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HomeMy WebLinkAboutTPFA 02 T.R. BONDS 09-02-97DATE: August 27, 1997 Inter-Com TPFA 9-2-97 TO: William A. Huston, President, TustlnPublic Financing Authority FROM: Ronald A. Nault, Finance Director SUBJEC~ TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (TUSTIN RANCH) SERIES B RECOMMENDATION: ® Adopt Resolution TPFA No. 97-1 of.the Tustin Public Financing Authority authorizing the issuance of not to exceed $3,700,000 aggregate principal amount of Tustin Public Financing Authority Bonds (Tustin Ranch), Series B, approving the execution and delivery of a First Supplemental Indenture of Trust and Bond Purchase Agreements, and preparation of an Official Statement and other matters related thereto, approving forms of the enclosed First Supplemental Indenture of Trust; City Purchase Agreement; Authority Purchase Agreement and the preliminary Official Statement. · Adjourn the Tustin Public Financing Authority Meeting and reconvene as the City Council. 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 DeveIoper, The Irvine Company, has requested that certain parcels with variable rate liens totalling approximately $3.7 million be converted to fixed rate and transferred to Assessment District 95-1. This is the first conversion from variable to fixed rate in the Reassessment District. We have completed ten conversions prior to the formation, of the Reassessment Districts. After this conversion, there will be approximately $37.8 million outstanding Reassessment District 95-2 Bonds with maturities in 2011 and 2013. Rona~dJ ~~~A. Nault Finance Director RAN:ts Attachments RAN6:TPFA Bond. s.Aug RESOLUTION NO. TPFA 97-1 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE TUSTIN PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $3,700,000 AGGREGATE PRINCIPAL AMOUNT OF TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (TUSTIN RANCH), SERIES B, APPROVING THE EXECUTION AND DELIVERY OF A FIRST SUPPLEMENTAL INDENTURE OF TRUST AND BOND PURCHASE AGREEMENTS AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, the Tustin Public Financing Authority (the "Authority") was established for the purpose, among others, of' providing for the financing or refinancing of public capital improvements of any local agency through the purchase by the Authority of obligations of such local agency pursuant to a bond purchase agreement; WHEREAS, pursuant to an Indenture, dated as of February 1, 1996 (the "Original Indenture"), by and between the Authority and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), the Authority issued its Revenue Bonds (Tustin Ranch), Series A (the "Series A Bonds"), in the aggregate principal amount of $35,705,000; WHEREAS, .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); WHEREAS, in order to refinance certain public capital improvements, the City of Tustin (the "City") is issuing not to exceed $3,700,000 of its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group One (the "Group One Bonds"); WHEREAS, the Authority desires to assist the City with the Group One Bonds refinancing by purchasing the Group One Bonds from the City; WHEREAS, in order to provide the funds necessary to purchase the Group One Bonds from the City, the Authority desires to authorize the issuance of the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds"), in an aggregate principal amount of not to exceed $3,700,000; DOCSLA1-213801.2/4kyx02! 1 420glq-GH1-08/20/97 WHEREAS, in order to provide for the authentication and delivery of the Series B Bonds, to establish and declare the terms and conditions upon which the Series B Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Authority proposes to enter into a First Supplemental Indenture of Trust with the Trustee (such First Supplemental Indenture of Trust, 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 "First Supplemental Indenture"); WHEREAS, the Authority proposes to purchase the Group One Bonds pursuant to a Bond Purchase Agreement between the City and the Authority (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 "City Purchase Agreement"); WHEREAS, the Authority has found and determined that the purchase of the Group One Bonds by the Authority will result in substantial public benefits, namely, the interest savings with respect to the Group One Bonds to be achieved by reason of the credit rating to be assigned to the Series B Bonds; WHEREAS, PaineWebber Incorporated (the "Underwriter") has presented the Authority with a proposal, in the form of a Bond Purchase Agreement, to purchase the Series B Bonds from the Authority (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 "Authority Purchase Agreement"); WHEREAS, there have been prepared and submitted to this meeting forms off (a) the First Supplemental Indenture; (b) the City Purchase Agreement; (c) the Authority Purchase Agreement; and' (d) the Preliminary Official Statement to be used in connection with the offering and sale of the Series B Bonds (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 Authority desires to proceed to issue and sell the Series B 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 Series B Bonds; IX)CSLA1-213801.2/4kyx02 ! 2 42081-1-GH1-08/20/97 NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Tustin Public Financing Authority as follows: Section 1. Subject to the provisions of Section 2 hereof, the issuance of the Series B Bonds, in the aggregate principal amount of not to exceed $3,700,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, is hereby authorized and approved. The Series B 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 First Supplemental Indenture, as the same shall be completed as provided in this Resolution. Section 2. The First Supplemental Indenture, 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 Chairperson of the Board of Directors, or such other member of the Board of Directors as the Chairperson may designate, the Executive Director of the Authority, the Assistant Executive Director of the Authority and the Treasurer of the Authority (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the Authority, to execute and deliver the First Supplemental Indenture 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 First Supplemental Indenture ,by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Series B Bonds in excess of $3,700,000, shall not result in a final maturity date of the Series B Bonds later than September 2, 2013 and shall not result in a true interest cost on the Series B Bonds in excess of 6.25%. Section 3. The City 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 ofthem is, hereby authorized and directed, for and in the name of the Authority, to execute and deliver the City 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 City Purchase Agreement by such Authorized Officer. Section 4. The Authority 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 Authority, to execute and deliver the Authority 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 Authority Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwfiter's discount (not including any original issue discount) from the principal amount of the Series B Bonds in excess of 1.5% of the aggregate principal amount of the Series B Bonds. DOCSLAI-213801.2/4kyx02 ! 3 42081-1-GH1-08/20/97 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 Series B 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 Authority, to certify to the Underwriter that the Preliminary Official Statement has been "deemed final" for purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission. 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 Series B 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 Authority. 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 Series B 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 Series B Bonds and the transactions contemplated by the Indenture, the City Purchase Agreement, the Authority Purchase Agreement, the Official Statement and this Resolution. Section 9. All actions heretofore taken by the officers and employees of the Authority with respect to the issuance and sale of the Series B Bonds, or in connection with or related to any of the agreements or documents referenced herein, are hereby approved, confirmed and ratified. Section 10. This Resolution shall take effect immediately upon its adoption. DOCS~l-213g01.2/4kyx02! 4 42081-1-GH1-08/20/97 APPROVED and ADOPTED by the Board of Directors of the Tustin Public Financing Authority on September 2, 1997. Chairperson ATTEST: Secretary DOCSLA1-213801.2/4kyx02! 5 42081-1-GH 1-08/20/97 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS I, , Secretary of the Tustin Public Financing Authority hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a meeting of the Board of Directors of said Authority duly and regularly held on ,1997, of which meeting all of the members of said Board of Directors 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: DIRECTORS: NOES: DIRECTORS: ABSENT: DIRECTORS: 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: ,1997 Secretary FIRST SUPPLEMENTAL INDENTURE OF TRUST by and between the TUSTIN PUBLIC FINANCING AUTHORITY and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee Dated as of 1, 1997 RELATING TO TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (TUSTIN RANCH), SERrF~S B DOCSLAI-213524.2/4kr802 ! 4208 I-1-GHI-07/03/97 TABLE OF CONTENTS Pat~e Section 13.01. Section 13.02. Section 13.03. Section 13.04. Section 13.05. Section 13.06. Section 13.07. Section 13.08. Section 13.09. Section 13.10. Section 13.11. Section 13.12. Section 13.13. Section 13.14. Section 13.15. Section 13.16. Section 13.17. Section 13.18. ARTICLE xm SERIES B BONDS Definitions ............................................................................................ 3 Authorization and Issuance of Series B Bonds ...................................... 4 Terms of Series B Bonds ...................................................................... 4 Form of Series B Bonds ........................................................................ 6 Book-Entry Series B Bonds .................................................................. 6 Application of Proceeds of the Series B Bonds ...................................... 7 Program Fund ....................................................................................... 7 Redemption of Series B Bonds ............................................................. 8 Series B Tax Covenants ...................................................................... 10 Series B Continuing Disclosure ........................................................... 11 Sale of Series B Bonds; Sale of Property ............................................. 11 Insurer (Series B) To Be Deemed Owner; Rights of the InSurer (Series B); Payments by the Insurer (Series B); Notices ............................................................................................... 11 Deposits to Policy Payments Account (Series B); Payments Under the Insurance Policy (Series B) ................................. 12 Notices to Rating Agencies ................................................................. 14 References to Insurer and Insurance Policy ......................................... 14 Effect of First Supplemental Indenture ................................................ 15 Execution in Several Counterparts ........................................ .~ ............. 15 Effective Date of First Supplement.al Indenture ................................... 15 DOCSLA1-213524.2/4kr802! 42081-1-GH1-07/03/97 FIRST SUPPLEMENTAL INDENTURE OF TRUST THIS FIRST SUPPLEMENTAL INDENTURE OF TRUST (this "First Supplemental Indenture") dated as of 1, 1997, is by and between the TUSTIN PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under and by virtue of the laws of' the State of California (the "Authority"), 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 trustee (the "Trustee"). W ITNE S S E TH: 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 Government Code of the State of California (the "Act"), and is authorized pursuant to Article 4 of the Act (the "Bond Law") 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; WHEREAS, pursuant to an Indenture, dated as of February 1, 1996 (the "Original Indenture"), by and between the Authority and the Trustee, the Authority issued its Revenue Bonds (Tustin Ranch), Series A (the "Series A Bonds"), in the aggregate principal amount of $35,705,000 (capitalized undefined terms shall have the meanings ascribed thereto in the Original Indenture); WHEREAS, 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); WHEREAS, the Original Indenture provides that, in order to provide the funds required to acquire certain other fixed rate assessment bonds of the City of Tustin (the "City"), in addition to the Series A Bonds, the Authority may, subject to the requirements of the Bond Law, by Supplemental Indenture establish one or more Series of Bonds payable from Revenues on a parity with the Series A Bonds and secured by a lien upon and pledge of Revenues equal to the lien and pledge securing the Series A Bonds, and that 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, but only upon compliance by the Authority with the provisions of the Original Indenture; WHEREAS, the City is issuing $ principal amount of its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group One (the "Group One Bonds"); DOCSLA1-213524.2/4kr802! 1 420gl-I-GHI-07/03/97 WHEREAS, the Authority has entered into an agreement with the City to acquire the Group One Bonds; WItEREAS, the Authority has determined at this time to issue its Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds"), in the aggregate principal amount of $ , for the purpose of providing the funds required to acquire the Group One Bonds; WItE~AS, in order to provide for the authentication and delivery of the Series B Bonds, to establish and declare the terms and conditions upon which the Series B Bonds are to be issued and to secure the payment of the principal thereof and interest thereon, the Authority has authorized the execution and delivery of this First Supplemental Indenture; and WltEREAS, the Authority has determined that all acts and proceedings required by law necessary to make the Series B Bonds, when executed by the Authority, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the. Authority, and to constitute this First Supplemental Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this First Supplemental Indenture have been in all respects duly authorized; NOW, T~REFORE, 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 that the Original Indenture is hereby amended by adding thereto an additional Article as follows: DOCSLA1-213524.2/41o'802! 2 4208 I-1-GH1-07/03/97 ARTICLE Xlll SERIES B BONDS Section 13.01. Definitions. Unless the context otherwise requires, the terms defined in this Section, for all purposes of this Indenture and of any indenture supplemental hereto and of any certificate, opinion 'or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. "Book-Entry BOnds (Series B)" means the Series B Bonds registered in the name of the nominee of DTC (Series B), or any successor securities depository for the Series B Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 13.05. "Cede & Co. (Series B)" means' Cede & Co., the nominee of DTC (Series B), and any successor nominee of DTC (Series B) with respect to the Series B Bonds. "Closing Date (Series B)" means the date on which the Series B Bonds are delivered to the Original Purchaser (Series B), being ,1997. "Code (Series B)" means the Internal Revenue Code of 1986. "Continuing Disclosure Agreement (Series. B)" means the Continuing Disclosure Agreement, dated as of 1, 1997, by and between the City and the Trustee, as originally executed or as the same may from time to time be amended in accordance with the terms thereof. "DTC (Series B)"-means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors as securities depository for the Series B Bonds, including any such successor appointed pursuant to Section 13.05. "First Supplemental Indenture" means the First Supplemental Indenture of Trust, dated as of ,1997, by and between the Authority and the Trustee. "Group One Bonds" means the City of Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group One, which are issued under and pursuant to the Fiscal Agent Agreement (95-2) and which bear interest at a fixed rate. "Insurance Policy (Series B)" means the Municipal Bond Insurance Policy, and any Endorsement thereto, issued by the Insurer (Series B) guaranteeing the scheduled payment of the principal of and interest on the Series B Bonds. "Insurer (Series B)" means Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto. DOCSLA1-213524.2/4kr802! 3 4208 I-1-GH1-07/03/97 "Insurer's Fiscal Agent (Series B)" means a fiscal agent appointed by the Insurer (Series B) for purposes of, and in accordance with the terms contained in,. the Insurance Policy (Series B). "Original Purchaser (Series B)" means PaineWebber Incorporated, as the original purchaser of the Series B Bonds.' "Participant (Series B)" means any entity which is recognized as a participant by DTC (Series B) in the book-entry system of maintaining records with respect to Book-Entry Bonds (Series B). "Participating Underwriter (Series B)" has the meaning ascribed thereto in the Continuing Disclosure Agreement (Series B). "Purchase Agreement (Group One)" means the Bond Purchase Agreement, dated as of ,1997, by and between the City and the Authority, relating to the acquisition by the Authority of the Group One Bonds. "Rebate Requirement (Series B)" has the meaning ascribed to Rebate Requirement in the Tax Certificate (Series B). "Series B Bonds" means the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B issued hereunder.' "Tax Certificate (Series B)" means the Tax Certificate executed by the Authority and the CitY at the time of issuance of the Series B Bonds relating to the requirements of Section 148 of the Code (Series B), as originally executed and as it may from time to time be amended in accordance with the provisions thereof. Section 13.02. Authorization and Issuance of Series B Bonds. The Series B Bonds shall be designated as the "Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B", and shall be secured and payable from the Revenues and other assets pledged hereunder, as provided herein. The aggregate principal amount of Series B Bonds that may be issued and Outstanding under this Indenture shall not exceed $ , except as may be otherwise provided in Section 2.08. On the Closing Date (Series B), 'the Authority shall execute and the Trustee shall authenticate the Series B Bonds and deliver the Series B Bonds to the Original Purchaser (Series B) in the aggregate principal amOunt of $ Section 13.03. Terms of Series B Bonds,. (a) The Series B Bonds shall be issued in fully registered form withoUt coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series B Bond shall have more than one maturity date. The Series B Bonds shall be dated as of , 1997, shall mature on September 2 in each of the years and in the amounts, and shall bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) at the rates, as follows: DOCSLA1-213524.2/4kr802! 4 42081-1-GH1-07/03/97 Maturity Date Principal Interest Maturity Date Principal Interest (September 2) Amount Rate (September 2) Amount Rate (b) The Interest Payment Dates for the Series B Bonds shall commence on March 2, 1998. Interest on the Series B Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series B 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 Series B Bond is authenticated on or before the first Record Date therefor, in which event interest thereon shall be payable from ,1997, or (iii) interest on any Series B Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid on each Interest Payment Date to the Persons in whose names the ownership of the Series B 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 Series B 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 Series B Bond is registered on the Kegistration Books at the close of business on a special Record Date to be established by the Trustee for the payment of such defaulted interest to be fixed by the Trustee, 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 Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series B 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 Series B Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof at the Office of the Trustee. Payment of principal of and premium, if any, on any Series B Bond shall be made only upon presentation and surrender of such Series B Bond at the Office of the Trustee. (d) The Series B Bonds shall be initially issued registered in the name of"Cede & Co.," as nominee of the Depository Trust Company, New York, New York, and shall be evidenced by one Series B Bond maturing on each maturity date, to be in denomination corresponding to the total principal designated to mature on such date. Registered ownership' of the Series B Bonds, or any portion thereof, may not thereafter be transferred except as set forth in Section 13.05. (e) The Series B Bonds shall be subject to redemption as provided in Section 13.08. DOCSLA1-213524.2/4kr802~ 5 42081-1-GH1-07/03/97 Section 13.04. Form of Series B Bonds. The Series B Bonds shall be in substantially the form set forth in Exhibit B hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit B hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 13.05. Book-Entry Series B Bonds. (a) Except as provided in subparagraph (c) of this Section, the registered Owner of all of the Series B Bonds shall be DTC (Series B) and the Series B Bonds shall be registered in the name of Cede & Co. (Series B), as nominee for DTC (Series B). Notwithstanding anything to the contrary contained in this Indenture, payment-of interest with respect to any Series B Bond registered as of each Record Date in the name of Cede & Co. (Series B) shall be made by wire transfer of same-day funds to the account of Cede & Co. (Series B) On the payment date for the Series B Bonds at the address indicated on the record date or special record date for Cede & Co. (Series B) in the Registration Books or as otherwise provided in the Representation Letter. (b) The Series B Bonds shall be initially issued in the form of separate single fully registered Series B Bonds in the amount of each separate stated maturity of the Series B Bonds. Upon initial issuance, the ownership of such Series B Bonds shall be registered in the Registration Books in the name of Cede & Co. (Seres B), as nominee of DTC (Series B). The Trustee and the Authority may treat DTC (Series B) (or its nominee) as to the sole and exclusive Owner of the Series B'Bonds registered in its name for the purposes of payment of the principal, Redemption Price or interest with respect to the Series B Bonds, selecting the Series B Bonds or portions thereof to be redeemed, giving any notice permitted or.required to be given to Owners of Series B Bonds under this Indenture, registering the transfer of Series B Bonds, obtaining any consent or other action to be taken by Owners of Series B Bonds and for all other purposes whatsoever, and neither the Trustee nor the Authority shall be affected by any notice to the contrary. Neither the Trustee nor the Authority shall have any responsibility or obligation to any Participant (Series B), any person claiming a beneficial ownership interest in the Series B Bonds under or through DTC (Seres B) or any Participant (Series B), or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC (Seres B) or any Participant (Series B); the payment by DTC (Series B) or any Participant (Series B) of any amount in respect of the principal, Redemption Price or interest with respect to the Series B Bonds; any notice which is permitted or required to be given to Owners of Seres B Bonds under this Indenture; the selection by DTC (Series B) or any Participant (Series B) of any person to receive payment in the event of a partial redemption of the Series B Bonds; or any consent given or other action taken by DTC (Series B).as Owner of Series B Bonds. The Trustee shall pay all principal, premium, if any, and interest with respect to the Series B Bonds, only to DTC (Series B), and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to the principal, premium, if any, and interest with respect to the Series B Bonds to the extent of the sum or sums so paid. Except under the conditions of .(c) below, no person other than DTC (Series B) shall receive an executed Series B Bond for each DOCSLAI-213524.2/4kr802! 6 42081-1-43HI-07/03/97 separate stated maturity. Upon delivery by DTC (Series B) to the Trustee of written notice to the effect that DTC (Seres B) has determined to substitute a new nominee 'in place of Cede & Co. (Series B), and subject to the provisions herein with respect to record dates, the term "Cede & Co. (Series B)" in this Indenture shall refer to such new nominee of DTC (Series B). (c) In the event (i) DTC (Series B), including any successor as securities depository for the Seres B Bonds, determines not to continue to act as securities depository for the Series B Bonds, or (ii) the Authority determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the book-entry system with the incumbent securities depository for the Series B Bonds. If the Authority determines to replace the incumbent securities depository for the Series B Bonds with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate fully registered Series B Bond for the aggregate outstanding principal amount of Series B Bonds of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Authority, the Trustee and the successor securities depository for the Series B Bonds as are not inconsistent with the terms of this Indenture. If the Authority fails to identify another qualified successor securities depository of the Series B Bonds to replace the incumbent securities depository, then the Series B Bonds shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository forthe Series B Bonds, or its nominee, shall designate. In such event the Trustee shall authenticate and deliver a sufficient quantity of Series B Bonds as to carry out the transfers and exchanges provided in Sections 2.05, 2.07 and 2.08. All such Series B Bonds shall be in fully registered form in denominations authorized by this Indenture. (d) Notwithstanding any other provision of this Indenture to the contrary, so long as any Series B Bond is registered in the name of DTC (Series B), or.its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Series B Bond and all notices with respect to such Series B Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book-Entry Bonds (Series B) pursuant to this Indenture by the Authority or the Trustee with respect to any consent or other action to be taken by Owners, the Authority or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC (Series B) notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Section 13.06. Application of Proceeds of the Series B Bonds. On the Closing Date (Seres B), the amount of $ , constituting the proceeds of sale of the Series B Bonds, shall be deposited in the Program Fund. Section 1;}.07. Program Fund. On the Closing Date (Series B) there shall be deposited in the Program Fund the amount specified in Section 13.06. On the Closing Date (Series B), the DOCSLAI-213524.2/4kr802! 7 42081-1-GH1..07/03/97 Trustee shall withdraw l~om the Program Fund the amount of $ and apply such amount to the purchase on such date of the Group One Bonds, all pursuant to and in accordance with the provisions of the Purchase Agreement (Group One). In accordance with the Purchase Agreement (Group One), the ownership of the Group One Bonds shall be registered to the Trustee upon the acquisition thereof. Section 13.08. Redemption of Series B Bonds. (a) OptionalRedemption. The Series B Bonds maturing on or after September 2, shall be subject to optional redemption in whole, or in part 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, ~, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Seres B Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 2, ~ and March 2, ~ 102% September 2, and March 2, ~ 101 September 2, ~ and thereafter 100 The provisions of this subsection (a) shall not be applicable to circumstances under which the Series B Bonds are subject to mandatory redemption pursuant to the following subsection (b) of this Section. (b) Mandatory Redemption From Principal Prepayments. The Series B Bonds shall be subject to mandatory redemption, in whole, or in part, on any Interest Payment Date, from and to the extent of any Principal Prepayments with respect to the Group One Bonds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series B Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 2, 1998 through March 2,~ September 2, ~ and March 2, ~ September 2, ~ and March 2, ~ September 2, ~ and thereafter 103% 102 101 100 The principal amount of Series B Bonds to be redeemed pursuant to this subsection (b) from any Principal Prepayments shall be the greatest principal amount of Series B 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 Fiscal Agent (95- 2) shall mail notice of the redemption of any Group One Bonds which will produce Principal Prepayments, the Trustee shall concurrently mail notice of the redemption of Series B Bonds pursuant to this subsection (b), such redemption to occur on the date fixed for such redemption of the Group One Bonds. The proceeds of any such redemption of the Group One Bonds shall be DOCSI.