,000 principal amount of variable rate improvement bonds for A.D. 86-2 (collectively, the "Prior Variable Rate Bonds"). The proceeds of both issues have been used to fund the design and construction of public improvements within the Prior Districts, including streets and other traffic access and control facilities, drainage facilities, and utility improvements. The respective Indentures of Trust (collectively, the "Prior Indentures") pursuant to which the Prior Variable Rate Bonds were issued each provided for the conversion of a portion of the Prior Variable Rate Bonds to fixed rate bonds (collectively, the "Prior Fixed Rate Bonds") upon the occurrence of certain events prescribed by the Prior Indentures (primarily, the transfer of title by The Infne Company, the owner of substantially all of the assessed property at the time of issuance of the Prior Variable Rate Bonds, to third parties with respect to portions of the assessed property). The Prior Indentures and related legal documents for the Prior Districts also provided for conversion to a fixed rate of the unpaid assessments on those certain parcels (the "Prior Fixed Rate Parcels"), the conveyance of which caused the conversion of the subject portion of the Prior 23 DOCSLA1:2582453 42081-3-TH6-08/11/98 Variable Rate Bonds into the Prior Fixed Rate Bonds. Reassessment District 95-1 consists of all Prior Fixed Rate Parcels fi.om the Prior Districts which had an unpaid reassessment. The 95-1 Reassessments were levied within Reassessment District No. 95-1 by the City Council under the proceedings taken pursuant to Resolution No. 96-8, adopted by the City Council on January 15, 1996. Reassessment District No. 95-2 consists of all those parcels fi.om the Prior Districts which had an unpaid reassessment securing Prior Variable Rate Bonds that had not been so converted to Prior Fixed Rate Bonds. The 95-2 Reassessments were levied on the parcels in Reassessment District No. 95-2 by the City Council under the proceedings take pursuant to Resolution No. 96-10, adopted by the City Council on January 15, 1996. The Group Two Designated Parcels consist only of those parcels in Reassessment District No. 95-2, the assessments on which are now being converted to fixed assessments. Status of Public Improvements Designated Parcels fi?to be updated] The public improvements financed with the proceeds of the Prior Bonds are substantially complete. The only remaining improvements necessary to enable the remaining undeveloped property in the Fixed Rate Subject Area to be developed are in-tract improvements to certain specific parcels which will be the responsibility of the developer of such specific parcel or parcels. Examples of such in-tract improvements are local streets; curb, gutters and sidewalk; traffic control signage and striping; street lights; landscaping; water distribution lines and appurtenances; sanitary sewer laterals, collection lines and appurtenances; and underground gas, electric, telephone and cable television facilities. With the exception of school facilities to be developed by the Tustin Unified School District, no additional major infi'astmcture such as arterial streets, parks, fire stations, or libraries are required or anticipated for the full development of the remaining undeveloped property in the Fixed Rate Subject Area, although approximately $ in proceeds of the Prior Bonds remain in the construction fund established with respect to such Prior Bonds. The City expects to expend the remaining proceeds of the Prior Bonds over the next several years to complete an interchange at the junction of Tustin Ranch Road and Interstate 5 and certain other minor street improvements. Neither completion of such street improvements nor construction of such school facilities is a condition precedent to issuance of building permits for any of the remaining undeveloped property in the Fixed Rate Subject Area. Location and Terrain of the Fixed Rate Subject Area The City is located in central Orange County, about 40 miles southeast of Los Angeles and 80 miles north of San Diego. The City spans approximately 11.2 square miles and adjoins the cities oflrvine, Orange and Santa Aha. DOCSLAl:258245.3 42081-3-TH6-08/11/98 24 The