~I-213524.2/4kr802! 8 42081-1-GH1-07/03/97 applied by the Trustee to pay the Redemption Price of Series B Bonds pursuant to this subsection (b) on the date of such redemption of the Group One Bonds. For purposes of the selection of Series B Bonds for redemption pursuant to this subsection (b), the Series B Bonds shall 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 and interest on the Group One Bonds, together with other available Revenues attributable thereto, will be sufficient on a timely basis to pay debt service on the Series B Bonds, as shall be demonstrated in a report of an Independent Financial Consultant filed with the Trustee. (c) Mandatory Sinking Fund Redemption. The Series B Bonds. maturing on September 2, 20 shall be 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 B Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 2) Principal Amount to be Redeemed If some but not all of the Series B Bonds maturing on September 2, 20 are redeemed pursuant to Section 13.08(a), the principal amount of Series B Bonds maturing on September 2, 20 to be redeemed pursuant to Section 13.08(c) on any subsequent September 2 shall 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 shall not exceed the aggregate amount of Series B Bonds maturing on September 2, 20 redeemed pursuant to Section 13.08(a). If some but not all of the Series B Bonds maturing on September 2, 20~ are redeemed pursuant to Section 13.08(b), the principal amount of Seres B Bonds maturing on September 2, 20 to be subsequently redeemed pursuant to Section 13.08(c) shall be reduced by the aggregate principal amount of the Seres B Bonds maturing on September 2, 20 so redeemed pursuant to Section 13.08(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 determined by the Authority, notice of which determination shall be given by the Authority to the Trustee at least 45 days prior to such redemption date. The Series B Bonds maturing on September 2, 20 shall be 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 B Bonds to be redeemed, DOCSLA1-213524.2/4krg02! 9 420111-I-GH1-07/03/97 without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 2) Principal Amount to be Redeemed If some but not all of the Series B Bonds maturing on September 2, 20 are redeemed pursuant to Section 13.08(a), the principal amount of Series B Bonds maturing on September 2, 20 to be redeemed pursuant to Section 13.08(c) on any subsequent September 2 shall 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 shall not exceed the aggregate amount of Series B Bonds maturing on September 2, 20 redeemed pursuant to Section 13.08(a). If some but not all of the Series B Bonds maturing on September 2, 20 are redeemed pursuant to Section 13.08(b), the principal amount of Series B Bonds maturing on September 2, 20 to be subsequently redeemed pursuant to Section 13.08(c) shall be reduced by the aggregate principal amount of the Series B Bonds maturing on September 2, 20 so redeemed pursuant to Section 13.08(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 determined by the Authority, notice of which determination shall be given by the Authority to the Trustee at least 45 days prior to such redemption date. Section 13.09. Series B Tax Covenants. (a) The Authority 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 B Bonds under Section 103 of the Code (Series B). Without limiting the generality of the foregoing, the Authority shall comply with the requirements of the Tax Certificate (Series B), which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Series B Bonds. (b) In the event that at any time the Authority is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Authority shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the Authority shall provide to the Trustee an opinion of 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 B Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate (Series B), and the covenants hereunder shall be deemed to be modified to that extent. DOCSLAI-213524.2/4kr802! 10 4208 I-1-(3H1-07/03/97 Section 13.10. Series B Continuin~ Disclosure. Pursuant to the Continuing Disclosure Agreement (Series B), the City has undertaken all responsibility for compliance with continuing disclosure requirements with respect to the Series B Bonds, and the Authority shall have no liability to the holders of the Series B Bonds or any other person with respect to such disclosure matters. The Trustee hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement (Series B). Notwithstanding any other provision of this Indenture, failure of the City or the Trustee to comply with the Continuing Disclosure Agreement (Series B) shall not be considered an Event of Default, however, the Trustee may (and, at the written direction of any Participating Underwriter (Series B) or the holders of at least 25% aggregate principal amount of Outstanding Series B Bonds, shall) or any holder or beneficial owner of the Series B Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 13.11. Sale of Group One Bonds; Sale of Property... The Authority shall not sell any Group One Bond without the consent of the Insurer (Series B). The Authority shall not, without the consent of the Insurer (Series B), give its consent, pursuant to Section 8836 of the ACt, to the sale at a lesser minimum price or without a minimum price of any property upon which are levied assessments securing the Group One Bonds. Section 13.12. Insurer (Series B) To Be Deemed Owner; Rights of the Insurer (Series B); Payments by the Insurer (Series B); Notices. (a) Notwithstanding any provision of this Indenture to the contrary, so long as the Insurer (Series B) is not in default in its payment obligations under the Insurance Policy (Series B), the Insurer (Series B) shall at all times be deemed the sole and exclusive Owner of the Outstanding Series B Bonds for the purposes of all approvals, consents, waivers, institution of any action, and the direction of all remedies, including but not limited to approval of or consent to any Supplemental Indenture .which requires the consent or approval of the Owners of a majority of the aggregate principal amount of Bonds then Outstanding pursuant to this Indenture; provided that the Insurer (Series B) shall not be deemed to be the sole and exclusive Owner of the Outstanding Series B Bonds with respect to any Supplemental Indenture which seeks to amend or supplement this Indenture for the purposes set forth in clause (i) of the first paragraph of Section 9.01 (a), and provided further that the Insurer (Series B) shall not be deemed the sole and exclusive Owner of the Outstanding Series B Bonds with respect to any Supplemental Indenture, and shall not have the fight to direct or consent to Authority, Trustee or Owner action as provided herein, if: (i) the Insurer (Series B) shall be in payment default under the Insurance Policy (Series B); (ii) any material provision of the InSUrance Policy (Seres B) shall be held to be invalid by a final, non-appealable order of a court of competent jurisdiction, or the validity or enforceability thereof shall be contested by the Insurer(Series B); or (iii) a proceeding shall have been instituted in a court having jurisdiction in the premises seeking an order for relief, rehabilitation, reorganization, conservation, DOCSLA1-213524.2/4kr802! 11 42081-1-GH1-07/03/97 liquidation or dissolution in respect of the Insurer (Series B) under Article 16 of the Insurance Law of the State of New York or any successor provision thereto and such proceeding is not terminated for a period of 90 consecutive days or such court enters an order granting the relief sought in such proceeding. (b) To the extent that the Insurer (Series B) makes payment of principal of or interest on a Series B Bond, it shall become the Owner of such portion of such Series B Bond and the fight to receive payment of such principal or interest, and shall be fully subrogated to all of the Owner's fights thereunder in accordance' with the terms of the InsuranCe Policy (Series B) to the extent of such payment, including the Owner's fights to payment thereof. (c) In the event that the principal of or interest on a Series B Bond shall be paid by the Insurer (Series B) pursuant to the terms of the Insurance Policy (Series B), (i) such Series B Bond shall cominue to be "outstanding" under the Indenture, (ii) the pledge of the amounts on deposit in the funds and accounts established hereunder and of the Revenues and all covenants, agreements and other obligations of the Authority hereunder shall continue to exist, (iii)the Insurer (Series B) shall be fully subrogated to all of the fights of such Owner in accordance with the terms and conditions of subparagraph (b) above and the Insurance Policy (Series B), and (iv) the Indenture shall not be discharged unless and until all amounts due to the Insurer (Series B) have been paid in full. (d) If an Event of Default shall have occurred and be continuing, the Insurer (Series B) may, regardless of whether a claim has been made under the Insurance Policy (Series B), at any time and at its sole option, pay to the Owners of the Series B Bonds all or any portion of the principal of or interest on such Series B Bonds (at a price equal to 100% of the par amount thereof) prior to the stated maturity dates thereof; provided, however, that such payment by the Insurer (Series B) shall not accelerate the Authority's obligation to pay principal of or interest on such Series B Bonds. The Trustee shall accept such payments on behalf of the Owners of the Series B Bonds and the obligations of the Insurer (Series B) under the Insurance Policy (Series B) shall be discharged to the extent of such payments. (e) The Insurer (Series B) shall be notified by the Trustee (i) within one Business Day of the Trustee's having knowledge of the occurrence of any Event of Default, and (ii) of any redemption of Series B Bonds (including the principal amount and CUSIP numbers of such Series B Bonds to be redeemed) at the same time that the Owners of the Series B Bonds to be redeemed are notified. In addition, all notices, reports, certificates and opinions to be delivered to or by the Trustee or to the Owners or available at the request of the Owners pursuant to this Indenture shall also be delivered to the Insurer (Series B). (f) The Trustee shall also notify the Insurer (Series B) immediately upon the resignation or removal of the Trustee or the appointment of a successor Trustee. Section 13.13. Deposits to Policy Payments Account (Series B)i Payments Under the Insurance Policy (Series B). (a) So long as the Insurance Policy (Series B) shall be in full force DOCSLA1-213524.2/4kr802! 12 42081-1-GHI-07/03/97 and effect, the Authority and the Trustee hereby agree to comply with the provisions of this Section. (b) If, on the third Business Day prior to an Interest Payment Date, maturity date or redemption date, the Trustee determines that there will be insufficient funds in the funds and accounts established hereunder available to pay the principal of or interest on the Series B Bonds on such Interest Payment Date, maturity date or redemption date, the Trustee shall give notice to the Insurer (Series B) and to the Insurer's Fiscal Agent (Series B) (if any) by telephone or telecopy of the amount of such deficiency by 12 noon New York City time on such Business Day. If, on the second Business Day prior to such Interest Payment Date, maturity date or redemption date, there continues to be a deficiency in the amount available to pay the principal of or interest on the Series B Bonds due on such Interest Payment Date, maturity date or redemption date, the Trustee shall make a claim under the Insurance Policy (Series B) and give notice to the Insurer (Series B) and the Insurer's Fiscal Agent (Series B) (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency among the amount required to pay the principal of or interest on the Series B Bonds, confirmed in writing to the Insurer (Series B) and the Insurer's Fiscal Agent (Series B) (if any) by 12 noon, New York City time, on such second Business Day. The Trustee shall establish and maintain a separate special purpose trust account for the benefit of Owners of the Series B Bonds known as the Policy Payments Account (Series B) and over which the Trustee shall have exclusive control and sole fight of withdrawal. The Trustee shall, deposit any amount paid under the Insurance Policy (Series B) in the Policy Payments Account (Series B) and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be received by the Trustee in trust for the Owners of the Series B Bonds. Such amounts shall be disbursed by the Trustee to Owners of the Series B Bonds in the same manner as payments of' principal of and interest on the Series B Bonds are to be made under the provisions hereof regarding payment of Bonds. It shall not be necessary for such payments to be made by checks or wire transfers separate fi.om the check or wire transfer used to pay principal of and interest on the Series B Bonds with other funds available to make such payments. Funds held in the Policy Payments Account (Series B) shall not be invested by the Trustee and may not be applied to satisfy any costs, expenses or liabilities of the Trustee. (c) Funds received by the Trustee as a result of any claim under the Insurance Policy (Series B) shall be deposited by the Trustee in the Policy Payments Account (Series B) and used solely for payment to the Owners of Series B Bonds and may not be applied to satisfy any costs, expenses or liabilities of the Trustee. Any funds remaining in the Policy Payments Account (Series B) following an Interest Payment Date, maturity date or redemption date, as applicable, shall promptly be remitted to the Insurer (Series B), except for funds held for the payment of Series B Bonds which have matured or been called for redemption but which have not been surrendered for payment. (d) The rights granted under this Indenture and the Fiscal Agent Agreement (95-2) to the Insurer (Series B) to request, consent to or direct any action are fights granted to the Insurer (Series B) in consideration of its issuance of the Insurance Policy (Series B). Any.exercise by the DOCSI..A1-213524.2/4kr802 ! 13 42081-1-13H1-07/03/97 Insurer (Series B) of such fights is merely an exercise of the contractual fights of the Insurer (Series B) and shall not be construed or deemed to be taken for the benefit of or on behalf of the Owners, nor does such action evidence any position of the Insurer (Series B), positive or negative, as to whether Owner consent is required in addition to consent of the Insurer (Series B). (e) The Authority hereby agrees, to the extent permitted by law, to pay or reimburse the Insurer (Series B) any and all charges, fees, costs and expenses which the Insurer (Series B) may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (i) the administration, enforcement, defense or preservation of any fights in respect of any of this Indenture and the Fiscal Agent Agreement (95-2), (ii) the pursuit of.any remedies under this Indenture or the Fiscal Agent Agreement (95-2) or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to this Indenture or the Fiscal Agent Agreement (95-2) whether or not executed or completed, (iv) the violation by the Authority or the City of any law, rule or regulation, or any judgment, order or decree applicable to it, or (v) any litigation or other dispute in connection with this Indenture or the Fiscal Agent Agreement (95-2) or the transactions contemplated thereby, other than amounts resulting from the failure of the Insurer to honor its obligations under the Insurance Policy (Series B). The Insurer (Series B) reserves the fight to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Indenture or the Fiscal Agent Agreement (95-2). · (f) The Insurer (Series B) shall be entitled to pay principal of and interest on the Series B Bonds' that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Authority (as such terms are defined in the Insurance Policy (Series B)) thereof in accordance with this Indenture, whether or not the Insurer (Series B) has received a Notice (as defined in the Insurance Policy (Series B)) of Nonpayment or a claim upon the Insurance Policy (Series B). (g) The Trustee shall promptly notify the Insurer (Series B) of either of the following as to which it has actual knowledge: (i) the commencement of any proceeding by or against the Authority or the City commenced under the United States Bankruptcy Code or any successor statute or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"), and (ii) the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer (a "Preference Claim") of any payment of principal of or interest on the Series B Bonds. Section 13.14. Notices to Rating Agencies. The Trustee shall provide Moody's, if the Series B Bonds are then rated by Moody's, and S&P, if the Series B Bonds are then rated by S&P, with written notice of any material amendments to the Indenture or the Fiscal Agent Agreement (95-2) at least ten days prior to the effective date thereof. Section 13.15. References to Insurer and Insurance Polic.y.. The references to the Insurer contained in the Indenture in Section 1.01 (in the definition of "Moody's" and in the definition of"S&P'), in Section 7.01(c), in Section 7.04(c), in Section 8.01(b), in Section 9.01, in Section 10.01(e), in Section 11.03, in Section 12.03, in Section 12.07 and in Section 12.12 shall, DOCSLA1-213524.2/4kr802! 14 42081-1..GHI-07/03/97 from and after the effective date of the First Supplemental Indenture, be deemed to be references to the Insurer and the Insurer (Series B). The reference to the Insurance Policy contained in the Indenture in Section 10.01(e) shall, from and after the effective date of the First Supplemental Indenture, be deemed to be a reference to the Insurance Policy and the Insurance Policy (Series B). Section 13.16. Effect of First Supplemental Indenture. This First Supplemental Indenture and all of the terms and provisions herein contained shall form part of the Indenture as fully and with the same effect as if all such terms and provisions had been set forth in the Indenture. The Indenture 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 First Supplemental Indenture and the terms of the Indenture (as in effect on the day prior to the effective date of this First Supplemental Indenture), the terms of this First SUpplemental Indenture shall prevail. Section 13.17. Execution in Several Counterparts. This First Supplemental Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shah preserve undestroyed, shall together constitute but one and the same instrument. Section 13.18. Effective Date of First Supplemental Indenture. Supplemental Indenture shall take effect upon the Closing Date (Series B). This First DOCSLA1-213524.2/4kr802! 1 5 42081-1..GH1-07/03/97 IN WITNESS WHEREOF, the Authority has caused this First Supplemental Indenture to be signed in its name by its officer thereunto duly authorized, and the Trustee has caused this First Supplemental Indenture to be signed in its corPorate name by its officer thereunto duly authorized, all as of the day and year first above written. TUSTIN PUBLIC FINANCING AUTHORITY By: Ronald A. Nault, Treasurer STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: Authorized Officer DOCSLA1-213524.2/4kr802! 16 42081-1-GHI-07/03/97 EXHIBIT B FORM OF SERIES B BOND No. TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BOND (TUSTIN RANCH), SERIES B RATE OF INTEREST: MATURITY DATE: ORIGINAL ISSUE DATE: CUSIP: REGISTERED OWNER: PRINCIPAL AMOUNT: The TUSTIN PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the "Authority"), for value received, hereby promises to pay (but only out of the Revenues and other moneys and securities hereinafter referred to) to the Registered Owner identified above or registered assigns (the "Registered Owner'.'), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof, which date shall be the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the fffieenth calendar day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to February 15, 1998, in which event it shall bear interest from the Original Issue Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment), payable semiannually on March 2 and September 2 in each year, commencing March 2, 1998 (the DOCSLAI-213524.2/4kr802! B- 1 42081-1-GH1-07/03/97 "Interest Payment Dates"), until payment of such Principal Amount in full. 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 trustee (the "Trustee"), in Los Angeles, California. Interest hereon is payable by check of the Trustee mailed by first class mail 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 Trustee as of the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date. This Bond is one of a duly authorized issue of bonds of the Authority designated the "Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B" (the "Series B Bonds"), limited in principal amount to $ , secured by the Indenture of Trust, dated as of February 1, 1996, by and between the Authority and the Trustee, as amended and supplemented by the First Supplemental Indenture of Trust, dated as of , 1997, by and between the Authority and the Trustee (as so amended and supplemented, the "Indenture"). The Authority has previously issued its Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series A (the "Series A Bonds"), with which the Series B Bonds are on parity. The Authority may issue additional bonds on a parity with the Series A Bonds and the Series B Bonds, in accordance with the terms of, and upon satisfaction of the conditions contained in, the Indenture; the Series A Bonds and the Series B Bonds, together with 'any such additional bonds, are referred to as the "Bonds". Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the fights thereunder of the owners of the Bonds, of the nature and extent of the Revenues (as that term is defined in the Indenture), of the fights, duties and immunities of the Trustee and of the fights and obligations of the Authority thereunder; and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof, and to all of the provisions of which Indenture the Registered Owner hereof, by acceptance hereof, assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Bond Law"). The Bonds are special obligations of the Authority and, as and to the extent set forth in the Indenture, are payable solely from and secured by a first lien on and pledge of the Revenues and certain assets held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of, and lien upon, all of the Revenues. and such assets, and the Revenues and such assets constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or redemption premiums, if any, on the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the . Authority or any of its income or receipts, except the Revenues and such assets as provided in the Indenture. The Bonds have been issued to provide a portion of the funds to acquire certain assessment bonds (the "Assessment Bonds") issued by the City of Tustin, a municipal corporation organized and existing under the laws of the State of California (the "City"). The Revenues which DOCSLA1-213524.2/4kr802! B =2 42081-1'-GH1-07/03/97 secure the Bonds and from which the Bonds are payable consist primarily of amounts derived from the Assessment Bonds, as more fully set forth in the Indenture. The Series B Bonds have been issued to provide a portion of the funds to acquire certain Assessment Bonds designated the City of'Tustin Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed Rate Bonds, Group One (the "Group One Bonds") The Series B Bonds maturing on or after September 2, ~, are subject to optional redemption in whole, or in part on such basis among maturities as shall be designated by the Authority and by lot within a maturity, on any Interest Payment Date on or after September 2, ~, at the following respective redemption prices (expressed as percentages of the principal amount of the Series B Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 2, ~ and March 2, ~ 102% September 2, and March 2, ~ 101 September 2, ~ and thereafter 100 The Series B Bonds shall be subject to mandatory redemption, in whole, or in part on any Interest Payment Date, from and to the extent of any prepayment of reassessments securing the Group One Bonds, which prepayment results in a redemption of Group One Bonds, as more particularly set forth in the Indenture, at the following respective redemption prices (expressed as percentages of the principal amount of the Series B Bonds to be redeemed), plus accrued interest thereon to the date of redemption. Redemption Dates Redemption Price March 2, 1998 through March 2, ~ September 2, ~ and March 2, ~ September 2, and March 2, ~ September 2, ~ and thereafter 103% 102 101 100 The Series B Bonds maturing on September 2, 20 shall be subject to mandatory sinking fund redemption, in part, by lot, on September 2 in each year, commencing September 2, 20 , at a redemption price equal to the principal amount of the Series B Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Indenture. The Series B Bonds maturing on September 2, 20~ shall be subject to mandatory sinking fund redemption, in part, by lot, on September 2 in each year, commencing September 2, 20 , at a redemption price equal to the principal amount of the Series B Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Indenture. DOCSLAI-213524.2/41o'802! B-3 42081.1-GH1-07/03/97 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series B Bonds designated for redemption, at their respective addresses appearing on the Registration Books maintained by the Trustee, 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 Series B Bonds or the cessation of the accrual of interest thereon. The redemption price of the Seres B Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Trust Office of the Trustee. From and after the date fixed for redemption of any Bonds, interest on such Bonds will cease to accrue. The Series B 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 Indenture, fully registered Series B Bonds may be exchanged at the Trust Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series B Bonds of other authorized denominations. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series B Bond or Series B 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 Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, . and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the fights and obligations of the Authority and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indenture; provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or the amount of principal thereof without the express written consent of the owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) permit the creation of any lien on the Revenues and other assets pledged under the Indenture, or deprive the Bonds owners of the lien created under the Indenture on the Revenues and such other assets, without the consent of the owners of all outstanding Bonds. It is hereby certified that all things, conditions and acts required to exist, to have happened and to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by the Constitution and statutes of the State of California and by the Bond Law and the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Bond Law. DOCSLA1-213524.2/4krlt02 ! B-4 420gl-I-GHI-07/03/97 This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose, until the certificate of authentication hereon shall have been manually signed by the Trustee. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration, transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. IN WITNESS WHEREOF, the Authority has caused this Bond to be executedin its name and on its behalf by the facsimile signatures of its Chairman and Secretary all as of the Original Issue Date identified above. TUSTIN PUBLIC FINANCING AUTHORITY [SEAL] Attest: By: Chairman By: Secretary DOCSLA1-213524.2/4kr802! B =5 42081-1-OH1-07/03/97 STATEMENT OF INSURANCE Financial Security Assurance Inc. ("Financial Security"), New York, New York, has delivered its municipal bond insurance policy with respect to the scheduled payments due of principal of and interest on this Bond to the Trustee, or its successor, as trustee for the Series B Bonds. Said Policy is on file and available for inspection at the Office of the Trustee and a copy thereof may be obtained from Financial Security or the Trustee. DOCSLA1-213524.2/4kr802! B-6 42081-1-GH1-07/03/97 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Series B Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: Authorized Signatory IX)CSLA1-213524.2/4kr802 ! B-7 42081-1-GHI-07/03/97 ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within-mentioned Bond and hereby irrevocably constitute(s) and. appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. DOCSLA1-213524.2/4krS02! B-8 42081-1-GH1-07/03/97 BOND PURCHASE AGREEMENT by and between the ' CITY OF TUSTIN and the TUSTIN PUBLIC FINANCING AUTHORITY Dated as of ,1997 IX)C~LA1-213800. l/4kyw01 ! 42081-1-43HI-08/20/97 Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. TABLE OF CONTENTS Page Definitions. 2 Purchase and Sale of Group One Bonds ...... .~ ....................................................... 2 Representations and Warranties of the City ......................................................... 3 Conditions to the Obligations of the Authority ..................................................... 3 Expenses ............................................................................................................ 7 Benefits; Survival ................................................................................................ 7 Counterparts ....................................................................................................... 7 Governing Law ................................................................................................... 7 DOCSLAI-213800.1/4kyw01 { i 42081-1-GH1-08/20/97 BOND PURCHASE AGREEMENT THIS BOND PURCHASE AGREEMENT (this "Bond Purchase Agreement") is entered into as of , 1997 , by and between the Tustin Public Financing Authority (the "Authority") and the City of Tustin (the "City"). W ITNE S S E TH: WB-EREAS, 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"); WItEREAS, pursuant to an Indenture, dated as of February 1, 1996 (the "Original Indenture"), by and between the Authority and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), the Authority issued its Revenue Bonds (Tustin Ranch), Series A (the "Series A Bonds"), in the aggregate principal amount of $35,705,000; WHEREAS, 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, Re, assessment District No. 95-1 (Tustin Ranch); Wlt-EREAS, the City is issuing $ aggregate principal amount of its Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Fixed ' Rate Bonds, Group One (the "Group One 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 the First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the Fiscal Agent, and the Second Supplemental Fiscal Agent Agreement, dated as of 1, 1997 (the "Second Supplemental Agreement"), by and between the City and the Fiscal Agent (as so amended and supplemented, the "Fiscal Agent Agreement"); WltEREAS, the Authority desires to assist the City with the Group One Bonds financing by purchasing the Group One Bonds from the City; WltEREAS, in order to provide the funds necessary to purchase the Group One Bonds from the City, the Authority has authorized the issuance, pursuant to the Original Indenture, as amended and supplemented by the First Supplemental Indenture, dated as of , by and between the Authority and the Trustee (as so amended and supplemented, the "Indenture"), of'the Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds"), in the aggregate principal amount of $ ; DOCSI~I-213800.1/4kyw01 ! 1 4208 I-I-GHI-011/20D7 WItEREAS, the Authority and the City have found and determined that the sale of the Group One Bonds to the Authority will result in substantial public benefits to the City, .namely, · the imerest savings with respect to the Group One Bonds to be achieved by reason of the credit rating to be assigned to the Series B Bonds; and Wlt-EREAS, the Series B Bonds are being purchased from the Authority pursuant to a Bond Purchase Agreement, dated , 1997 (the "Authority Purchase Agreement"), by and between the Authority and PaineWebber Incorporated (the "Underwriter"); W]tEREAS, the Authority and the City desire to enter into this Agreement providing for the sale of the Group One Bonds by the City to the Authority and containing the other agreements herein set forth; NOW, TItE~FO~, 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 One 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 One Bonds. The Group One Bonds shall mature on September 2, 2013 and shall bear interest at the nominal rate of % per annum. (b) The Group One Bonds and interest thereon shall be payable from annual assessments levied on the Designated Parcels (Group One) and collected in accordance with the Fiscal Agent Agreement and the proceedings relating thereto. The Group One 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 One Bonds, together with other available funds, will be used by the City to (i) pay the Purchase Price of the Series A Bonds being convened to Fixed Rate Bonds on the Conversion Date (Group One), (ii) pay costs of issuance relating to the.Group One Bonds and the Series B Bonds, including the premium for the municipal bond insurance policy securing the Series B Bonds, and ('fii) fund the Reserve Account (Group One) 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 ,1997, relating to the Series B 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 One 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 IX)O.~LAI-213800.1/4kyw01 ! 2 4208 I-I-(3H1-0g/20/97 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 Date (as hereinafter defined) or seven business days after the date the Underwriter agrees to purchase the Series B 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 B Bonds. (d) The aggregate purchase price for the Group One Bonds shall be $ (being the principal amount of the Group One Bonds, less a purchaser's discount of $ and less original issue discount of $ ), which shall be payable solely from proceeds of sale of the Series B Bonds. (e) At 8:00 a.m., California time, on ,1997, 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 One 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 One 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 ,1997 (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 One 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: DOCSLAI-213800.1/4kywOl! 3 420111-1-GHI-011/20/97 (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; Co) 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; (c) As of the Closing Date, all official action of.the. City relating to the Group One 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 Seres B Bonds. and the Group One 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 B 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 B 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 B 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; DOCSLAI-213800.1/4kyw01 ! 4 4208 I-1-GH 1-011/20/97 (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 B Bonds or obligations of the general character of the Series B 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 i'esolution passed) by or 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 B Bonds, or the Series B 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 B Bonds, or of the Seres B 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 B 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 B 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: DOCSLAI-213800.1/4kyw01 ! 5 42081-1-GHI-0g/20/97 (i) Two copies of the Second 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 One 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; (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 duly 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, proceedings, 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 DOCSLAI-213800.1/4kyw01 ! 6 42081-1-GHI-08/20/97 the approval of the Authority shall not be unreasonably withheld. Receipt of, and payment for, the Group One 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 One Bonds contained in this Bond Purchase Agreement, or if the obligations of the Authority to purchase, accept delivery of and pay for the Group One 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 One Bonds and the Series B Bonds, (b) the 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 One Bonds and the Series B 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 One 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. IX)12SLAI-213800. l/4kyw01 ! 7 420gI-I-GH1-08/20/97 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: Ronald A. Nault, Treasurer crI ov xvsm By: Ronald A_ Nault, Finance Director DOCSLA1-213800. l/4kyw01 ! 8 420g I-1.-GHI-0g/20/97 TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (TUSTIN RANCH) SERIES B BOND PURCHASE AGREEMENT ,1997 Tustin Public Financing Authority c/o City of Tustin 300 Centennial Way Tustin, California 92680 Ladies and Gentlemen: PaineWebber Incorporated (the "Underwriter") offers to enter into this Bond Purchase Contract (this "Purchase Agreement") with the Tustin Public Financing Authority (the '"Authority") with regard to the purchase and sale of the Bonds described herein, which will be binding upon the Authority and the Underwriter upon the Authority's acceptance hereof. All capitalized terms not otherwise defined herein shall have the meanings prescribed in the Indenture (defined below). 1. Purchase, Sale and Delivery of the Bonds. (a) Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, including the simultaneous purchase of certain limited obligation bonds (the "Local Obligations") of Reassessment District No. 95-2 (the "District") of the City of Tustin (the "City"), the Underwriter hereby agrees to purchase from the Authority and the Authority agrees to sell to the Underwriter all (but not less than all) of the Authority's $ aggregate principal amount of Revenue Bonds (Tustin Ranch), Series B (the "Bonds"), at the aggregate purchase price of $ (being the principal amount of the Bonds less an Underwriter's discount of $ and less original issue discount of $ ). The Bonds will have the maturities and shall bear interest as set forth in Exhibit A hereto. The Bonds will be subject to redemption and such other terms as set forth in the Indenture of Trust, dated as of February 1, 1996, as supplemented by a First Supplemental Indenture of Trust, dated as of September 1, 1997 (as so supplemented, the "Indenture"), each by and between the Authority and State Street Bank and Trust Company of California, N.A. (the "Trustee"), as trustee, and shall be issued in book-entry only form. (b) The Bonds shall be issued and secured under the provisions of the Indenture, and shall be as described in the Indenture. Pursuant to a Resolution of the Authority adopted on September 2, 1997 (the "Bond Resolution"), the Authority has authorized (i) the issuance Of the Bonds, (ii) the execution and delivery of the Indenture, this Purchase Agreement, a 220116.3 42081-2-WT1-08/20/97 3:56 PM Purchase Agreement by and between the City and the Authority (the "Local Obligation Purchase Agreement," and together with the Bonds, the Indenture and this Purchase Agreement, the "Authority Documents") and the Official Statement (as defined below) and (iii) the use of the Preliminary Official Statemeni of the Authority dated , 1997, relating to the Bonds together with all appendices thereto (the "Preliminary Official Statement") and the Official Statement in connection with the offering and sale of the Bonds. The Local Obligation Bonds shall be issued and secured under the provisions of the Fiscal Agent Agreement, dated as of February 1, 1996, as supplemented by a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, and as further supplemented by a Second Supplemental Fiscal Agent Agreement, dated as of September 1, 1997 (as so supplemented, the "Fiscal Agent Agreement"), each by and between the City and State Street Bank and Trust of California, N.A., as fiscal agent (the "Fiscal Agent"), and shall be as described in the Fiscal Agent Agreement. Pursuant to a Resolution of the City adopted on September 2, 1997 (the "City Bond Resolution"), the City has authorized (i) the issuance of the Local Obligations, and (ii) the execution and delivery of the Fiscal Agent Agreement, the Local Obligation Purchase Agreement and a Continuing Disclosure Agreement by and between the City and the Fiscal Agent (the "Continuing Disclosure Agreement") (the Fiscal Agent Agreement, the Local Obligation Purchase Agreement and the Continuing Disclosure Agreement are hereinafter referred to as the "City Documents"). The Local Obligations will be secured by reassessments to be levied on the property within the District. In connection with the establishment of the District and the reassessments to be imposed in connection therewith, the City has adopted a resolution of intention to form the District and a resolution approving an engineer's report and confirming the reassessments (the "Procedural Resolutions"). The City Bond Resolution and the Procedural Resolutions are herein collectively referred to as the City Resolutions. The proceeds of the Bonds shall be applied to acquire the Local Obligations. The proceeds of the Local Obligations shall be applied (i) to establish the Reserve Account (as defined and described in the Fiscal Agent Agreement), (ii) pay the costs of issuance of the Local Obligations and (iii) to purchase and cancel $ principal amount of the City's Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Series A (the "Prior Bonds") pursuant to the Indenture. (c) The Underwriter agrees to offer all the Bonds to the public initially at the prices (or yields) set forth in Exhibit A hereto and on the cover page of the Official Statement of the Authority pertaining to the Bonds, dated , 1997 (the Preliminary Official Statement, as defined below, and the Official Statement derived therefrom, together with all appendices thereto, and with such supplements thereto as are consented to in writing by the Authority and the Underwriter, are herein called the "Official Statement"). Subsequent to the initial public offering of the Bonds, the Underwriter reserves the right to change the public offering prices (or yields), as it deems necessary in connection with the marketing of the Bonds. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. (d) The Authority shall deliver to the Underwriter six (6) copies of the Official Statement manually executed on behalf of the Authority by the Mayor. The Authority -2- 220116.3 42081-2-WT1-01t/20/97 3:49 PM shall also deliver a sufficient number of copies of the Official Statement to enable the Underwriter to distribute a single copy of each Official Statement to any potential customer of the Underwriter requesting an Official Statement during the time period beginning when the Official Statement becomes available and ending on the End Date (defined below). The Authority shall deliver these copies to the Underwriter within seven (7) business days after the execution of this Purchase Agreement. The Underwriter covenants to file the Official Statement with a nationally recognized municipal securities information repository ("NRMSIR") on a timely basis. The term "End Date" means the later of such time as (i) the Authority delivers the Bonds to the Underwriter or (ii) the Underwriter does not retain an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives notice to the contrary, the'End Date shall be deemed the Closing Date. An authorized officer of the Authority and of the City have certified to the Underwriter on behalf of the Authority and the City that such Preliminary Official Statement was deemed to be final as of its date for purposes of Rule 15c2-12, with the exception of certain final pricing and related information referred to in Rule 15c2-12. The Underwriter has distributed a single copy of each Preliminary Official Statement to potential customers on request. (e) At 9:00 A.M., California time, on , 1997, or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the Authority and the Underwriter (the "Closing Date"), the Authority will deliver (i) the Bonds to The Depository Trust Company ("DTC") in New York, New York, and (ii) the dosing documents hereinafter mentioned at the offices of On-ick, Herrington & Sutdiffe LLP ("Bond Counsel"), or such other place to be mutually agreed upon by the Authority and the Underwriter. Subject to the provisions of this Purchase Agreement, the Underwriter will accept such delivery from the Authority. The Underwriter will pay the purchase price of the Bonds as set forth in Section l(a) hereof by wire transfer of immediately available funds. The date of this payment and delivery, together with the delivery of the aforementioned documents, is herein called the "Closing Date." 2. Representations, Warranties and Agreements of the Authority. The Authority hereby represents and warrants to and agrees with the Underwriter that: (a) The Authority is a joint powers authority, duly organized and existing under the laws of the State, including the Joint Exercise of Powers Act (Section 6500 et seq. of the California Government Code) (the "JPA Act"); (b) The Authority has, and at the Closing Date will have, full legal right, power and authority (i) to execute, deliver and perform its obligations under the Authority Documents, (ii) to adopt, the Bond Resolution, (iii) to issue, sell and deliver the Bonds to the Underwriter as provided herein, and (iv) to carry out, give effect to and consummate the transactions contemplated by the Authority Documents, the Bond Resolution and the Official Statement; (c) The Authority is, and at the Closing Date will be, in compliance, in all respects, with the Authority Documents; -3- 220116.3 42081-2-WT1-08/20/97 3:49 PM (d) The Authority has duly and validly adopted the Bond Resolution and approved the execution and delivery of the Bonds and the Authority Documents, and the performance by the Authority of its obligations contained therein, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by each of said documents. The Authority Documents and the Bonds have been, or on or before the Closing Date will be, duly executed and delivered by the Authority, and, on the Closing Date, the Bonds, when authenticated and delivered to the Underwriter in accordance with the Indenture, and the Authority Documents will constitute legally valid and binding obligations, enforceable against the .Authority in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditors' rights generally; (e) The Authority is not, and at the Closing Date will not be, in breach of or 'in default under any applicable law or administrative rule or regulation of the State of California (the "State") or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the Authority to perform its obligations under the Bonds or the Authority Documents; (f) The adoption of the Bond Resolution and the execution and delivery of the Bonds and the Authority Documents and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the Authority to perform its obligations under the Bonds or the Authority Documents; (g) ExCept as may be required under the blue sky laws of any state, all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute conditions precedent to, or the absence of which would materially adversely affect, the ability of the Authority to perform its obligations under any of the Authority Documents, or under the Bonds, or any other applicable agreements, have been obtained and are in full force and effect; (h) The Bonds, the Indenture and the Bond Resolution conform as to form and tenor to the descriptions thereof contained in the Preliminary Official Statement, and which will be contained in the Official Statement as of the Closing Date, and when delivered to and paid for by the Underwriter on the Closing Date as provided herein, the Bonds will be validly issued and outstanding; (i) The Preliminary Official Statement provided to the Underwriter has been deemed final by the Authority, as required by Rule 15c2-12. As of the date thereof, the , 220116.3 42081-2-WT1-08/20/97 3:49 PM Preliminary Official Statement (other than information with respect to the Developer, as to which the Authority shall not be required to express any view) did not contain any untrue statement of a material fact or omit ~a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the Official Statement (other than information with respect to the Developer, as to which the Authority shall not be required to express any view) does not, as of the Closing Date, and will not contain any untrue or misleading statement of a material fact or omit to state ~iny material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (j) Until the date which is 25 days after the End Date, if any event shall occur of which the Authority is aware,, as a result of which it may be necessary to supplement the Official Statement in order to make the statements contained in the Official Statement, in light of the circumstances existing at such time, not misleading, the Authority shall forthwith notify the Underwriter of any such event of which it has knowledge and shall cooperate fully in furnishing · any information available to it for any supplement to the Official Statement necessary, as required by subparagraph (i) of this Paragraph 2; (k) After the Closing and until the date which is 25 days after the End Date (i) the Authority will not adopt any amendment of or supplement to the Official Statement to which the Underwriter shall object in writing or which shall be disapproved by counsel for the Underwriter, and (ii) if any event relating to or affecting the Authority shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in. the light of the circumstances existing at the time it is delivered to an initial purchaser of the Bonds, the Authority will forthwith prepare and furnish to the Underwriter a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to counsel for the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to an initial purchaser of the Bonds, not misleading. The costs of preparing any necessary amendment or supplement to the Official Statement shall be borne by the Authority or the City. For the purposes of this section the Authority will furnish such information with respect to itself as the Underwriter may from time to time request; (1) The Indenture will create a valid pledge of lien upon and security interest in the Local Obligations and the interest thereon and the moneys in all funds and accounts established therein, subject in all cases to the provisions permitting the application thereof for the purposes and on the terms and conditions set forth therein; (m) No action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court,, regulatory agency, public board or body is pending, or to the knowledge of the Authority threatened in any way, affecting the existence of the Authority or the titles of its officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof, or the purchase of the Local Obligations pledged or to .be pledged to pay the principal of and interest in the Bonds, or in any -5- 220116.3 42081-2-WT1-08/20/97 3:49 PM way contesting or affecting the validity or enforceability of the Bond Resolution, the Bonds or the Authority Documents, or any action of the Authority contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or the powers of the Authority or its authority with respect to the Bond Resolution, the Bonds or the Authority Documents, or any action of the Authority contemplated by any of said documents, or which would adversely affect the exemption of interest paid on the Bonds from federal income taxation or California personal income taxation, nor to the knowledge of the Authority is there any basis therefor; (n) The Authority will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the Bonds for offer and sale under the "blue-sky" or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, the Authority shall not be required to register as a dealer or a broker of securities or consent to the jurisdiction of any State of the United States, other than the State of California; (o) Any certificate signed by any 'authorized official of the Authority authorized to do so shall be deemed a representation and warranty by the Authority to the Underwriter as to the statements made therein; (p) During the period from the date hereof until the Closing Date, the Authority agrees to furnish the Underwriter with copies of any documents it files with any regulatory authority which are requested by the Underwriter; (q) The Authority is not in default, nor has the Authority been in default at any time, as to the payment of principal or interest with respect to an obligation issued by the Authority or with respect to an obligation guaranteed by the Authority as guarantor; (0 The Authority has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the Authority is a bond issuer whose arbitrage certificates may not be relied upon; and (s) The Authority will apply the proceeds from the sale of the Bonds as set forth in and for the purposes specified in the Indenture. 3. Conditions to the Obligations of the Underwriter. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the Authority contained herein, as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the statements of the officers and other officials of the Authority and other persons and entities made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the Authority of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions: -6- 220116.3 42081-2-WT1-0g/20/97 3:49 PM (a) At the Closing Date, the Authority Documents, the City Documents, the Authority Bond Resolution and the City Resolutions and any other applicable agreements shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and the Local Obligations and with the transactions contemplated thereby, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate; (b) At the Closing Date, the Official Statement shall be in form and substance satisfactory to the Underwriter, the Authority and the City; (c) At the time of the Closing Date, the reassessments for the Local Obligations shall have been approved and confirmed by the City and recorded in the office of the Orange County Recorder; (d) Between the date hereof and the Closing Date, the market price or marketability of the Bonds at the initial offering prices shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the Authority terminating the obligation of the' Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following: (i) legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service,' or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation has been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department or the Internal Revenue Service of the United States of America, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon the interest as would be received by the holders of the Bonds or the Local Obligations; (ii)' legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice 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 the Bonds or the Local Obligations, obligations of the general character of the Bonds or the Local Obligations, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of the Bonds or the Local Obligations or of obligations of the general character of the Bonds or the Local Obligations, including any or all underwriting arrangements, as contemplated hereby or by the Official -7- 220116.3 42081-2-WTI-08/20/97 3:49 PM Statement or otherwise, is or would be in violation of the federal securities laws as amended and then in effect; (iii) a general suspension of trading in securities on the New York Stock Exchange, or a general banking moratorium declared by Federal, State of New York or State of California officials authorized to do so; (iv) the withdrawal or downgrading of any rating of any securities of the Authority or the City by a national rating agency; (v) any amendment to the federal or California Constitution or action by any federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of Authority or the City, the property, income or securities (or interest thereon) of either, the validity or enforceability of the reassessments or the ability of the Authority to issue the Bonds or the City to issue the Local Obligations as contemplated by the Indenture, the Fiscal Agent Agreement and the Official Statement; (vi) the entry of an order by a court of competent jurisdiction which enjoins or restrains the City from issuing permits, licenses or entitlements within the City, which order, in the reasonable opinion of the Underwriter, materially and adversely affects~ proposed developments within the District in particular or the City in general; (vii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; (viii) additional.material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter's ability to market the Bonds; or (ix) the United States has become engaged in hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak or escalation of hostilities or a national or international calamity or crisis, financial or otherwise, the effect of such outbreak, calamity or crisis on the financial markets of the United States, being such as, in the reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market the Bonds. (e) On or prior to the Closing Date, the Underwriter shall have received counterpart originals or certified copies of the following documents, in each case satisfactory in form and substance to the Underwriter, or shall have waived the receipt of such documents as a condition to the Underwriter's purchase of the Bonds: (i) the Official Statement, executed on behalf of the City and the Authority; -8- 220116.3 42081-2-WTI-0g/20/97 3:49 PM (ii) fully executed copies of the City Documents, the Authority Documents and the Representation Letter of the City, in the form attached hereto as Exhibit B (the "Representation Letter") and certified copies of the Bond Resolution and the City Resolutions; (iii) an approving opinion of Bond Counsel dated the Closing Date and substantially in the form included as APPENDIX A to the Official Statement, together with a letter from such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that the foregoing opinion may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it; (iv) a supplemental opinion of Bond Counsel, dated as of the Closing Date and addressed to the Underwriter, in form and substance satisfactory to the Underwriter and its Counsel, to the effect that: (A) the Authority Documents and the City Documents, other than the Indenture which shall be covered in the opinion of Bond Counsel referred to in Section 3(e)(iii), have been duly authorized, executed and delivered by the City and the Authority and constitute the legal, valid and binding obligations of each, are in full force and effect as of the Closing Date, and are enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors rights and by the application of equitable principles if equitable remedies are sought; ' (B) the statements contained in the Official Statement on the cover page and under the captions "INTRODUCTION," "THE SERIES B BONDS," ["THE REFUNDING PLAN,"] "SECURITY FOR THE SERIES B BONDS," "CONTINUING DISCLOSURE," "CONCLUDING INFORMATION - Tax Matters" and APPENDIX A- "SUMMARY OF INDENTURE AND FISCAL AGENT AGREEMENT," and insofar as such statements purport to summarize certain provisions relating to the Bonds, the Local Obligations, the Indenture, the Fiscal Agent Agreement and the Continuing Disclosure Agreement and such firm's opinions regarding certain federal tax aspects are accurate in all material respects; provided that Bond Counsel need not express any opinion with respect to any financial or statistical information contained therein; (C) neither the Bonds nor the Local Obligations are subject to the registratiOn requirements of the Securities Act of 1933, as amended, and neither the Indenture nor the Fiscal Agent Agreement is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended; and (D) the Bonds were validly issued under the provisions of the JPA Act and the Indenture, and the Local Obligations representing the unpaid reassessments were validly issued under the provisions of the Improvement Bond Act of 1915 (Sections 8500 and following, California Streets and Highways Code; hereatter referred to as the "Act") and the Indenture. -9- 220116.3 420gl-2-WTl-Og/20/97 3:49 PM (v) An opinion, dated as of the Closing Date and addressed to the Underwriter, of Woodruff, Spradlin & Smart as City Attorney and counsel to the Authority, in form and substance acceptable to the Underwriter and its counsel, to the effect that: (A) the Authority is a joint powers authority, duly organized and validly existing pursuant to the Constitution and the laWs of the State of California with full legal fight, power and authority to adopt the Bond Resolution, to issue the Bonds and to perform all of its obligations under the Bonds and the Authority Documents; 03) the City is a general law city, duly organized and validly existing pursuant to the Constitution and the laws of the State of California with full legal right, power and authority to adopt the City Resolutions, to issue the Local Obligations and to perform all of its obligations under the Local Obligations and the City Documents; (C) the preparation and distribution of the Preliminary Official Statement and the Official Statement and the execution and delivery of the Bonds and the Authority Documents and the City Documents have been duly approved by the Authority and the City, as the case may be; (D) the Bonds and the Authority Documents constitute the legal, valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (E) the Local Obligations and the City Documents constitute the legal, valid and binding obligations of the City enforceable against the City in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (F) to the best of such firm's knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or threatened in any way affecting the existence of the City or the Authority or the titles of the officers of each to their respective offices, or seeking to restrain or to enjoin the execution and delivery of the Authority Documents or the City Documents, or the issuance, sale or delivery of the Local Obligations or the Bonds or the application of the proceeds thereof, or the collection or application of the reassessments to pay the principal of and interest on the Local Obligations, or in any way contesting or affecting the validity or enforceability of the Local Obligations or the Bonds, this Purchase Agreement or any other Authority Document or City Document or any action of the Authority or the City contemplated by any of said documents; (G) neither the Authority nor the City is in breach of or in default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan -10- 220116.3 42081-2.WT1-08/20/97 3:49 PM agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority or the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the Authority or the City to perform their obligations under the Bonds, the Authority Documents or the City Documents; (I-I) the adoption of the Bond Resolution and the Resolutions, and the execution and delivery of the Bonds, the Local Obligations and the Authority Documents and City Documents and compliance with the provisions of each, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, contract, agreement or other instrument t° which the Authority or the City, as the case may be, is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the Authority or the City to perform their obligation under the Bonds or any Authority Documents or City Documents, as the case may be; (I) all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the ability of the Authority to perform its obligations under the Bonds or any Authority Document or the performance by the City of its obligations under the Local Obligations or any City Document, have been obtained or made, as the case may be, and are in full force and effect; and (J) as of the Closing Date, the information contained in the Official Statement (excluding therefrom Statistical and financial data) is true and correct and such information does not contain any untrue statement of a material fact required to be stated in the Official Statement or omit to state any fact necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading in any material respect; (vi) the opinion of Orrick, Herrington & Sutcliffe LLP, Counsel for the Underwriter, dated 'the Closing Date, addressed to the Underwriter, to the effect that based upon an examination which such firm has made, which shall be specified, and without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, no information came to the attention of the attorneys in such firm rendering legal services in connection with representation of the Underwriter which caused them to believe that the Official Statement as of its date (except for any financial, statistical and economic data or forecasts, numbers, charts,' graphs, estimates, projections, assumptions or expressions of opinion and any information about valuation or appraisals and any information under the captions "THE SERIES B BONDS- Book Entry System- Debt Service Schedule," "BOND INSURANCE," "CONCLUDING INFORMATION- Tax Matters," [APPENDIX A- "REASSESSMENT DIAGRAM,"] APPENDIX D - "INSURANCE POLICY SPECIMEN" and APPENDIX B- "PROPOSED FORM OF OPINION OF BOND COUNSEL," or otherwise about book-entry, DTC or the Bond Insurer included therein, as to which such firm shall not be required .to express any opinion or view), contained any untrue statement of a material fact or 220116.3 -11- 42081.2-WT1-08/20/97 3:49 PM omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; (vii) a certificate, dated as of the Closing Date and signed by a dulY authorized official of the City and the Authority, certifying that (i)the representations and warranties of the Authority contained herein and the City contained in the City's Representation Letter 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; (ii)no event has occurred since the date of the Official Statement affecting the City or the Authority which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make the statements and information contained in the Official Statement not misleading in any material respect; and (iii) the Authority has complied with all the agreements and has satisfied all the conditions on its part to be performed or satisfied under this Purchase Agreement at and prior to the Closing Date; (viii) an appraisal of the District; (ix) the opinion of counsel to the Trustee, the Fiscal Agent and State Street Bank and Trust Company of California, N.A., as dissemination agent (together, "State Street"), dated the Closing Date, addressed to the Underwriter, in form and substance acceptable to counsel for the Underwriter substantially to the following effect: (A) State Street is a national banking association organized and existing under and by virtue of the laws of the United States of America; (B) State Street has duly authorized the execution and delivery of the Indenture, the Fiscal Agent Agreement and the Continuing Disclosure Agreement (the "State Street Documents"); (C) the State Street Documents have been duly entered into and delivered by State Street and assuming due, valid and binding authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligations of State Street, enforceable against State Street in accordance with their terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, or by general principles of equity; (D) acceptance by State Street of the duties and obligations under the State Street Documents and compliance with provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation to which State Street is subject; (E) all approvals, consents and orders of any governmental authority or agency having jurisdiction in the matter which would constitute a condition precedent to the performance by State Street of its duties and obligations under the State Street Documents have been obtained and are in full force and effect; -12- 220116.3 . 42081-2-WT1-08/20/97 3:49 PM (x) a certificate of State Street, dated the Closing Date, addressed, to the Underwriter, in form and substance acceptable to counsel for the Underwriter to the following effect: (A) State Street is a national banking association, and is organized and existing under and by virtue of the laws of the United States of America, and has the full power and authority to accept and perform its duties under the State Street Documents; (B) subject to the provisions of the Indenture, the Trustee will apply the proceeds from the Bonds to the purposes specified in the Indenture; Trustee; (c) the Bonds have been duly authenticated on behalf of (D) there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or, to the best of its knowledge, threatened in any way affecting the existence of State Street, or seeking to restrain or to enjoin the execution and delivery of the State Street Documents, or the authentication of the Bonds, by State Street, or in any way contesting or affecting the validity or enforceability, as against State Street, of the State Street Documents or any action of State Street contemplated by any of said documents, or in which an adverse outcome would materially and adversely affect the ability of State Street to perform its obligations under the State Street Documents; (E) State Street is not in breach of or in default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which State Street is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of State Street to perform its obligations under the State Street Documents; (F) the authentication of the Bonds, and the execution and delivery of the State Street Documents by State Street, and compliance with the provisions of each, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, contract, agreement or other instrument to which State Street is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of State Street to perform its obligations under the State Street Documents; (G) within the scope of its fiduciary obligations under the Indenture, the Trustee agrees to cooperate with the Underwriter and its counsel, at the expense of the Underwriter, in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the Trustee will not be required to execute a special or general -13- 220116.3 42081-2-WT1-08/20/97 3:49 PM consent to 'service of process or qualify as a foreign corporation in connection with any such qualification in any jurisdiction in which it is not now so subject; (xi) The no-arbitrage or tax certificate of the Authority in form and substance acceptable to the Bond Counsel; (xii) Evidence that the federal tax information Form 8038-G with respect to the Bonds has been prepared for filing and mailed; and (xiii) A certificate addressed to the Underwriter from The Irvine Company to the effect that (1) the statements relating to it, its proposed development, its property ownership and its contractual arrangements, if any, contained in the Official Statement do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and (2)no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, is pending or, to its knowledge, threatened in any way seeking to restrain or to enjoin the development of any of its property securing the Bonds or the carrying on of its business affairs; (xiv) An opinion of counsel to The Irvine Company, in form'and substance satisfactory to the Underwriter and its counsel; and (xv) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Official Statement, of the Authority's representations and warranties contained herein and the City's representations and warranties contained in the Representation Letter and the due performance or satisfaction by the City and the Authority at or prior to the Closing Date of all agreements then to be performed and all conditions then to be satisfied by the City and the Authority in connection with the transactions contemplated hereby and by the Official Statement, the City Documents and the Authority Documents. If any of the conditions to the obligations of the Underwriter contained in this section or elsewhere in this Purchase Agreement shall not have been satisfied when and as required herein, all obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the Authority. 4. Expenses. (a) The Underwriter shall be under no obligation .to pay, and the Authority shall pay or cause to be paid, whether out of the proceeds of the Bonds or otherwise, all expenses incident to the performance of the Authority's and the City's obligations hereunder, including but not limited to: the cost of printing and delivering the Bonds to the Underwriter and the Local Obligations to the Authority; the cost of preparation, printing (and/or word processing and reproduction), distribution and delivery of the Bond Resolution, the Resolutions, and the cost of printing distribution and delivery of the Preliminary Official Statement and the Official Statement. and all other agreements and documents contemplated hereby (and drafts of any -14- 220116.3 42081-2-WTI-08/20/97 3:49 PM thereof) in such reasonable quantities as requested by the Underwriter; the fees and expenses in connection with obtaining a delinquency report and statement of direct and overlapping bonded debt from California Municipal Statistics, Inc.; and the fees and disbursements of State Street, Bond Counsel, any accountants, financial advisors or other engineers or experts or consultants the Authority or the City has retained in connection with the Bonds and the Local Obligation and any out-of-pocket disbursements of the Authority or the City to be paid from the proceeds of the Bonds or the Local Obligations. (b) Whether or not the BOnds are delivered to the Underwriter as set forth herein, the Authority shall be under no obligation to pay, and the Underwriter shall pay the cost of preparation of any "blue sky" or legal investment memoranda and this Purchase Agreement, expenses to qualify the Bonds for sale under any "blue sky" or other state securities laws, the fees, if any, payable to the California Debt Advisory Commission on account of the Bonds, and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds (except those specifically enumerated in paragraph (a) of this section), including the fees and disbursements of its counsel and any advertising expenses. 5. Notices. Any notices, requests, directions, instruments or other communications required or permitted to be given hereunder shall be in writing and shall be given when delivered, against a receipt, or mailed certified or registered, postage prepaid, to the Authority, the City and the Underwriter at the respective addresses below. If to the Authority: Tustin Public Financing Authority c/o City of Tustin 300 Centennial Way Tustin, California 92680 Attention: Finance Director If to the City: City of Tustin. 300 Centennial Way Tustin, California 92680 Attention: Finance Director If to the Underwriter: PaineWebber Incorporated 725 South Figueroa Street, 41st Floor Los Angeles, California 90017 Attention: Municipal Finance Department provided, however, that all such notices, requests or Other communications may be made by telephone and promptly confirmed by writing. The Authority, City and the Underwriter may, by -15- 220116.3 42081-2-WT1-08/20/97 3:49 PM notice given as aforesaid, specify a different address for any such notices, requests or other communications. 6. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Authority and the Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. 7. Survival of Representation and Warranties. The representations and warranties of the City and the Authority set forth in or made pursuant to this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Agreement and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City and the Authority and regardless of delivery of and payment for the Bonds. 8. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Authority and shall be valid and enforceable as of the time of such acceptance. 9. Applicable Law; Nonassignability. This Purchase Agreement shall be governed by the laws of the State of California. This Purchase Agreement shall not be assigned by the Authority. 10. Execution of Counterparts. This Purchase Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same. 11. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds by the Authority and represents the entire agreement of the'parties as to the subject matter herein. 12. Partial Unenforceability. Any provision of this Purchase Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Purchase Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. -16- 220116.3 42081-2-WT1-08/20/97 3:49 PM 13. Capitalized Terms. Terms with initial capital letters not otherwise defined herein shall have the meanings _assigned to them in the Indenture. Very truly yours, PAINEWEBBER INCORPORATED By: Name Title ACCEPTED: TUSTIN PUBLIC FINANCING AUTHORITY By: -17- 220116.3 42081-2-WT1-08/20/97 3:49 PM Exhibit A Maturity Schedule for the Bonds Maturity ( ) Principal Interest Amount Rate Yield A-1 :220116.3 42081-2-WT1-08/20/97 3:49 PM EXHIBIT B REPRESENTATION LETTER The City of Tustin (the "City") hereby certifies in connection with the Bond Purchase Agreement (the "Purchase Agreement"), dated as of , 1997, between PaineWebber Incorporated and the Tustin Public Financing Authority, as follows (capitalized terms not otherwise defined herein shall have the meaning set forth in the Purchase Agreement): The City hereby represents and warrants to and agrees with the Underwriter that: (a) The City is a California general law city, duly organized and validly existing pursuant to the Constitution and laws of the State of California; (b) The City has, and at the Closing Date will have, full legal right, power and authority (i) to execute, deliver and perform its obligations under the City Documents, (ii) to adopt the City Resolutions, (iii)to issue, sell and deliver the Local Obligations to the Authority as provided in the Local Obligation Purchase Agreement, and (iv)to carry out, give 'effect to and consummate the transactions contemplated by the City Documents, the City Resolutions and the Official Statement; (c) The City is, and at the Closing Date will be, in compliance, in all respects, with the City Documents; (d) The City Council has duly and validly adopted the City Resolutions and approved the execution and delivery of the Local Obligations and the City Documents, and the performance by the City of its obligations contained therein, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by each of said documents. The City Documents and the Local Obligations have been, or on or before the Closing Date will be, duly executed and delivered by the City, and, on the Closing Date, the Local Obligations, the City Documents will constitute legally valid and binding obligations, enforceable against the City in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditors' rights generally; (e) The City is not; and at.the Closing Date will not be, in breach of or in default under any applicable law or administrative rule or regulation of the State of California (the "State") or the United States of America, or of any department, division, agency or instrumentality of either thereof, .or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the City to perform its obligations under the Local Obligations or the other City Documents; B-1 220116.3 42081-2-WTI-08/20/97 3:49 PM (f) The adoption of the City Resolutions and the execution and delivery of the Local Obligations and the City Documents or any other applicable agreements and the other instruments contemplated by any of such documents to which the City is a party, and compliance with the provisions thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the City to perform its obligations under the Bonds or the City Documents; (g) Except as may be required under the blue sky laws of any state, all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute conditions precedent to, or the absence of which would materially adversely affect, the ability of the City to perform its obligations under any of the City Documents, or under the Local Obligations, or any other applicable agreements, have been obtained and are in full force and effect; (h) The Local Obligations, the Fiscal Agent Agreement, the Continuing Disclosure Agreement and the Procedural Resolutions conform as to form and tenor to the descriptions thereof contained in the Preliminary Official Statement, and which Will be contained in the Official Statement as of the Closing Date, and when delivered to and paid for by the Underwriter on the Closing Date as provided herein, the Local Obligations will be validly issued and outstanding; (i) The reassessments constituting the security for the Local Obligations have been duly and lawfully levied under and pursuant to the Municipal Improvement Act of 1913 (Sections 10000 and following, California Streets and Highways Code), the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code), as amended, and such reassessments constitute valid and legally binding liens on the properties on which they have been levied; (j) There are no outstanding reassessment liens levied by the City against any of the properties within the District which are senior to the assessment liens referred to in paragraph (i) hereof, and the City has no present intention of conducting further proceedings leading to the levying of additional assessments against any of the properties within the District; (k) The Preliminary Official Statement provided to the Underwriter has been .deemed final by the City, as required by Rule 15c2-12. As of the date thereof, the Preliminary Official Statement (other than information with respect to 'the Developer, as to which the City shall not be required to express any view) did not contain any untrue statement of a material fact or omit a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the Official Statement (other than information with respect to the Developer, as to which the City B-2 220116.3 42081-2-WT1-08/20/97 3:49 PM shall not be required to express any view) does not and, as of the Closing Date, will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (1) Until the date which is 25 days after the End Date, if any event shall occur of which the City is aware, as a result of which it may be necessary to supplement the Official Statement in order to make the statements contained in the Official Statement, in light of the circumstances existing at such time, not misleading, the City shall forthwith notify the Underwriter of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, as required by subparagraph (m) below; (m) .After the Closing and until the' date which is 25 days after the End Date (i)the City will not adopt any amendment of or supplement to the Official statement to which the Underwriter shall object in writing or which shall be disapproved by counsel for the Underwriter, and (ii) if any event relating to or affecting the City shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to an initial purchaser of the Bonds, the City will forthwith prepare and furnish to the Underwriter a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to counsel for the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to an initial purchaser of the Bonds, not misleading. The costs of preparing any necessary amendment or supplement to the Official Statement shall be borne by the City. For the purposes of this section the City will furnish such information with respect to itself as the Underwriter may from time to time request; (n) The Fiscal Agent Agreement will create a valid pledge of and lien upon the unpaid assessments in the Subject Area of the District and the interest thereon and the moneys in all funds and accounts established therein, subject in all cases to the provisions permitting the application thereof for the purposes and on the terms and conditions set forth therein; (o) No action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending, or to the knowledge of the City threatened in any way, affecting the existence of the City or the titles of its officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Local Obligations, the application of the proceeds thereof, or the collection or application of reassessments pledged or to be pledged to pay the principal of and interest on the Local Obligations, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the City Resolutions, the Local Obligations or the City Documents, or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or the powers of the City or its authority with respect to