combined area of the Reassessment Districts, of which the Fixed Rate Subject Area is a part, is approximately 2,782 acres and is located along the east side of the City, extending generally in a southwest-to-northeast band approximately 3/4ths of a mile wide, from the Santa Ana Freeway (Interstate 5) to Santiago Canyon Road, a distance of approximately 6 miles. The Fixed Rate Subject Area consists.of approximately acres. The terrain is relatively flat, extending gently uphill toward the northeast, and transitioning to gently rolling hills in the last mile. Land Uses ~n_d Development Status The following Table 1 illustrates the land use categories of the parcels in the Fixed Rate Subject Area. As used in Table 1, the term "developed" means that at least one structure has been constructed on the parcel, which has been assigned improvement assessed value by the County Assessor. The developed portion of the Fixed Rate Subject Area represents approximately % of the UnPaid Fixed Rate Reassessments. The information in Table 1 reflects the County's 1997-98 property ownership records. However, additional development has occurred in the Fixed Rate Subject Area since the County's records were last updated. See "THE FIXED RATE SUBJECT AR~A - Status of Development" for a description of such additional development. TABLE 1 CITY OF TUSTIN Fixed Rate Subject Area Parcel Totals For Each Modified Land Use 1997-98 Total Total Assessed Reassessment Parcels Value Amount Value - to-Lien Percent of Total Reassessment Developed Residential Undeveloped Residential Developed Commercial Developed Other TOTALS Source: MuniFinancial, Inc.. DOCSLA1:258245.3 42081-3-TH6-08/11/98 25 Largest Landowners by Reassessment Amount The following Table 2 illustrates the 17 largest landowners in the Fixed Rate Subject Area, as measured by total Fixed Rate Reassessment levied on property owned by such landowner. All other parcels in the Fixed Rate Subject Area are single family residences. The information in Table 2 reflects the County's 1997-98 property ownership records. However, a number of the parcels shown on the following table have been sold to other entities and to individual homeowners, and additional development has occurred in the Fixed Rate Subject Area since the County's records were last updated. See "THE FIXED RATE SUBJECT AREA- Stares of Development" for a description of current development in the Fixed Rate Subject Area. TABLE 2 CITY OF TUSTIN Fixed Rate Subject Area Top 17 Owners by Fixed Rate Reassessment Amount Property Owner 1997-98 Total Total Assessed Remaining/Proposed Parcels Value Reassessment Value- to-Lien Percent of Total Reassessment TOTALS Source: MuniFinancial, Inc. DOCSLA1:258245.3 42081-3-TH6-08/11/98 26 Debt Service Coverage The following Table 3 illustrates the estimated coverage for debt service on the Series A Bonds, Series B and the Series C Bonds fi.om Revenues, consisting of the debt service on the Fixed Rate Assessment Bonds. TABLE 3 CITY OF TUSTIN Fixed Rate Subject Area Estimated Debt Service Coverage from Revenues Estimated Bond Estimated Revenues Debt Service(j) Coverage 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (1) Includes debt service on Series A Bonds, Series B and Series C Bonds. DOCSLA1:2582453 42081-3-TH6-08/11/98 27 Delinquency History [to be updated] As of July 1, 1998, the total delinquencies in the Fixed Rate Subject Area, from all previous fiscal years were $ inm separate parcels. The following Table 4 illustrates the historical Fixed Rate Reassessment delinquency for parcels included in the Fixed Rate subject Area. All of the delinquencies indicated are attributable to parcels within Reassessment District No. 95-1 and, following the issuance of the Group One Bonds in November 1997, to the Group One Designated Parcels. Until recently, all of the Group Two Designated Parcels were owned by The Irvine Company. There have been no delinquencies with respect to the payment of assessments or reassessments on the Group Two Designated Parcels. TABLE 4 CITY OF TUSTIN Fixed Rate Subject Area Assessment and Reassessment Installment Delinquencies for Fiscal Years 1990-91 through 1997-98 Fiscal Parcels Amount Amount % of Amount Year Parcel~ Delinquent Levied