the City Resolutions, the Local Obligations or the City Documents, B-3 220116.3 42081-2-WTI-08/20/97 3:49 PM ti or any action of the City contemplated by any of said documents, or which would adversely affect the exemption of interest paid on the Local Obligations from federal income taxation or California personal income taxation, nor to the knowledge of the City is there any basis therefor; (p) ' The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the Bonds for offer and sale under the "blue sky" or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, the City shall not be required to register as a dealer or a broker of securities or consent to the jurisdiction of any State of the United States, other than the State of California; (q) Any certificate signed by any authorized official of the City authorized to do so shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein; (r) During the period from the date hereof until the Closing Date, the City agrees to furnish the Underwriter with copies of any documents it files with any regulatory authority which are requested by the Underwriter; (s) The City is not in default, nor has the City been in default at any time, as to the payment of principal or interest with respect to an obligation issued by the City or with respect to an obligation guaranteed by the City as guarantor; (t) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the City is a bond issuer whose arbitrage certificates may not be relied upon; (u) The City will apply the proceeds from the sale of the Local Obligations as set forth in and for the purposes specified in the City Resolutions and the Fiscal Agent Agreement; B-4 220116.3 42081-2-WT1-08/20/97 3:49 PM (v) The City will undertake, pursuant to the Fiscal Agent Agreement and the Continuing Disclosure Agreement, to provide certain annual financial information and information about the property in the District, together with notices of the occurrence of certain events, if material. A copy of the Continuing Disclosure Agreement is set forth in Appendix C of the Preliminary Official Statement and will also be set forth in the Official Statement, and the specific nature of the information to be contained in the Annual Report (as defined in the Continuing Disclosure Agreement) or the notices of material events is set forth in the Continuing Disclosure Agreement. Very truly yours, CITY OF TUSTIN By: Name Title B-5 220116.3 42081-2-WT1-08/20/97 3:49 PM 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 B Bonds. See "TAX MA~rERs" herein. NEW ISSUE - BOOK-ENTRY ONLY Prelir ry Official Statement Dated_ 997 In the opinion of Orrick, Herring,. . & Sutcliffe LLP, Los Angeles, California, Bon...ounsel, based upon an analysis of existing laws, regulations, rulings and court decisions and assuming, .among other matters, compliance with certain covenants, interest on the Series B Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond counsel, interest on the Series B Bonds is not a preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond counsel observes that it is included in adjusted current earnings in calculating RATINGS: Moody's: S&P:-- (See "RATINGS" hereT~ $3,400,000* TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (Tustin Ranch) Series B Dated: Date of Delivery Due: September 2, as shown on the inside front cover The $.3,400,000' Tu~tin Public Financing Authority Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds") are being issued by the Tustin Public Financing Authority (the "Authority") pursuant to an Indenture of Trust, dated as of February 1, 1996 (the "Indenture"), between the Authority and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee".), as supplemented by the First Supplemental Indenture of Trust, dated as of August 1, 1997 (the "First Supplemental Indenture"), and will be secured as described herein. The Series B Bonds are being issued to purchase certain limited obligation improvement bonds (the "Group One Bonds") of Reassessment District No. 95-2 (the "Reassessment District") of the City of Tustin (the "City"). The Group One Bonds are issued by the City pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996 (the "Fiscal Agent Agreement"), between the City and State Street Bank and Trust Company of California, N.A., as fiscal agent (the "Fiscal Agent"), as supplemented by First Suppl~tal Fiscal Agent Agreement, dated as of September I, 1996, and a Second Supplemental Fiscal Agent Agreement, dated as of September 1, 1997 (the "Second Supplemental-Agreement"), and will be secured by certain unpaid reassessments (the "Group One Reassessments") levied by the City. The Series B Bonds will be issued in book-entry form, initially registered in the name of Cede & Co., New York, New York, az nominee of The Depository Trust Company ("DTC"), New York, New York. Interest on the Series B Bonds, payable at the rates set forth below, will be payable on September 2 and March 2 of each year, co~-anencing March 2, 1998. Purchasers will not receive certificates representing their interest in the Series B 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 B Bonds. The Series B Bonds will mature on September 2 in the years and in the amounts as shown on the Maturity Schedule set forth on the inside front cover hereof. The Series B Bonds are subject to redemption prior to maturity as set forth herein. See "THE SERIES B BONDS - Redemption of the Series B Bonds" herein. The Series B Bonds are limited obligations of the Authority. The Series B Bonds are payable solely from Revenues of the Authority, consisting primarily of payments received by the Authority from the City in connection with the Group One Bonds, which payments are secured by liens of unpaid Group One Reassessments as more fully described herein. Payments under the Group One Bonds are calculated to be sufficient to permit the Authority to pay the principal of, premium, if any, and interest on the Series B 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 Group One Rcasscssments or payments on the Group One Bonds. THE SERIES B BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE PAYABLE SOLELY FROM THE REVENUES AND OTHER AMOUNTS PLEDGED UNDER THE INDENTURE. THE SERIES B BONDS DO NOT CONSTITUTE 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 CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES B BONDS. THE GROUP ONE BONDS ARE LIMITED OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM THE REASSESSMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT. 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 GROUP ONE BONDS. [The scheduled payment of principal of and interest on the Series B Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Series B Bonds by FINANCIAL SECURITY ASSURANCE INC.] [Logo] This cover page contains information fOr reference only. It is not a sunmmry 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 B Bonds. The Series B 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, Dated: September , 1997 a Professional Corporation, Orange, California. It is anticipated that the Series B Bonds will be available for delivery in book-entry form in New York, New York, on or about September._., 1997. PaineWebber Incorporated * Preliminary, subject to change. (Inside Cover) MATURITY SCHEDULE $3,400,000* TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (Tustin Ranch) Series B Maturity (September 2) 1998 1999 2000 2~1 2~2 2~3 2004 2~5 2006 2~7 2~8 2~9 $ Serial Bonds Principal Interest Yield Yield % Term Bonds due September 2, 2013 Price: Price/ Yield oA * Preliminary, subject to change. DOCSI~I-215774.3/4mhq03 ! 42081-2-WE J-08/20/97DOCSLA1-215774.3/4mhq03 ! TUSTIN PUBLIC FINANCING AUTHORITY and CITY OF TUSTIN (Orange County, California) MEMBERS OF THE AUTHORITY COMMISSION AND CITY COUNCIL Jeffery M. Thomas, Chair/Mayor Thomas tL Saltarelli, Vice Chair/Mayor Pro Tem Tmcy Wills Worley, Commissioner/Councilmember Mike Doyle, Commissioner/Couneilmember Jim Potts, Commissioner/Councilmember AUTHORITY OFFICERS AND CITY STAFF William A. Huston, President/City Manager George W. Jeffries, Authority Treasurer/City Treasurer Ronald A. Nault,/City Finance Director Pamela Stoker, Authority Secretary/City Clerk Tim Serlet, City Public Works Director PROFESSIONAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California City Attorney Woodruff, Spmdlin & Smart A Professional Corporation Orange, California Reassessment Consultant Muni Financial, Inc. Temecula, California Trustee State Street Bank and Trust Company of California, N.A. Los Angeles, California 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 B 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 ckcumstances, create any implication that there has been no change in the affairs of the Authority, the City, the Reassessment District, or any property owner since the date hereof. The discussion and information herein relating to the Series B Bonds, the Reassessment District, the Authority, and the City do not purport to be comprehensive or definitive. All references to the Series B 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 Agreement 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 B BONDS; OR (III) THE TAX EXEMPT STATUS OF THE INTEREST ON THE SERIES B BONDS.] IN CONNECTION WITH THIS BOND UNDERWRITING, THE UNDER~R MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B 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. TABLE OF CONTENTS PaRe INTRODUCTION ..................................................................................................................... 1 CONTINUING DISCLOSURE ................................................ 3 THE PLANT OF FINANCING .................................................................................................. 4 ESTIMATED SOURCES AND USES ...................................................................................... 5 THE SERIES B BONDS ........................................................................................................... 6 Description'of the Series B Bonds ................................................................................... 6 Redemption of the Series B Bonds .................................................................................. 6 Book-Entry System ........................................................................................................ 8 Additional Authority Bonds .......................................................................................... 10 Debt Service Schedule .................................................................................................. 12 SECURITY FOR THE SERIES B BONDS ............................................................................. 12 General ......................................................................................................................... 12 Payments of Assessment Bonds ' . ............................................................... 13 Additional Bonds ...................................................................................................... ' .... 15 Covenant for Superior Court Foreclosure ..................................................................... 1 $ Priority of Lien ............................................................................................................. 16 BOND INSURANCE .............................................................................................................. ! 7 METHOD .OF REAS SES SMENT ........................................................................................... 19 THE FIXED RATE SUBJECT AREA ..................................................................................... 20 20 General ......................................................................................................................... Status of Public Improvements Designated Parcels., ...................................................... 21 Location and Terrain of the Fixed Rate Subject Area .................................................... 21 Land Uses and Development Status .............................................................................. 21 Largest Landowners by Reassessment Amount ............................................................. 22 Debt Service Coverage ................................................................................................. 24 Delinquency History ..................................................................................................... 24 Estimated Value-to-Lien Ratios .................................................................................... 25 Direct and Overlapping Debt ........................................................................................ 26 Status of Development .................................................................................................. 30 SPECIAL RISK FACTORS ..................................................................................................... 33 The Series B Bonds are Limited Obligations of the Authority ...................................... ~.34 The Reassessments are Not Personal Obligations of the Property Owners ..................... 34 The Assessment Bonds are Limited Obligations of the City. .......................................... 34 Bankruptcy and Foreclosure Delays .......................................................... .................... 35 Existence of Undeveloped Property ........................................................ ...................... 36 Price Realized Upon ForeClosure .................................................................................. 36 Uncertainties of Future Development ............................................................................. 37 Direct and Overlapping Indebtedness ................................................... : ........................ 38 DOCS~I-215774.3/4mhq03 ! -i- 42081-2-WEJ-0g/20/97 TABLE OF CONTENTS (continued) PaRe Earthquakes ............................................................. ' ..................................................... 38 Drought Conditions ...................................................................................................... 38 Land Values ................................................................................................................. 38 Hazardous Substances .................................................................................................. 39 Endangered and Threatened Species ............................................... - ............................. 40 Cumulative Burden of Parity Taxes, Special Assessments and Development Costs ................................................................................................................. 40 Loss of Tax Exemption ................................................................................................. 40 California Constitution Article XIIIC and Article XIIID ................................................ 41 THE AUTHORITY ................................................................................................................. 41 THE CITY ............................................................................................................................... 42 CONCLUDING INFORMATION ........................................................................................... 42 Underwriting ................................................................................................................ 42 Legal Opinion ............................................................................................................... 42 Tax Matters .................................................................................................................. 42 No Litigation ..................................................................... : .......................................... 44 Ratings ......................................................................................................................... 44 Miscellaneous ............................................................................................................... 44 -ii- DOCSLA1-215774.3/4mhq03 ! 42081.2-WE J-08~20~97 TABLE OF CONTENTS (continued) PaRe 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 DOCSLA1-215774.3/4mhq03 ! -111' 420gl-2-WEJ-08/20/97 INSERT LOCATION MAP INSERT AERIAL PHOTO $3,400,000* TUSTIN PUBLIC FINANCING AUTHORITY REVENUE BONDS (Tustin Ranch) Series B 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 $3,400,000' principal amount of Revenue Bonds (Tustin Ranch), Series B (the "Series B Bonds"). The Seres B Bonds will be issued by the Authority pursuant to an Indenture of Trust, dated as of February 1, 1996 (the "Original Indenture"), by and between the Authority and State Street Bank and Trust Company of Califomia, N.A., as trustee (the "Trustee"), as supplemented by a First Supplemental Indenture of Trust, dated as of August 1, 1997,.by and between the Authority and the Trustee (the "Fkst Supplemental Indenture" and together with the Original Indenture, the "indenture"). The proceeds fi.om the sale of the Series B Bonds will be used to purchase certain limited obligation improvement bonds (the "Group One Bonds") of Keassessmem District No. 95-2 ('~Reassessment District No. 95-2") of the City of Tustin (the "City"). The Group One Bonds are being issued by the City pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (the '~Kefunding Law") and the Improvement Bond Act of 1915 (the "Bond Law," and together with the Kefunding Law, the "Act") and further pursuant to a Fiscal Agent Agreement, dated as of February 1, 1996 (the "Original 95-2 Agreement"), between the City and State Street Bank and Trust Company of California, N./K, as fiscal agent (the "95-2 Fiscal Agent") as supplemented by a First Supplemental Fiscal Agent Agreement, dated as of September 1, 1996, by and between the City and the Fiscal Agent (the '~First Supplemental 95-2 Fiscal Agent Agreement") and a Second Supplemental Fiscal Agent Agreement, dated as of August 1, 1997, by and between the City and the Fiscal Agem (the "Second Supplemental 95-2 Fiscal Agent Agreement" and together with the Original 95-2 Agreement and the First Supplemental 95-2 Fiscal Agent Agreement, the "95-2 Fiscal Agent Agreement"). On February 29, 1996, the Authority issued its $35,705,000 Tustin Public Financing Authority Revenue Bonds (Tustin Ranch), Series A (the "Series A Bonds") pursuant to the Original Indenture. The Series A Bonds were issued to purchase certain limited improvement bonds (the "Assessment Bonds (95-1)") of Reassessment District No. 95-1 ("Keassessment District No. 95-1") of the City issued pursuant to the Act and a Fiscal Agent Agreement, dated as of February 1, 1996 (the "95-1 Fiscal Agent Agreement" and together with the 95-2 Fiscal Agent Agreement, the "Fiscal Agent Agreements"), by and between the City and State Street Bank and Trust Company of California, N.A., * Preliminary, subject to change. DOCSLA1-215774.3/4mhq03 ! 42081-2-WEJ-08/20/97 as fiscal agent (the "95-1 Fiscal Agent" and together with the 95-2 Fiscal Agent, the "Fiscal Agent"). The Assessment Bonds (95-1) are secured by unpaid reassessments (the "95-1 Reassessments") levied on all taxable parcels within Reassessment District No. 95-1. The Series A Bonds and any other bonds issued by the Authority are secured by all amounts derived from or with respect the Assessment Bonds (95-1) and any Assessment Bonds (95-2) (as herein defined) acquired after the date of issuance of the Series A Bonds pursuant to the terms of the Indenture (together, the "Assessment Bonds"), including but not limited to all payments of principal thereof, premium, if any, and interest thereon (the "Revenues"). On February 29, 1996, the City issued its $41,500,000 Limited Obligation Improvement Bonds, Reassessment District No. 95-2 (Tustin Ranch), Seres A (the "Assessment Bonds (95-2)"). The Assessment Bonds (95-2) were issued pursuant to the Original 95-2 Agreement as Adjustable Rate Bonds (as. defined therein). A portion of the proceeds of the Group One Bonds will be used to purchase and cancel $ principal amount of Assessment Bonds (95-2) which will be reissued as Fixed' Rate Bonds pursuant to the 95-2 Fiscal Agent Agreement (the "Group One Fixed Rate Bonds"). See "THE PLAN OF FINANCING" and "IlqE GKOUP ONE BONDS" herein. The Assessment Bonds '(95-2) are secured by unpaid reassessments (the "95-2 Keassessments") levied on all taxable parcels within Reassessment District No. 95-2. Upon issuance of the Group One Bonds, certain 95-2 Keassessments (the "Group One KeaSsessments'') levied on certain parcels within Re. assessment District No. 95-2 (the "Group One Designated Parcels") will secure the Group One Bonds, and the Group One Reassessments on the Group One Designated Parcels will no longer secure the remaining adjustable rate Assessment Bonds (95-2). The Group One Bonds will constitute Assessment Bonds (95-2) acquired pursuant to the terms of the Indenture. The Series B Bonds and the Series A Bonds will be secured on a parity basis by the Kevenues, consisting, as of the date of issuance of the Series B Bonds, of the all amounts derived from or with respect to the Assessment Bonds (95-1) and the Group One Bonds. The Assessment Bonds (95-1) and the Group One Bonds are herein referred to collectively as the "Fixed Kate Assessment Bonds," the 95-1 Reassessments and the Group One Reassessments are herein referred to collectively as the "Fixed Rate Keassessments" and Re. assessment District No. 95-1 and the Group One Designated Parcels are herein referred to collectively as the "Fixed Rate Subject Area." Pursuant to the Bond Law and the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the "Improvement Act"), Fixed Rate Re. assessment installments sufficient to pay the principal of and interest on the Fixed Kate Assessment Bonds are to be billed on the regular County of Orange (the "County") property tax bills and are to be remitted to the City in accordance with established procedures for such remittances. Pursuant to the Indenture, the Authority has assigned to the Trustee, for the benefit of the Owners from time to time of the Series A Bonds, the Series B Bonds and any Additional Bonds (as defined in the Indenture and together with the Series A Bonds and the Series B Bonds, the "Bonds"), all of the Kevenues and all right, tire and interest ofthe Authority in the Assessment Bonds. See "SECURITY FOK THE SERIES B BONDS" herein. 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 DOCSLA1-215774.3/4mhq03 ! 420 8 I-2-WEJ-O8/20/97 Irvine, Orange and Santa Ana, as well as unincorporated areas of the County of Orange. As of January 1, [1997], the City's current population was estimated at [62,500], representing an approximate % increase from 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 4,207 assessed parcels and covers approximately 2,782 acres. Re, assessment District No. 95-2 is comprised of approximately 23 assessed lots coveting approximately 437.4 acres. A portion of such lots, totaling approximately acres, have been subdivided into assessed parcels which constitute the Group One Designated Parcels. See "FIXED RATE SUBJECT AREA" herein. THE SERIES B BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM THE REVENUES CONSISTING PRIMARILY OF PAYMENTS RECEIVED BY THE AUTHORITY FROM THE CITY IN CONNECTION WITH THE ASSESSMENT BONDS. THE ASSESSMENT BONDS ARE SECURED BY CERTAIN UNPAID REASSESSMENTS LEVIED UPON PARCELS IN THE FIXED RATE SUBJECT AREA. THE SERIES B BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS IS PI.EDGED TO THE PAYMENT OF THE SERIES B BONDS. Brief descriptions of the Fixed Rate Subject Area, the Series B Bonds, the Indenture and the Fiscal Agent Agreements are included in this Official Statement. The descriptions of the Series B Bonds and other documents are qualified in their entirety by reference to them. Copies of such documents may be obtained from the City at 300 Centennial Way, Tustin, California 92680, Attention: Finance Department; and, during the initial public offering period, from PaineWebber Incorporated at 725 South Figueroa Street, 41st Floor, Los Angeles, California 90017, Attention: Public Finance Department, and, after initial delivery of the Series B Bonds, at the principal corporate trust office of the Fiscal Agent at 725 South Figueroa Street, Suite 3100, Los Angeles, Califomia 90017. CONTINUING DISCLOSURE The Authority has determined that no financial or operating data concerning the Authority (other than the balance in certain funds and accounts established under the Indenture) is material to any derision to purchase, hold or sell the Series B 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 disclosures. The City has covenanted for the benefit of holders and beneficial owners of the Series B 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 deemed by DOCSLA1-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 the City to be material. The Annual Report will be filed by the Trustee, acting as Dissemination Agent, 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 undertakings with respect to the Rule to provide annual reports or notices of material events. THE PLAN OF FINANCING The Series B Bonds are being issued under the Indenture in order to purchase the Group One Bonds. The Group One Bonds are issued pursuant to the provisions of the Act and the 95-2 Fiscal Agent Agreement. The Assessment Bonds (95-2) were originally issued as Adjustable Rate Bonds. In accordance with the provisions of the Original 95-2 Agreement, all or a portion of the Assessment Bonds (95-2) may be; and in certain circumstances are required to be, converted to Fixed Rate Bonds. On the delivery date, $ aggregate principal amount of the Assessment Bonds (95-2) are being converted to, and reissued as, Group One Fixed Rate Bonds. The Original 95-2 Agreement provides that, in connection with the conversion of each group of Assessment Bonds (95-2) to Fixed Rate Bonds pursuant to the Original 95-2 Agreement, the City may, subject to the requirements of the Act, by Supplemental Agreement, establish one or more Series of Bonds, but only upon compliance by the City with the provisions of the Original 95-2 Agreement. In connection with the conversion of the Group One Fixed Rate Bonds, the City is issuing an additional Series of Bonds in the aggregate principal amount of $ (the "Series One 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. Pursuant to the 95-2 Fiscal Agent Agreement, both the Group One Fixed Rate Bonds and the Series One Bonds are designated to represent the Group One Designated Parcels; therefore, the Series One Bonds are Related Additional Bonds with respect to the Group One Fixed Rate Bonds. Collectively, the Group One Fixed Rate Bonds and the Series One Bonds constitute the Group One Bonds. In order to provide for the authentication and delivery of the Group One Bonds, and to establish and declare the terms and conditions upon which the Group One Bonds are issued and secured, the City and the 95-2 Fiscal Agent are entering into the Second Supplemental 95-2 Fiscal Agent Agreement. DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 ESTIMATED SOURCES AND USES Series B Bonds The estimated sources and uses of proceeds of sale of the Series B Bonds are as follows: Sources Principal Amount of Series B Bonds Less Original Issue Discount ' Less Underwriters Discount Total Sources: Uses Program Fund(1) $ Total Uses: $ Applied to the purchase of $~ principal mount of Group One Bonds. Group One Bonds The estimated sources and uses of proceeds of sale of the Group One Bonds are as follows: Sources Purchase of Group One Bonds Transfers from Capitalized Interest Account Transfers from Interest Keserve Fund Total Sources: Uses Purchase of Assessment Bonds (95-2)°) Group One Reserve Account Group One Redemption Account Group One Costs Account(2) Total Uses: $ aggregate principal amount of Assessment Bonds (95-2) will be purchased with the proceeds of the Group One Fixed Rate Bonds, and the remaining $ aggregate principal amount will be purchased with moneys constituting other sources. To pay costs of issuance, including an underwriter's fee of $ DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 THE SERIES B BONDS Description of the Series B Bonds The Series B Bonds will be issued in the aggregate principal amount of $3,400,000.