Delinquent Delinquent 1990-91 1,979 0 $3,569,329.64 $ 0 0.00% 1991-92 2,826 3 4,386,679.44 77,063 ' 1.76 1992-93 2,835 6 4,356,611.74 74,168 1.70 1993-94 3,288 21 4,991,716.82 91,040 1.82 1994-95 3,613 232 5,377,882.60 290,077 5.39 1995-96 3,985 24 5,354,888.50 20,490 0.38 1996-97 4,232 57 4,028,451.10 35,148 0.87 1997-98o) Source: MuniFinancial, Inc. (1) Includes Group One Designated Parcels after the issuance of the Group One Bonds in November 1997. DOCSLA1:258245.3 42081-3-TH6-08/11/98 28 Estimated Value-to-Lien Ratios According to the County's 1997-98 property ownership records, there were approximately separate parcels in the Fixed Rate Subject Area, both developed and undeveloped. These parcels (including improvements, where developed) had a total assessed value of $ Total Fixed Rate Reassessments of $ secure the Fixed Rate Assessment Bonds. This provides an overall value-to-lien ratio of approximately to 1. The following Table 5 illustrates the breakdown, by category of value-lo-lien range, of the total number of parcels and the corresponding total Fixed Rate Reassessment amounts attributable thereto. Value-to-Lien 30:1 and Above 25:1 - 29.99:1 20:1 - 24.99:1 15:1 - 19.99:1 10:1- 14.99:1 5:1- 9.99:1 3:1- 4.99:1 1:1- 2.99:1 Less than 0.99:1 TABLE 5 CITY OF TUSTIN Fixed Rate Subject Area Totals by Value-to-Lien Fixed Rate No. of 1997-98 Reassessment Parcels Total Value Amount % of Total TOTAL Source: MtmiFinancial, Inc. Neither the value-to-lien calculations nor the total reassessment amounts include parity obligations for CFD No. 88-1 and for general property taxes. DOCSLA1:258245.3 42081-3-TH6-08/11/98 29 Direct and Overlapping Debt [to be updated] Community Facilities District NO. 88-1 The Tustin Unified School District has formed its Community Facilities District No. 88-1 ("CFD No. 88-1") pursuant to the Mello-Roos Act, encompassing a major portion of the land within the Reassessment Districts, to provide financing for school facilities. CFD No. 88-1 initially authorized the issuance of bonded debt (the "Mello-Roos Bonds") in the amount of $103 million and the levy of special taxes against the property in CFD No. 88-1 to pay for debt service on the Mello-Roos Bonds, for certain costs of providing school facilities and sites, and for related incidental expenses. CFD No. 88-1 has since reduced the initial authorization of Mello-Roos Bonds to $63,000,000. CFD No. 88-1 has issued $24,405,000 of the Mello-Roos Bonds pursuant to such authorization. The lien securing payment of the special taxes to be levied from year to year upon the parcels within CFD No. 88-1 will be on a parity with the lien securing payment of the Fixed Rate Reassessments. See "SECURITY FOR THE BONDS - Priority of Lien" herein. Property within CFD No. 88-1 for which no building permit has been issued is, for purposes of the special tax formula, determined to be undeveloped property. The minimutn annual special tax that may be levied on undeveloped property for fiscal year 1997-98 in CFD No. 88-1 is $142.33 per acre; the maximum annual special tax that may be levied on undeveloped property is $163.88 per acre. Residential property within CFD No. 88-1 for which a building permit has been issued is, for purposes of the special tax formula, determined to be developed property. The special tax on developed property within CFD No. 88-1 is a fimction of the density of the development. Based on current development plans, the minimum special tax that may be levied in any particular year on residential units within the Fixed Rate Subject Area is $377.18 per unit for fiscal year 1997-98, increasing to $392.26 per unit for fiscal year 1998-99, with an annual four percent escalation thereafter if required. The final maturity of the currently outstanding Mello-Roos Bonds is September 1, 2021. Based on current development plans, the maximum special tax that may be levied in any particular year on residential units within the Fixed Rate Subject Area is $1,221.06 per unit for fiscal year 1997-98, increasing to $1,269.90 per unit for fiscal years 1998-99, with an annual four percent escalation thereafter if required. The special tax formula for CFD No. 88-1 specifies DOCSLA1:258245.3 42081-3-TH6-08/11/98 30