* The Series B Bonds will be issued as fully registered bonds in the denomination of $5,000 or any integral multiple of $5,000. The Series B Bonds will be dated their date of delivery. The Series B 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 inside cover page hereof. Interest on the Series B Bonds is payable semiannually on March 2 and September 2 of each year, commencing March 2, 1998 (each an "Interest Payment Date") to the person whose name appears on the RegistratiOn Books of the Trustee as the registered Owner thereof on the Record Date. Such interest will be paid by check mailed by the Trustee on such Interest Payment Date, by first class mail, to such registered Owner at the address which appears on such Registration Books or at such other address as may have been filed with the Trustee for that purpose prior to the Record Date. Interest on the Series B Bonds shall be calculated on the basis of a 360-day year consisting of tWelve 30-day months. Principal ot~ and redemption premium, if any, on the Series B 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 redemption premiums, if any, and interest on the Series B Bonds shall be paid in lawful money of the United States of America. The Series B 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 B Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. See "Book Entry System" herein. Redemption of the Series B Bonds Optional Redemption. The Series B Bonds maturing on or after September 2, , shall be subject to optional redemption in whole, or in part 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, , at the following respective Redemption Prices (expressed as * Preliminary, subject to change. IX)CSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 percentages of the principal amount of the Series B Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 2, __ and March 2, __ September 2, __ and March 2, ~ September 2, __ and thereafter 102% 101 100 Mandatory Redemption From Principal Prepayments The Series B Bonds shall be subject to mandatory redemption, in whole, or in part, on any Interest Payment Date, from and to the extent of any Principal Prepayments with respect to the Group One Bonds, at the following respective Kedemption Prices (expressed as percentages of the principal amount of the Series B Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 2, 1998 through March 2, September 2, __ and March 2, ~ September 2, ~ and March 2, ~ September 2, ~ and thereafter 103% 102 101 100 For purposes of the selection of Series B Bonds for mandatory redemption, the Series B Bonds will be selected for redemlStion 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 and interest on the Group One Bonds, together with other available Revenues attributable thereto, will be sufficient on a timely basis to pay debt service on the Series B Bonds, as shall be demonstrated in a report of an Independent Financial Consultant filed with the Trustee. - Mandatory Sinking Fund Redemption The Bonds maturing on September 2, 2013, shall be subject to mandatory sinking fund redemption, in part, on September 2 in each year, commencing September 2, .2010, at a Redemption Price equal to the principal amount of the Series B 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: DOCSLAI-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 Redemption Date (~September 2)' 2010 2011 2012 2013' Principal Amount * Maturity The principal amount of Series B Bonds to be redeemed pursuant to this subsection (b) from any Principal Prepayments shall be the greatest principal amount of Series B 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 One Bonds which will produce Principal Prepayments, the Trustee shall concurrently mail notice of the redemption of Series B Bonds pursuant to this subsection (b), such redemption to occur on the date fixed for such redemption of the Group One Bonds. The proceeds of any such redemption of the Group One Bonds shall be applied by the Trustee to pay the Redemption Price of Series B Bonds pursuant to this subsection Co) on the date of such redemption of the Group One Bonds. If some but not all of the Series B Bonds maturing on September 2, 2013 are redeemed, the principal amount of Series B Bonds maturing on September 2, 2013 to be redeemed on any subsequent September 2 shall be reduce.~, 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 shall not exceed the aggregate amount of Series B Bonds maturing on September 2, 2013 redeemed. If some but not all of the Series B Bonds maturing on September 2, 2013 are redeemed the principal amount of Series B Bonds maturing on September 2, 2013 to be subsequently redeemed shall be reduced by the aggregate principal amount of the Series B Bonds maturing on September 2, 2013 so redeemed, 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 shall be given by the Authority to the Trustee at least 45 days prior to such redemption date. Book-Entry System. Except as otherwise provided in the Indenture, the registered Owner of all of the Series B Bonds shall be DTC, and the Series B Bonds shall be registered in the name of Cede & Co., as nominee for DTC. Notwithstanding anything to the contrary contained in the Supplemental Indenture payment of interest with respect to any Series B Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. on the payment date for the Series B Bonds at the address indicated on the record date or special record date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. DOCSLAI-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 The Series B Bonds shall be initially issued in the form of separate single fully registered Series B Bonds in the amount of each separate stated maturity of the Series B Bonds. Upon initial issuance, the ownership of such Series B Bonds Shall be registered in the Registration Books in the name of Cede & Co., as nominee of DTC. The Trustee and the Authority may treat DTC (or its nominee) as the sole and exclusive Owner of the Series B Bonds registered in its name for the purposes of payment of the principal, Redemption Price or interest with respect to the Series B Bonds, selecting the Series B Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Series B Bonds under the Indenture, registering the transfer of Series B Bonds, obtaining any consent or other action to be taken by Owners of Series B Bonds and for all other purposes whatsoever, and neither the Trustee nor the Authority shall be affected by any notice to the contrary. Neither the Trustee nor the Authority shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Series B Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant; the payment by DTC or any Participant of any amount in respect of the principal, Redemption Price or interest with respect to the Series B Bonds; any nOtice which is permitted or required to be given to Owners of Series B Bonds under this Indenture; the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Series B Bonds; or any consent given or other action taken by DTC as Owner of Series B Bonds. The Trustee shall pay all principal, premium (if any) and interest with respect to the Series B Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to the principal, premium (if any) and interest with respect to the Series B Bonds to the extent of the sum or sums so paid. Except under the conditions set forth in the following paragraph, no person other than DTC shall receive an executed Series B Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of CEDE & Co., and subject to the provisions herein with respect to record dates, the term "Cede 8: Co." in the Indenture shall refer to such new nominee of DTC. In the event (i) DTC, including any successor as securities depository for the Series B Bonds, determines not to continue to act as securities depository for the Series B Bonds, or (ii) the Authority determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the book-entry system with the incumbent securities depository for the Series B Bonds with another qualified securities depository, the Authority shall prepare or dkect the preparation of a new single, separate fully registered Series B Bond for the aggregate outstanding principal amount of Series B Bonds of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Authority, the Trustee and the successor securities depository for the Series B Bonds are not inconsistent with the terms of the Indenture. If the Authority fails to identify another qualified successor securities depository of the Series B Bonds to replace the incumbent securities depository, then the Series B Bonds shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities' depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for the Series B Bonds, or its nominee, shall designate. In such event the Trustee shall authenticate and deliver a sufficient quantity of Series B Bonds as to carry out the transfers and exchanges provided in the DOCSLAI-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 Indenture.. All such Series B Bonds shall be in fully registered form in denominations authorized by the Indenture. So long as any Series B Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium (if any) and interest with respect to such Series B Bond and all notices with respect to such Series B Bond shall be made and given, respectively, as provided in the Representation Letter. In connection with any notice or other communication to be provided to Owners of Book- Entry Bonds pursuant to the Indenture by the Authority or the Trustee with respect to any consent or other action to be taken by Owners, the Authority or the Tmstee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Additional Authority Bonds. In addition to the Series A Bonds and the Series B Bonds, the Authority may issue Additional Bonds payable from the Revenues' on a parity with the Series A Bonds and the Series B Bonds and secured by a lien upon and pledge of Revenues equal to the lien and pledge securing the Series A Bonds and the Series B Bonds, in such principal amount as shall be determined by the Authority in a supplemental indenture (the "Supplemental Indenture"), subject to the requirements of the Bond Law, and further subject to certain conditions set forth in the Indenture, summarized as follows: (1) The Authority shall not be in default under the Indenture. (2) Such Additional Bonds shall be payable as to principal annually on September 2 of each year in which principal falls due. Such Additional Bonds 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) Such Additional Bonds 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 Additional Bonds, or with respect to the Assessment Bonds (95-2) theretofore acquired with the proceeds of Outstanding Bonds being refunded with the proceeds of such Additional Bonds, 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 of reassessments pursuant to the 95-2 Fiscal Agent Agreement. (4) Unless such Additional Bonds are being issued solely to refund Outstanding Series A Bonds or Series B Bonds, a portion of the proceeds of such Additional Bonds shall be applied to acquke Assessment Bonds (95-2) pursuant to a purchase agreement. (5) No default shall have occurred and be continuing under either Fiscal Agent Agreement. IXX2$LA1-215774.3/4mhq03 ! 10 42081-2-WEJ-O8/20/97 (6) The aggregate principal amount of the Series A Bonds, the Series B Bonds and Additional Bonds 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 Bonds has been duly authorized by the Authority, ('fii) that said Additional 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 Bonds and the application of the proceeds thereof in accordance with the applicable Supplemental Indenture will not adversely affect the eXclusion from gross income of interest on the Outstanding Series A Bonds, Series B Bonds or and any previously-issued Additional Bonds; Co) A certificate of the Authority that Item (1) above has been met; (c) A certificate of the Fiscal Agent that the requirement °fltem (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 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 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 Bonds, (ii) upon the issuance of such Additional 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 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 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 Bonds, no more than 15% (or such greater percentage as is consented to in writing by Financial Security, as defined below) 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 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 Infine 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 Bonds, is owned by an owner of property (A) upon which are levied assessments securing Assessment Bonds theretofore acquired pursuant to the Indenture, and 03) that is delinquent in the payment of any installment of an assessment described in clause (A); and 11 DOCSI_~.I-215774.3/4mhq03 ! 42081.2.WEJ-O8/20/97 (e) An executed copy of the Supplemental Indenture. None of the above limitations or restrictions on the issuance of Additional Bonds shall 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 shall limit the issuance of any Additional Bonds if, after the issuance and delivery of such 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. Debt Service Schedule The schedule of annual debt service payments for the Series B Bonds is as follows: Annual Year Debt (September 2) Principal Interest Service 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Totals: General SECURITY FOR THE SERIES B BONDS The Series. B Bonds, together with the Series A Bonds, are secured by (a) the Revenues and (b) investment income with respect to any moneys held by the Trustee in the funds and accounts established under the Indenture. Revenues are defined in the Indenture to mean all amounts derived 12 DOCSLA1-215774.3/4mhq03 ! 42081.2-WE J-08~20~97 from or with respect to the Assessment Bonds, which, as of the date of delivery of the Series B Bonds, consist of the Assessment Bonds (95-1) and the Group One Bonds, including but not limited to all payments of principal thereof, premium, if any, and interest thereon. As prescribed by the Indenture, the Trustee is or will be the registered Owner of the Group' One Bonds and will therefore receive from the Fiscal Agent the payments of the principal of and the redemption premiums, if any, and interest on the Fixed Rate Assessment Bonds. Pursuant to the Improvement Act and the Bond Law, the City is required annually to transmit to the County Auditor the respective amounts of individual Fixed Rate Reassessment installments on all unpaid Fixed Rate Reassessments, the sum. of which indMdual 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 from 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 affe~ the collection of Fixed Rate Reassessment installments.' THE SERIES B BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE PAYABLE SOLELY FROM THE REVENUES AND OTHER AMOUNTS PLEDGED UNDER THE INDENTURE. THE SERIES B BONDS DO NOT CONSTITUTE 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 CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES B BONDS. Payments of Assessment. Bonds The Assessment Bonds (95-1) and the Group One Bonds are secured by unpaid 95-1 Reassessments and the Group One Reassessments, respectively, levied against private property within Reassessment District No. 1 and upon the Group One Designated Panels,' respectively, pursuant to the Act. Such unpaid 95-1 Reassessments and the Group One Reassessments, respectively (together with interest thereon) and moneys in the respective Redemption Fund established for the Assessment Bonds (95-1) and the Group One Bonds constitute a trust fund for the redemption and payment of the principal off premium, if any, and interest on the Assessment Bonds (95-1) and the Group One Bonds, respectively. Principal of~ premium, if any, and interest on the Assessment Bonds (95-1) and the Group One Bonds are payable exclusively out of the respective Redemption Funds established under the respective Fiscal Agent Agreements. Pursuant to the 95-1 Fiscal Agent Agreement, a Reserve Fund has been established for the Assessment Bonds (95-1) in the amount of $ , and 13 DOCSLA1-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 pursuant to the 95-2 Fiscal Agent Agreement, a Reserve Account within the Reserve Fund has been established for the Group One Bonds in the amount of $ Transfers shall be made pursuant to the respective Fiscal Agent Agreement from the related Reserve Fund or Reserve Account to the related Redemption Fund in the event of a deficiency in such Redemption Fund. The amount so advanced will be reimbursed to the Reserve Fund or Reserve Account, as applicable, from the proceeds of redemption or sale of the parcel for which payment or reimbursement of delinquent 95-1 Keassessment or Group One Reassessment was made from the Reserve Fund or Reserve Account, as applicable. If any 95-1 Reassessment or Group One Keassessment 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 or Reserve Account, as applicable, and transfer to the applicable Prepayment Account an amount in the proportion in which the 95-1 Keassessment or Group One Reassessment prepaid bears to the total original unpaid 95-1 Reassessments or Group One Keassessments, as the case may be. THE ASSESSMENT BONDS ARE LIMITED OBLIGATIONS OF THE CITY, 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 Reassessments 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 future private liens and over any fixed special assessment liens which hereafter 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 ASSURANCE THAT PRESENT PROPERTY OWNERS WILL REMAIN THE PROPERTY OWNERS, THAT PROPERTY OWNERS WILL BE FINANCIALLY ABLE TO PAY THEIR REASSESSMENTS, OR THAT PROPERTY OWNERS WILL IN FACT PAY SUCH REASSESSMENT INSTALLMENTS 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. These annual installments are to be paid into the Redemption Funds for the Assessment Bonds (95-1) and the Group One Bonds, respectively, which will be held by the Fiscal Agent and used to pay the principal of and interest on the Assessment Bonds 14 DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 (95-1) and the Group One Bonds, respectively, as they become due. The installment.billed against each parcel of land within Reassessment District No. 95-1 or the Group One 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) and the Group One Bonds, as the case may be, that year. The amount billed against each parcel of land within Reassessment District No. 95-1 or the Group One Designated Parcels is based on the percentage which the unpaid 95-1 Reassessment or Group One Keassessment, as the case may be, against the parcel bears to the total of unpaid 95-1 Reassessmems or Group One Reassessmem, as the case may be, within Reassessment District No. 95-1 or the Group One Designated Parcels, plus an administrative charge of the City. The failure of a property owner to pay an annual 95-1 Reassessment installment or Group One Reassessment installment, as the case may be, will not result in an increase in 95-1 Reassessment installments or Group One Reassessment installments, as the case may be, against other property in the 95-1 Reassessment District or Group One 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 all 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. Additional Bonds A portion of the proceeds fi.om the sale of the Group One Bonds will be used to purchase and cancel $ principal amount of Assessment Bonds (95-2) and to reissue such bonds as Group One Fixed Rate Bonds. Pursuant to the 95-2 Fiscal Agent Agreement, the Series One Bonds are being issued as Related Additional Bonds and will be secured on an equal basis with the Group One Fixed Rate Bonds by the Group One Designated Parcels. The 95-2 Fiscal Agent Agreement provides that additional Assessment Bonds (95-2) may be converted to a Fixed Interest Rate and Related Additional Bonds may be issued in connection with the reissuance of such Fixed Rate Bonds. Such Related Additional Bonds and Fixed Rate Bonds would be secured by 95-2 Reassessments on parcels within Reassessment District No. 95-2, other than the Group One Designated Parcels, and would 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. However, no additional AssesSment Bonds may be issued upon the security of the unpaid Fixed Rate Reassessments for the Fixed Rate Subject Area. See "THE FIXED RATE BONDS- Additional Authority Bonds" and "APPENDIX A: SUMMARY OF INDE~ 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 or Reserve Account (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 or Reserve Account, as the case .may be, for the Assessment Bonds (95-1) or the Group One Bonds, as DOCSLA1-215774.3/4mhq03 ! 15 42081-2-WE J-08/20/97 applicable, for this purpose. The City has determined, pursuant to Section 8769 of the California 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 Agreements that it will within 150 days of a delinquency in the payment of Fixed Rate Reassessments, or interest thereon, or amounts to pay the Continuing Costs of the Bonds, forthwith undertake and diligently prosecute foreclosure proceedings in the manner prescribed in the Act to collect such delinquent amounts; provided, however, that if the amount collected is greater than 92.5% of the installment of the Fixed Rate Reassessment and interest thereon, and amounts to pay the Continuing Costs of the Bonds, to be collected, the City shall 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 herein. 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) or the Reserve Account established with respect to the Group One Bonds, as applicable, from 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 or Reserve Account, as applicable, to exceed the Reserve Requirement therefor, 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 be assured 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 the City presently believes 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 furore, 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 from which to pay the principal of or the interest on the Assessment Bonds (95-1) or Group One Bonds, as applicable. See "SPECIAL RISK FACTORS." Priori,tv 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 or reassessment liens previously imposed upon the same property, but has priority over all private liens and over all special assessment or reassessment liens which may thereafter be created against the same property. However, such lien will be on a parity with the lien of general property taxes and any special taxes imposed, whether prior to the date hereOf or in the furore, against parcels within the Fixed Rate Subject Area 16 DOCSLA1-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 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 recurring 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 B Bonds, Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Series B Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Series B Bonds that has become due for payment, but shall be unpaid by reason of nonpayment by the Authority. On the later of the day on which such principal and interest is due or on the business day next following the business day on which Financial Security shall have received notice by telephone or telecopy, subsequently confirmed in a signed writing, or written notice by registered or certified mail, fi.om an Owner of Series B Bonds, the Fiscal Agent or the Paying Agent (as defined in the Policy), of the nonpayment of such amount by the Authority, Financial Security will disburse such amount 'due on any Series B Bonds to the Fiscal Agent or the Paying Agent, for the benefit of the Owners or, at the election of Financial Security, directly to each Owner, in either case upon receipt by Financial Security in form reasonably satisfactory to it of (a) evidence of the Owner's fight to receive payment of the principal and interest that is due for payment and (b) evidence, including any appropriate instruments of assignment, that all of such Owner's rights to payment of such principal and interest shall be vested in Financial Security. The term "nonpayment" in respect of a Series B Bond includes any payment of principal or interest that is insured by Financial Security made to an Owner of a Series B Bond that has been recovered fi.om such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is non-cancelable and the premium will be fully paid at the time of delivery of the Series B Bonds. The Policy covers failure to pay principal of the Series B Bonds on their respective stated maturity dates, or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Series B Bonds may have been called for redemption, acceleration or other advancement of maturity, unless Financial Security shall elect, in its sole discretion, to pay such principal due upon acceleration together with any interest accrued to the date of acceleration, and covers the failure to pay an installment of interest on the stated date for its payment. Payment by Financial Security of principal due upon acceleration and interest accrued to the accelerated maturity date (to the extent unpaid by the Authority) shall fully discharge Financial Security's obligations under the Policy. Financial Security may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of the Policy by giving written notice to the Fiscal Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Fiscal Agent and the Paying Agent, (i) copies of all notices required to be delivered to Financial Security pursuant to the Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to Financial Security and shall not be deemed received until received by both and (ii) all payments required to be made by Financial 17 DOCSLA1-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 Security under the Policy may be made directly by Financial Security or by the Insurer's Fiscal Agent on behalf of Financial Security. The Insurers Fiscal Agent is the agent of Financial Security only and the Insurers Fiscal Agent shall in no event be liable to Owners of the Series B Bonds for any acts of the Insurers Fiscal Agent or any failure of Financial Security to deposit or cause to be deposited sufficient funds to make payments due under the Policy. Under the Policy, Financial Security Will, to the extent permitted by applicable law, waive, only for the benefit of the Owners of Series B Bonds, all rights and defenses that might otherwise have been available to Financial Security to avoid payment of its obligations under the Policy in accordance with its terms. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECII~IED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. Financial Security Assurance Inc. Financial Security is a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ('Tloldings"), a New York Stock Exchange listed company. Holdings is owned approximately 50% by U S WEST Capital Corporation ("U S WEST"), 8% by Fund American Enterprises Holdings, Inc. ("Fund American"), and 6% by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). U S WEST is a subsidiary of U S WEST, Inc., which operates businesses involved in communications, date solutions, marketing services and capital assets, including the provision of telephone services in 14 states in the Western and Midwestem United States. Fund American is a financial services holding company whose principal operating subsidiary is one of the nation's largest mortgage servicers. Tokio Marine is a major Japanese property and casualtY insurance company. U S WEST has announced its intention to dispose of its remaining interest in Holdings as part of its strategic plan to withdraw from businesses not directly involved in telecommunications. Fund American has certain rights to acquire and vote additional shares of Holdings from U S WEST and Holdings. No shareholder of Holdings is obligated to pay any debt to Financial Security or any dairn under any insurance policy issued by Financial Security or to make any additional contribution to the/:apital of Financial Security. On December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a subsidiary of Holdings and Capital Guaranty Insurance Company ("CGIC"), CGC's principal operating subsidiary, became a wholly owned subsidiary of Financial Security. CGIC was a financial guaranty insurer of municipal bonds. Financial Security is domiciled in the State of New York and is subject to regulation by the State of New York Insurance Department. At September 30, 1995, Financial Security's total policyholders' surplus and contingency reserves were approximately $495,030,000 and its total unearned premium reserve was approximately $250,536,000 in accordance with statutory accounting principles. At September 30, 1995, Financial Security's total shareholders equity was approximately $590,473,000 and its total net unearned premium reserve was approximately $216,931,000 in accordance with generally accepted accounting principles. 18 DOC8~1-215774.3/4mhq03 ! 4208 I-2-WEJ-0g/20/97 The financial statements of Financial Security included in, or as exhibits to, the following documents, which have been filed with the Securities and Exchange Commission (the "Commission") by Holdings, are hereby incorporated by reference in this Official Statement: (a) Annual Report on Form 10-K for the year ended December 31, 1994, and (b) Quarterly Reports on Form 10-Q for the periods ended March 31, 1995, June 30, 1995 and September 30, 1995. All financial statements of Financial Security included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d)of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Series B Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof fi.om the respective dates of filing such documents. Copies of Financial Security's financial statements and other information regarding Financial Security are included in, or as exhibits to, documents filed by Holdings with the Commission and may also be obtained from Financial Security by writing to Financial Security at 350 Park Avenue, New York, New York 10022, Attention: Communications Department. Financial Security's telephone 'number is (212) 826-0100. Financial Security's claims-paying ability is rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services. Such ratings reflect only the views of the respective rating agencies, are not recommendations to buy, sell or hold securities and are subject to revision or withdrawal at any time by such rating agencies. The Policy does not protect investors against changes in market value of the Series B Bonds. The market value of the Series B Bonds may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Series B Bonds or the advisability of investing in the Series B 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 Authority the information presented under this caption for inclusion in the Official Statement.] METHOD OF REASSESSMENT The total amount of 95-1 Reassessments and Group One Reassessments levied in Re. assessment District No. 95-1 and on the Group One Designated Parcels, respectively, was established to be equal to the principal amount of the Assessment Bonds (95-1) and Group One 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 assessment or re. assessment on each such parcel. The amount of' each of the re. assessments levied, identified by re. assessment number, is shown in the Reassessment Report for the Fixed Rate Subject Area, which report is on file in the office of the Public Works Director of the City. 19 DOCSLAI-215774.3/4mhq03 ! 42081-2-WEJ-O8/20/97 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 coveting 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 southeastem 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. 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 variable rate improvement bonds of the Prior Districts (collectively, the "Prior Variable Rate Bonds") were issued each provided for the conversion of a portion of the Prior Bonds to a fixed rate mode (collectively, the "Prior Fixed Rate Bonds") upOn the occurrence of certain events prescribed by the Prior Indentures (primarily, the transfer to third parties of title to portions of the assessed property by The Irvine Company, the owner of substantially all of the assessed property at the time of issuance of the Prior Variable Rate Bonds). 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 Variable Rate Bonds into the Prior Fixed Rate Bonds. Reassessment District 95-1 consists of all Prior Fixed Rate Parcels from the Prior Districts which had an unpaid reassessment. The 95-1 Reassessments are levied within Reassessment District No. 95-1 by the City Council under the proceedings taken pursuant to Resolution No. 95-1, adopted by the City Council on November 11, 1995. Reassessment District No. 95-2 consists of all those parcels from 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 Group One Designated Parcels consist only of those parcels from Reassessment District No. 95-2, the assessments on which are now being convened to fixed assessments. The 95-2 Reassessments are 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. Of the $132,050,000 principal amount of Prior Variable Rate Bonds, $53,024,000 have been converted to Prior Fixed Rate Bonds, of which $50,400,000 remained outstanding and were redeemed on March 2, 1996 from the proceeds of sale of the Series A Bonds and other available funds. DOCSLAlo215774.3/4mhq03 ! 20 42081-2-WEJ-Og/20/97 Status of Public Improvements Designated Parcels 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 infrastructure 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, and construction of such school facilities is not a condition precedent to issuance of building. permits for any of such remaining undeveloped property in the Fixed Rate Subject Area.] Loc~tion and Terrain of the Fixed Rate Subiect 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 of Irvine, Orange and Santa Ana. The combined area of the Prior 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. Lsnd Uses and Development Status The following Table 1 illustrates the land use categories of the reassessed 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 reassessed property represents approximately 85% of the total number of reassessed parcels and approximately 80% of the unpaid reassessments on the reassessed property. 21 DOCSLA1-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 TABLE 1 CITY OF TUSTIN Fixed Rate Subject Area Parcel Totals For Each Modified Land Use Sorted by Fixed Rate Reassessment Amount Total Adjusted Reassessment Parcels Total Value Amount % ' of Total Keassessment Value- to-Lien Developed Residential Undeveloped Residential Developed Commercial) Undeveloped Other ToTALso) May not add due to rounding. Largest Landowners by Reassessment Amount The following Table 2 illustrates the 12 largest landowners in the Fixed Kate Subject Area, as measured by total reassessment amount levied on property owned by such landowner. All other parcels in the Fixed Kate Subject Area are single family residences. DOCSLA1-215774.3/4mhq03 ! 22 42081-2-WE J-08/20/97 Debt Service Coverage The following Table 3 illustrates the estimated coverage for debt service on the Series A Bonds. and the Series B Bonds fi.om Revenues, consisting of the debt service on the Fixed Rate Assessment Bonds plus estimated interest earnings on the Reserve Fund for the Assessment Bonds (95-1) and the Reserve Account for the Group One Bonds. In the event transfers fi.om the Reserve Fund or the Reserve Account become necessary as a result of default by the City in the payment to the Trustee, as the registered holder of the Assessment Bonds (95-1) or the Group One Bonds, as the case may be, of debt service on the Assessment Bonds (9501) or the Group One Bonds, there may be reduced or no interest earnings on said Reserve Fund or Reserve Account. TABLE 3 CITY OF TUSTIN Fixed Rate Subject Area Estimated Debt Service Coverage from RevenuesO) Bond Year Estimated Bond Estimated Revenues Debt Service Coverage 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (1) Includes debt service on Series A Bonds and Series B Bonds. Delinquency Histor~ As of ~ 1997, the total delinquencies in the Fixed Rate Subject Area, fi.om all previous fiscal years were $ in separate parcels. Of the top taxpayerS, [Bramelea was delinquent in its second installment for 1995-96 totaling $59,125 on 70 parcels. DOCSLAI-215774.3/4mhq03 ! 24 42081-2-WE J-08/20/97 Bramelea is currently in Chapter 11 bankruptcy.] The remaining delinquencies were homes that were delinquent for a total of $ or approximately $ each. individual [The majority of the delinquencies shown in the following table were from one parcel that was delinquent for the four fiscal years from 1991-92 through 1994-95. The delinquency was approximately $35,000 annually. The Irvine Company has repurchased that property and cured all prior delinquent Reassessment installments.] For fiscal year 1996-97 delinquencies through the April 10, 1997 tax payment date are %, down from 5.39% for fiscal year 1994-95. The following Table 4 illustrates the historical assessment delinquency for parcels included in the Fixed Rate Subject Area. TABLE 4 CITY OF TUSTIN Fixed Rate Subject Area Assessment Installment Delinquencies for Fiscal Years 1990/91 through 1996/97 Fiscal Parcels Parcels Dollars Dollars % of Dollars Year Levied Delinquent Levied Delinquent Delinquent 1990-91 1,979 0 $3,570,645.34 $ 0 0.00% 1991-92 2,826 3 4,388,590.30 77,063 1.76 1992-93 2,835 6 4,358,011.48 74,168 1.70 1993-94 3,288 21 4,991,716.82 91,040 1.82 1994-95 3,613 232 5,377,822.60 290,077 5.39 1995-96 1996-97 Estimated Value-to-Lien Ratios As of , 1997, 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 $ have been levied in the Fixed Rate Subject Area. This provides an over-all value-to-lien ratio of The following Table 5 illustrates the breakdown, by category of value-to-lien range, of the total number of parcels and the corresponding total Fixed Rate Reassessment amounts attributable thereto. 25 DOCSLAI-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 TABLE 5 CITY OF TUSTIN Fixed Rate Subject Area District Totals by Value-to-Lien 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 No. of 1996/97 Proposed Series B Parcels Total Value[0)1 Reassessment % of Total TOTAL o) [Assumes a revised land value of $8,269,000 for Tustin Ranch Plaza based on the sale from The Irvine Company and a revised structure value of $7,103,920 based on the building permit value. Also assumes a revised structure value of $30,416,000 for Irvine Apartment Communities based on the building permit value.] Neither the value-to-lien calculations nor the total reassessment amounts include parity obligations for CFD No. 88-1 and for general property taxes. Direct and Overlappin~ Debt Community Facilities District No. 88-1 The Tustin Unified School District has formed its Community Facilities District No. 88-1 ("CFI) No.. 88-1") pursuant to the Mello-Roos Act, encompassing a major portion of the land within the Reassessment District, 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 CFI) 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 CFI) No. 88-1 will be on a parity with the lien securing payment of the Fixed Rate Reassessments. See "SECURITY FOR ~ 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 minimum 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; DOCSLA1-215774.3/4mhq03 ! 26 4208 I-2-WEJ-08/20/97 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 function 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 if required. The final maturity on the Mello-Roos Bonds' is September 1, 2017. 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 1995-96, increasing to $1,269.90 per unit for fiscal years 1998-1999 through 2017-2018. The special tax formula for CFD No. 88-1 specifies that for each year through and including fiscal year 1998-1999, the special tax will be levied at a rate no lower than the minimum special tax. The special tax formula specifies that, for fiscal years 1999-2000 and thereafter, subject to the exceptions stated therein, the special tax will be levied only in an amount necessary to insure payment of debt service on the outstanding Mello-Roos Bonds issued through fiscal year 1999-2000. Commencing in fiscal year 1999-2000, the special tax will be levied on undeveloped land only to the extent that sufficient funds are not generated through the maximum special tax levy on developed property and may not exceed $170.23 per acre. Because the amount of the special tax levy on a particular parcel in CFD No. 88-1 in any year.will vary not only based on the status of the remaining parcels as developed or undeveloped property, but also based on the density of the remaining parcels that are developed property, such parcel's proportionate share of the obligations of CFI) No. 88-1 cannot be determined with certainty prior to development of all of the property in CFD No. 88-1. Prior to such time, the most meaningful figure for ascertaining the burden that may be imposed on a parcel in any year for CFI) No. 88-1 obligations is probably the amount of the maximum special tax that may be levied on such parcel. The City cannot predict the extent to which CFD No. 88-1 will issue its authorized but currently unissued debt, the timing of any such issuance or the effect that the issuance of any such debt may have on the ratio of the total direct and overlapping debt to the appraised value of the Fixed Rate Subject Area at the time the debt is issued. Irvine Ranch Water District As shown on Table 6, the Irvine Ranch Water District "IRWD") has created two improvement districts, I.D. No. 105 and I.D. No. 250 (collectively, the "IRWD Improvement Districts"), that overlap the Reassessment District. IRWD has sold bonds on behalf of I.D. No. 105 to provide regional and local water supply, storage, transmission and distribution facilities to serve residential and commercial development in such improvement districts. IRWD has sold bonds on behalf of I.D. No. 250 to provide reclaimed water supply and sewage collection, treatment and disposal facilities for residential and commercial development within such improvement districts. In addition to the outstanding bonded debt of $109,533,538 reflected on the following schedule, the two IRWD Improvement Districts have a total of $349,620,000 in authorized but unissued bonded debt. The Fixed Rate Subject Area's share of outstanding debt of the two IRWD Improvement Districts is approximately $ The Fixed Rate Subject Area's share of the authorized but unissued DOCSLA1-215774.3/4mhq03 ! 27 42081-2.WE J-08/20~97 debt of the two IRWD Improvement Districts is approximately $ The IRWD Improvement Districts' Bonds are general obligation bonds payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the land only. If, as property is developed and sold within the Fixed Rate Subject Area, and the assessed valuation of such parcels · increases disproportionately to other parcels in the IRWD Improvement Districts, then such parcels'. share of the debt of the IRWD Improvement Districts would increase. The City cannot predict the amount of authorized but unissued bonds for the IRWD Improvement Districts that will ultimately be issued by IKWD, nor can it predict when such debt would be issued or the debt service payments thereon. Estimated Debt Set forth in Table 6 is the existing authorized indebtedness payable from taxes and assessments that may be levied on property within the Fixed Rate Subject Area. No additional Fixed Rate Assessment Bonds can be issued upon the security of the unpaid Fixed Kate Keassessments for the Fixed Rate Subject Area. However, other public agencies may issue additional indebtedness on property within the Fixed Kate Subject Area at any time. See "SECURITY FOK TIlE SERIES B BONDS - Priority of Lien." DOCSLA1-9-15774.3/4mhq03 ! 28 42081-2-WF_J-Og/20/97 1997-98 Assessed Valuation: $ TABLE 6 CITY OF TUSTIN Fixed Rate Subject Area Direct and Overlapping Debt DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Orange County Orange County Flood Control District Metropolitan Water District Irvine Ranch Water District, I.D. #105 Irvine Ranch Water District, I.D. #250 City of Tustin City of Tustin Re, assessment District #1995-1 Tustin Unified School District Community Facilities District # 1988-1 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT OVERLAPPING LEASE OBLIGATION DEBT: Orange County General Fund Obligations Orange County Pension Obligations Orange County Teeter Plan Obligations Orange County Transit Authority Municipal Water District of Orange County Water Facilities Corporation Saddleback Community College District Certificates of Participation City of Tustin Water Corporation Irvine Ranch Water District Certificates of Participation Orange County Water District Certificates of Participation Orange County Sanitation District #14 Certificates of Participation TOTAL GROSS OVERLAPPING LEASE OBLIGATION DEBT Less: Orange County Transit Authority (80% self-supporting) Municipal Water District of Orange County Water Facilities Corporation. City of Tustin Water Corporation Orange County Water District Certificates of Participation TOTAL NET OVERLAPPING LEASE OBLIGATION DEBT Ratios to Assessed Valuation Direct Debt ............................................................................................. % Total Direct and Overlapping Tax and Assessment Debt ......................... % Combined Gross Debt ($) ............................. : .......................................... % Combined Net Debt ($) ........................................................................... % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/97: $0 Source: California Municipal Statistics, Inc. % Applicable Debt 29 DOCSLAI-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 Status of Development Existing and active planned development within the Fixed Rate Subject Area, along with a description of each of the developers actively developing at the present time within the Fixed Rate Subject Area, is set forth below. EXCEPT AS OTHERWISE INDICATED, THE OWNERS OF THE PROPERTY WITHIN THE FIXED RATE SUBJECT AREA HAVE PROVIDED THE FOLLOWING INFORMATION REGARDING OWNERSHIP AND PLANNED DEVELOPMENT OF FIXED RATE SUBIECT AREA. NO ASSURANCE CAN BE GIVEN THAT THE PLANNED DEVELOPMENT WILL OCCUR OR THAT THE PLANNED DEVELOPMENT WILL OCCUR IN A TIMELY MANNEK NO REPRESENTATION IS MADE AS TO THE ACCURACY OR ADEQUACY OF SUCH INFO~~ON PROVIDED BY THE PROPERTY OWNERS. The Irvine Company. The Irvine Company (the "Irvine Companf') [describe ownership status within Fixed Rate Subject Area], and has sold most of the parcels in the Fixed Rate Subject Area to various merchant builders. The Fixed Rate Reassessments are not personal obligations of the Irvine Company or any other owner.of the parcels in the Fixed Rate Subject Area, and neither the Irvine Company nor any such other owner is obligated in any manner to continue to own any of such parcels it presently owns. The Irvine Company is an integrated real estate firm engaged in the development of large-scale residential communities and commercial business centers on the Irvine Ranch in the County. The Irvine Company owns 93 income-producing projects which include retail, office, industrial, hotel, golf course, and marina properties, making it one of the largest private real estate owners in the Unites States. The Irvine Company also owns 54,600 contiguous acres of land on the Irvine Ranch with the necessary entitlements to provide for another generation of housing and commercial development. The Irvine Company's business strategy is to convert its land holdings and earnings into commercial properties for long-term ownership. [Describe any plans of The InAne Company regarding development of property in Fixed Rate Subject Area]. The Irvine Company's development plan for parcels in the Fixed Rate Subject Area is and has been to develop the parcels to the stage of completed merchant builder pads. Except in certain eases, the Irvine Company has no intention to develop, and will not have any responsibility for developing any parcels in the Fixed Rate Subject Area, beyond the stage of completed merchant builder pads. Except in certain cases, any such development of such completed merchant pads will be undertaken only by the persons or entities purchasing fi.om the Irvine Company. Lewis Homes. Lewis Homes owns approximately 35.54 acres within the Fixed Rate Subject Area which are approved for construction of 171 single family detached residential units for sale to homebuyers, in a development known as "El Dorado." As of , 1997, according to City records, the City had issued 85 building permits for construction of homes included in the El Dorado development. According to Lewis Homes, 4 model units are open, 64 homes have been sold to homebuyers and 42 of such sales have closed escrow. 30 DOC.~LA1-215774.3/4mhq03! 42081.2.WEJ-O8/20/97 Lewis Homes reports that the homes are currently planned to range from 2,300 to 3,000 square feet and to sell at prices ranging from $271,000 to $355,000. [Describe Lewis Homes entity] Greystone Homes. Greystone Homes ("Greystone") owns approximately 12.73 acres within the Fixed Rate Subject Area which are approved for construction of 65 single family detached residential units for sale to homebuyers, in a development known as "La Montana." As of , 1997, according to City records, the City had issued building permits for construction of homes included in the La Montana development, and construction of 36 units has been completed. According to Greystone, 3 model units are open, __ homes have been sold to homebuyers and __ of such sales have closed escrow. Greystone reports that the homes are currently planned to average approximately 2,500 square feet and to sell at prices ranging from $282,000 to $326,000. [Describe Greystone entity]. Kaufinan & Broad. Kaufinan & Broad ("K&B") owns approximately 9.07 acres within the Fixed Rate Subject Area which are approved for construction of 71 single family detached residential units for sale to homebuyers, in a development known as "Estrella." As of , 1997, according to City records, the City had issued ~ building permits for construction of homes included in the Estrella development, and construction has commenced but not yet been completed. K&B reports that the homes are currently planned to range from 1,315 square feet to 1,879 square feet, and to sell at prices ranging from $203,000 to $240,000. [Describe K&B entity]. Reilly Homes. Reilly Homes CReilly'') owns approximately 14.01 acres within the Fixed Rate Subject Area which are approved for construction of 282 condominium units for sale to homebuyers, in a development known as "Venturanza del Verde." As of , 1997, according to City records, the City had issued building permits for construction of condominiums included in the Venturanza del Verde development, and construction has been completed with respect to 64 of those units. Reilly reports that the homes are currently planned to range from~ square feet, and to sell at prices ranging from $ to $ square feet to [Describe Reilly entity]. Catellus Residential Group. Catellus Residential Group ("Catellus") owns approximately 23.73 acres within the Fixed Rate Subject Area which are approved for construction of 122 single family detached residential units for sale to homebuyers, in a development known as "Vidorra." As of , 1997, according to City records, the City had issued building permits for construction of the homes included in the Vidorra development, and but no construction has been completed with respect to those homes. 31 DOCSLAI-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 Catellus reports that the homes are currently planned to range from square feet, and to sell at prices ranging from $ to $ .. square feet to ~ [Describe Catellus entity]. Standard Pacific. Standard Pacific ("SP") owns approximately 79.94 acres within the Fixed Rate Subject Area which are approved for construction of 67 single family detached residential units for sale to homebuyers, in a development known as "San Marcos." As of , 1997, according to City records, the City had issued ~ building permits for construction of the homes included in the San Marcos development, and construction has been completed with respect to 30 of those homes. SP reports that the homes are currently planned to range from _ feet, and to sell at prices ranging from $ to $ .. square feet to ~ square [Describe SP entity]. Lennar Homes. Lennar Homes ("Lennaf') owns approximately 27.74 acres within the Fixed Rate Subject Area which are approved for construction of 97 single family detached residential units for sale to homebuyers, in a development known as "Sorrento." As of ,1997, according to City records, the City had issued building permits for construction of the homes included in the Sorrento development, and construction has been completed with respect to 27 of those homes.. Lennar reports that the homes are currently planned to range from square feet, and to sell at prices ranging from $ to $~ . square feet to ~ [Describe Lennar entity]. California Pacific. California Pacific ("Cfi Pac"), operating as a fee builder for the Irvine Company, owns approximately ~ acres within the Fixed Rate Subject Area which are approved for construction of~ single family detached residential' units for sale to homebuyers, in a development known as "Valencia." As of , 1997, according to City records, the City had issued building permits for construction of the homes included in the Valencia development, and construction has been completed with respect to m of those homes. Cal Pac reports that the homes are currently planned to range from .... square feet to square feet, and to sell at prices ranging from $ to $ [Describe Cai Pac entity]. 32 DOCSLAI-215774.3/4mhq03 ! 42081-2-WE J-08/20/97 The table below summarizes certain information regarding the planned residential development that is currently under construction in the Fixed Rate Subject Area: TABLE 8 CITY OF TUSTIN Fixed Rate Subject Area Active Planned Residential Development Density and Selling Price Assessment Number Total Building Total Planned Designated Permits Units Average Builder Units Parcels Issued Sold Selling Price Total The majority of the parcels owned by the merchant builders describe above are vacant. The above description of development is based on information provided to the by the merchant builders referred to above. Except to the limited extent indicated above, neither such merchant builders nor any other purchaser or potential purchaser of any portion of the Fixed Rate Subject Area has provided the City with any information about its development plan, its financing for such plan, its experience or its abilities, nor have such merchant builders or any other such purchaser or potential purchaser participated in any other .way in the issuance of the Group One Bonds or the Series B Bonds. Furthermore, the city has not made, and will not make, any investigation of such merchant builders or any other purchaser or potential purchaser of portions of the property within the Fixed Rate Subject Area. Therefore, no representation is made herein as to the experience, abilities or financial resources of such merchant builders or any other such purchasers or potential purchasers or as to the likelihood that such merchant builders or any other such purchasers or potential purchasers will be successful in developing the purchased portions of the Fixed Rate Subject Area. Purchasers of the Series B Bonds should not assume that such merchant builders or any other persons or entities that purchase portions of the Fixed Rate Subject Area from the Irvine Company will have the experience, abilities or financial resources necessary to successfully develop such property beyond the stage of develoPment reached by the Irvine Company. SPECIAL RISK FACTORS The following information should be considered by prospective investors in evaluating the Series B Bonds. However, it does not purport to be an exhaustive listing of the risks and other considerations which may be relevant to an investment in the Series B Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. If any risk factor materializes to a sufficient degree, it alone could delay or preclude payment of principal of or interest on the Series B Bonds or both. 33 DOCSLAI-215774.3/4mhq03 ! 42081-2-WEJ-08/20/97 The Series B Bonds are Limited Obligations of the Authority Funds for the payment of the principal of and the interest on the Series B Bonds are ultimately derived only fi.om annual Fixed Rate Reassessment installments. While a modest coverage factor has been established in structuring the annual Fixed Rate Keassessment amounts (see "THE FIXED KATE SUBJECT AREA- Debt Service Coverage - TABLE 6" herein), the amount of annual Fixed Kate Reassessment installments that are collected by the City could be insufficient to pay principal of and interest on the Series B Bonds due to non-payment of such annual Fixed Rate Keassessment installments levied or due to insufficient proceeds receiVed from a judicial foreclosure sale of land within the Fixed Rate Subject Area following delinquency. The City's legal obligations with respect to any delinquent Fixed Kate.Keassessment installments are limited to (1) payments fi.om the Keserve Fund or Keserve Account (depending on the location of the delinquent parcel) to the extent of funds on deposit therein, and (2) the institution of judicial foreclosure proceedings with respect to any parcels for which the Fixed Rate Re, assessment installment is delinquent (see "SECURITY FOR THE SERIES B BONDS - Covenant for Superior Court Foreclosure" herein). The City has determined that it will not obligate itself to advance funds from its treasury to cover any delinquency on the Fixed Kate Re, assessments or payments on the Fixed Kate Assessment Bonds. The Series B Bonds cannot be accelerated in the event of any default. The Reossessments are Not Personal Obligations of the Property Owners Under the provisions of the Act, Fixed Rate Reassessment installments will be billed to the' owner of each parcel in the Fixed Rate Subject Area against which there is an unpaid Fixed Rate Re, assessment, such billing to be made on the.regular property tax bills sent to such owners. Such Fixed Rate Reassessment installments are due and payable at the same time and bear the' same late charges and penalties as for non-payment of regular property tax installments. The obligation to pay Fixed Rate Reassessment installments does not constitute a personal obligation of the current or subsequent owners of the respective parcels which are subject to the Fixed Kate Re, assessment liens. Enforcement of the payment obligation by the City is limited to judicial foreclosure in the Orange County Superior Court pursuant to Sections 8830 and following of the California Streets and Highways Code. There is no assurance that any current or subsequent owner of a parcel subject to a Fixed Kate Reassessment lien will be able to pay the Fixed Kate Re, assessment installments or that such owner will choose to pay such installments even though financially able to do SO. The Assessment Bonds are Limited Obligations of the City The obligation of the City, as issuer of the Fixed Rate Assessment Bonds, to advance the amount of delinquencies to the Trustee, as the registered holder of the Assessment Bonds, is strictly limited to funds on deposit in the Reserve Fund or Reserve Account established and held by the City pursuant to the respective Fiscal Agent Agreements. Pursuant to Section 8769 of the California Streets and Highways Code, the City has expressly elected not to obligate itself to advance available funds fi.om the City's treasury to make up deficiencies in the amount of Fixed Kate Reassessment installments collected. 34 DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 Sustained failure by property owners to pay Fixed Rate Reassessment installments when due, combined with depletion of the Reserve Fund or Reserve Account, or both, and the inability of the City to sell parcels which have become subject to judicial foreclosure proceedings for amounts sufficient to cover the delinquent Fixed Rate Reassessment installments, will most likely result in the inability of the City to make full or punctual payments of interest on or principal of the Assessment Bonds (95-1) or the Group One Bonds, or both, which could result in a default on the Fixed Rate Bonds. Bankruotc,y and Foreclosure Delays The payment of Fixed Rate Reassessment installments and the ability of the City to foreclose the lien of a delinquent Fixed Rate Reassessment is normally delayed by and may be limited in other ways by bankruptcy, insolvency, or other laws generally affe~ing creditors' rights or by State law relating to judicial foreclosure. In addition, the prosecution of a judicial foreclosure may be delayed due to congested local court calendars or procedural delays. The various legal opinions to be delivered concun'ently with the delivery of the Series B Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments, including the Series B Bonds, by bahkruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the Reassessments to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting judicial foreclosure proceedings and could result in delinquent Fixed Rate Reassessment installments not being paid in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Series B Bonds. The City's ability to enforce the lien of a Fixed Rate Reassessment installment and to foreclose the lien of a delinquent Fixed Assessment Installment, is limited with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, Federal Deposit Insurance Corporation (the "FDIC") or other similar federal government agencies has or obtains an interest. On June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the "Policy Statement"). The Policy Statement provides that the FDIC intends to pay its property tax obligations as they come due and to pay claims for delinquencies as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs. It may decline to pay property tax claims in situations where abandonment of its interest in the property is appropriate. The Policy Statement also provides that real property owned by the FDIC is subject to state and local real property taxes if those taxes are assessed according to the property's value, but that the FDIC is immune from real property taxes assessed on other bases. The Policy Statement further provides that: "If any property taxes (including interest) on FDIC owned property are secured by a valid lien · (in effect before the property became owned by the FDIC), the FDIC will pay those claims. With respect to property not owned by the FDIC, but in which the FDIC has a lien interest, any property taxes (including interest) secured by a valid lien with priority over the FDIC's lien interest will be paid. 35 DOCSLA 1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 However, if abandonment of its interest in the property is appropriate, the FDIC may elect not to pay such claims." The Policy Statement is unclear as to whether taxes such as the Fixed Rate. Reassessment levied by the City are considered to be "real property taxes" which are intended to be paid. Moreover, the Policy Statement provides that, with respect to parcels owned by the FDIC or in which the FDIC holds a mortgage lien, it will not permit a foreclosure by a taxing authority without its specific consent and will not pay or recognize liens for any penalties, fines or similar claims imposed for the nonpayment of taxes, whether arising before or after acquisition of the parcel in question, nor will it pay attorneys' costs incurred by a taxing authority or other person in pursuing a tax claim. The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in the Fixed Rate Subject Area in which the FDIC has an interest, although prohibiting the lien on the FDIC-owned property to be foreclosed on at a judicial foreclosure sale would likely reduCe the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Seres B Bonds should assume that the City will be unable to foreclose on any parcel in the Fixed Rate Subject Area owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund or Reserve Account and perhaps, ultimately, a default in payment of the Series B Bonds. The City has not Undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the parcels in the Fixed Rate Subject Area, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Series B Bonds are outstanding. Existence of Undeveloped Prooertv Approximately % of the Fixed Rate Reassessments are secured by liens on undeveloped property, and the average value-to-lien ratio for such undeveloped property is ~'1 (See "THE FIXED RATE SUBJECT AREA- Development Stares - TABLE 1" herein). The undeveloped property consists primarily of subdivided lots which are owned by developers or merchant builders who intend to develop the property for single family residential use (see "THE FIXED RATE SUBJECT AREA- Zoning Classifications for Undeveloped Property - TABLE 3" herein). There may be subsequent transfers of ownership of the undeveloped property prior to completion of development. Failure of the owners of undeveloped property to pay the Fixed Rate Reassessment installments when due could result in a default in the payments of principal of and interest on the Assessment Bonds (95- 1) or the Group One Bonds, which could result in the inability of the Authority to make payments of the principal of and interest on the Series B Bonds. Price Realized Upon Foreclosure Section 8832 of the California Streets and Highways Code (the "Streets and Highways Code") prescribes the minimum price (the "Minimum Price") at which property may 'be sold in a judicial foreclosure resulting ~om delinquencies on reassessment installments. The h,finimum Price is the amount equal to the delinquent installments of principal and interest of the reassessment, together with all interest, penalties, costs, fees, charges and other amounts more fully detailed in said Section 8832. However, Section 8836 of the Streets and Highways Code provides that the court may authorize a sale a less than the 1Vfmimum Price if the court makes certain determinations, based on the evidence. DOC~I-215774.3/4mhq03 ! 36 4208 I-2-WEJ-08/20/97 introduced at the required hearing, which evidence must establish that no ultimate loss will result to the Bondholders or that no other remedy is acceptable and at least 75% of the Bondholders' consent. The Fixed Rate Reassessment lien upon property sold pursuant to this procedure at a lesser price than the Nfinimum Price shall be reduced by the difference between the ~finimum Price and the actual sale price. In addition, the court shall permit participation by the Authority, as owner of all of the Fixed Rate Assessment Bonds, in its consideration of the petition as necessary to it determination. Reference should be made to Section 8836 for the complete presentation of this provision. If foreclosure proceedings do not result in full collection of delinquent Fixed Rate Re, assessments, it is possible that owners of the Series B Bonds may not receive payment of principal of or interest on the Series B Bonds. Uncertainties of Future Development The motivation of the present or future owners of the undeveloped property in the Fixed Rate Subject Area may be diminished in the event significant delays are experienced in development efforts. However, further development of the lands located in the Fixed Rate Subject Area may be affected by changes in general economic conditions, fluctuations in the real estate market, changes in the ownership of the land, and other factors. In addition, any proposed development is subject to existing and future federal, state and local regulations. Approval may be required fi-om various public agencies in connection with the design, nature and extent of the required public improvements, or such matters as land use and zoning. Failure to meet any such future regulations or obtain any such approvals in a timely manner could delay or adversely affect any proposed development of the parcels of land in the Fixed Rate Subject Area. The land within the Fixed Rate Subject Area is subject to a number of contingencies which could slow or prevent future development of the undeveloped land. ConseqUently, no assurance can be given that such development will be partially or fully completed, and in assessing the investment quality of the Series B Bonds, prospective purchasers should evaluate the risks of noncompletion, including but not limited to the following. (1) First, undeveloped land is less valuable than such land in a developed condition and provides less valuable security to the Series B Bondowners should it be necessary for the City to foreclose due to the nonpayment of Fixed Rate Reassessment installments which secure the Fixed Rate Assessment Bonds. (2) Second, if much of the land in-the Fixed Rate Subject Area remains undeveloped, the number of likely purchasers at a foreclosure sale, in the event the City forecloses the lien of delinquent unpaid Fixed Rate Reassessment installments, is likely to be reduced. (3) Third, in addition to potentially reducing the ability and willingness of the landowners to pay Fixed Rate Reassessment installments, a slowdown of the economic development process in the region could adversely affect land values and reduce the proceeds received at a foreclosure sale in the event Fixed Rate Reassessment installments are not paid when due. 37 DOCSI.,Alo215774.3/4mhq03! 4208 I-2-WEJ-O8/20/97 There can be no assurance that land development operations within the Fixed Rate Subject Area will not be adversely affected by future governmental policies, including, but not limited to, governmental policies to restrict or control development. Any event that significantly impacts the ability to develop land in the Fixed Rate Subject Area may cause the property values on undeveloped property to decrease substantially fi-om the assessed values set forth herein and could affect the willingness and ability of the owners of the undeveloped property to pay the Fixed Rate Reassessment installments when due. Direct and Overlaooin~ Indebtedness The ability or willingness of an owner of land within the Fixed Rate Subject Area to pay Fixed Rate Reassessment installments could be affected by the imposition of other taxes and assessments imposed upon the land. In addition, other public agencies whose boundaries overlap those of the Fixed Rate Subject Area could, without the consent of the City or the Authority, and in certain cases without the consent of the owners of the land within the Fixed Rate Subject Area, impose additional taxes or assessment liens on the property within the Fixed Rate Subject Area to finance public improvements or services to be located or provided inside of or outside of the Fixed Rate Subject Area. A statement of direct and overlapping indebtedness on land within the Fixed Rate Subject Area is included herein under the heading "FIXED RATE SUBJECT AREA - Estimated Direct and Overlapping Debt - TABLE 6". Earthquakes The land area comprising the Fixed Rate Subject Area is subject to unpredictable seismic activity. The occurrence of seismic activity in or around the Fixed Rate Subject Area could result in substantial damage to properties in the Fixed Rate Subject Area, which, in mm, could substantially reduce the value of such properties and could affect the willingness or ability of the property owners to pay their Reassessment installments when due. Drousht Conditions California has recently experienced drought conditions, although rainfall in recent years has terminated the drought conditions throughout the State. Water service within the Fixed Rate Subject Area is provided by the Irvine Ranch Water District. While IRWD currently anticipates being able to supply water for existing and new development within its service area for the foreseeable future, there can be no assurance that any renewal of drought conditions will not adversely affect IRWD's ability to do so. Such failure could adversely affect the financial condition of the property owners and could slow or halt development efforts, thereby adversely affecting the willingness or the ability of the owners of undeveloped property to pay their Fixed Rate Reassessment installments when due. Land Values The value of land within the Fixed Rate Subject Area is an important factor in evaluating the investment quality of the Fixed Rate Bonds. In the event that a property owner defaults in the payment of a Fixed Rate Reassessment installment, the City's only remedy is to judicially foreclose on that property.- Prospective purchasers of the Series B Bonds should not assume that the property within the 38 42081-2-WE J-08/20/97 DOCSLA1-215774.3/4mhq03 ! Fixed Rate Subject Area could be sold for the assessed amount described herein at a foreclosure sale for delinquent Reassessment installments or for an amount adequate to pay delinquent Reassessment installments. The property values set forth in the various tables herein are the property values determined by the County Assessor for property tax purposes. These assessed value determinations may be subject to an appeal by the property owner. Assessment appeals are annually filed with the County Assessment Appeals Board for a hearing and resolution. At the time of filing, applicants are required to estimate an opinion of value. The resolution of an appeal may result in a reduction to the County Assessor's original taxable value' and a tax refund to the applicant/property owner. Any reduction in assessed taxable values of property within the Fixed Rate Subject Area would have an adverse impact on the value-to-lien ratios discussed in the tables herein. The actual market value of the property is subject to future events such as downturn in the economy, occurrences such as earthquakes, droughts or floods or other events, all of which could adversely impact the value of the land in the Fixed Rate Subject Area which is the security for the Fixed Rate Assessment Bonds which secure the Series B Bonds. As discussed herein, many factors could adversely affect property values or prevent or delay land development within the Fixed Rate Subject Hazardous Substances The market value of the property in the Fixed 'Rate Subject Area is subject to diminution upon the future release or discovery thereon of a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or "Superfund Act", is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner(ok operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) had anything to do with creating or handling the hazardous substance. The effect therefore, should any of the parcels be affected by a hazardous substance, is to reduce the marketability and value by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The value of the property within the Fixed Rate Subject Area, as set forth in the various tables herein, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. Neither the Authority nor the City has independently verified, and neither is aware, that the owner (or operator) of any of the parcels within the Fixed Rate Subject Area have such a current liability with respect to any such parcel. However, it is possible that such liabilities do currently exist and that neither the Authority nor the City is aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the land within the Fixed Rate Subject Area resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or 39 DOCSLAI-215774.3/4mhq03! 42081-2-WEJ-O8/20/97 may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise · not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly adversely affect the value of a parcel and the willingness or ability of the owner of any parcel to pay the Reassessment installments when due. Endangered and Threatened Soecies There is no known presence of, any endangered or threatened species of animal or plant life within the area of the Fixed Rate Subject Area. Future discovery of any endangered or threatened species could delay or halt further development of the undeveloped property in the Fixed Rate Subject Cumulative Burden of Parity Taxes~ Special Assessments and Development Costs The Fixed Rate Reassessments and the annual installments thereon constitute a lien against the parcels of land on which the Reassessments have been levied. Such lien is on a parity with all special taxes levied by other agencies and is co-equal to and independent of the lien for general property taxes, regardless of when they are imposed upon the same property. Approximately % of the Fixed Rate Reassessments are on undeveloped land within the Fixed Rate Subject Area. Although most of the public improvements required for the development of this land has been completed, it is possible that additional improvements might be required, the cost of which could increase the public and private debt for which the undeveloped land within the Fixed Rate Subject Area is security. This increased debt could reduce the ability or willingness of the owners of the undeveloped property to pay the Fixed Rate Reassessment installments when due. Neither the City nor the Authority has control over the ability of other entities to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property within the Fixed Rate Subject Area. In addition, the owners of property within the Fixed Rate Subject Area may, without the consent or knowledge of the City or the Authority, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such spedal taxes may have a lien on such property on a parity with the lien of the Fixed Rate Reassessments. Loss of Tax Exemotion As discussed under the caption "CONCLUDING INFORMATION - Tax Matters" herein, the interest on the Series B Bonds could become includable in gross income for federal income tax purposes, retroactive to the date of issuance of the Series B Bonds, as a result of failure of the Authority or the City t° comply with certain provisions of the Code. Should such an event of taxability occur, the Series B Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional or mandatory redemption or mandatory sinking fund redemption provisions of the Indenture. 40 IX)C.~LA1-215774.3/4mhq03 ! 4208 I-2-WF-.J-08/20/97 California Constitution Article xmc and Article XHID On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the Issuer to levy and collect both existing and future taxes, assessments, fees and charges. Article XIIID requkes that, beginning July 1, 1997, the proceedings for the levy of any assessment by the City under the Act (including, if applicable, any increase in such assessment or any supplemental assessment under the Act) must be conducted in conformity with the provisions of Section 4 of Article XIIID. Because the City completed its proceedings for the levy of assessments in the Fixed Rate Subject Area on January 15, 1996, the City believes that the provisions of Section 4 of Article XIIID do not apply to the unpaid Fixed Rate Reassessments which secure the Fixed Rate Assessment Bonds. Under Section 10400 of the Act, any challenge (including any constitutional challenge) to the proceedings or the assessment must be brought within 30 days after the date the assessment was levied. Article XIIIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Article XIIIC does not define the term "assessment", and it is unclear whether this term is intended to include assessments levied under the Act. Furthermore, this provision of Article XIIIC is not, by its terms, restricted in its application to assessments which were established or imposed on or after July 1, 1997. In the case of the unpaid Fixed Rate Reassessments which are pledged as security for payment of the Fixed Rate Assessment Bonds, the Act provides a mandatory, statutory duty of the City and the County Auditor to post installments on account of the unpaid 95,1 Keassessments or Group One Reassessments, as the case may be, to the property tax roll of the County each year while any of the Assessment Bonds (95-1) or Group One Bonds, as applicable, are outstanding, in amounts equal to the principal of and interest on the Assessment Bonds (95-1) or Group One Bonds, as applicable, coming due in the succeeding calendar year. The City believes that the initiative power cannot be used to reduce or repeal the unpaid Fixed Kate Keassessments which are pledged as security for payment of the Fixed Rate Assessment Bonds or to otherwise interfere with performance of the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid Fixed Rate Keassessments which are pledged as security for payment of the Fixed Rate Assessment Bonds. The interpretation and application of the Proposition 218 will ultimately be determined by the courts with respect to a number of'the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. THE AUTHORITY The Authority is a joint powers authority, organized pursuant to a Joint Exercise of Powers Agreement, dated as of May 1, 1995, between the City and the Tustin Community Redevelopment Agency (the "Agreement"). The Agreement was entered into pursuant to Chapter 5 of Division 7 of Title 1 of the Government Code (Sections 6500 et seq) of the State (the "Joint Powers Act"). The Authority is a separate entity, constituting a public instrumentality of the State of California and was 41 42081-2-WE J-08/20/97 DOCSLA1-215774.3/4mhq03 ! · ~ formed for the public purpose of assisting in financing and refinancing projects pursuant to the Joint Powers Act for the benefit of California local agencies. The Authority is govemed by a Board of Directors, which is comprised of five members. The members of the City Council of the City constitute the members of the Board of Directors of the Authority. The Authority is specifically granted all of the powers specified in the Joint Powers Act, including but not limited to the power to issue bonds and to sell such bonds to public or private purchasers at public or by negotiated sale. THE CITY The City of Tustin is located in central Orange County, approximately 40 miles southeast of Los Angeles and 80 miles north of San Diego. The City covers approximately 11.2 square miles and adjoins the dties oflrvine, Orange and Santa Ana. CONCLUDING INFORMATION Underwritin~ Simultaneously with the purchase of the Series B Bonds by the Underwriter, the Authority has agreed to purchase the Group One Bonds from the City. The Underwriter's obligation to purchase the Series B Bonds is contingent upon the Authority's purchase of the Group One Bonds, the approval of certain legal matters by counsel and certain other conditions. The Underwriter may offer and sell the Series B Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover hereof. The offering prices of the Series B Bonds may be changed from time to time by the Underwriter. Leeal Ovinion The legality of the Series B Bonds and certain other legal matters are subject to the approval of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. Certain legal matters will be passed upon for the Authority and the City by Woodruff, Spradlin & Smart, A Professional Corporation, as City Attomey. Tax Matters In the opinion of Ordck, Herrington & Sutcliffe LLP ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Series B Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series B Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix A hereto. 42 DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WEJ-08/20/97 To the extent the issue price of any maturity of the Series B Bonds is less than the amount to be paid at maturity of such Series B Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series B Two Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Series B Bonds which is excluded fi-om gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series B Bonds is the first price at which a substantial amount of such maturity of the Series B Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series B Bonds accrues daily over the term to maturity of such Series B Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series B Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series B Bonds. Owners of the Series B Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series B Bonds with original issue discount, including the treatment of purchasers who do not purchase such Series B Bonds in the original offering to the public at the first price at which a substantial amount of such Series B Bonds is sold to the public. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series B Bonds. The City has covenanted to comply with certain restrictions designed to insure that interest on the Series B Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series B Bonds being included in gross income for federal income tax purposes, possibly fi-om the date of original issuance of the Series B Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) alter the date of issuance of the Series B Bonds may adversely affect the value of, or the tax status of interest on, the Series B Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, if enacted into law, or any proposed legislation or amendments -to the Code, will not adversely affect the value of, or the tax status of interest on, the Series B Bonds. Prospective bondowners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. Certain requirements and procedures contained or referred to in the Indenture or either Fiscal Agent Agreement, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Series B Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Series B Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Series B Bonds is excluded fi-om gross income for federal income tax purposes and is exempt from State of Califomia personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series B Bonds may otherwise-affect an Owner's federal or state tax liability. The nature and extent of these other tax 43 DOCSLA1-215774.3/4mhq03! 420111-2-WEJ-08/20/97 consequences will depend upon the particular tax status of the Owner or the Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. No Litigation There is no proceeding or litigation of any nature now pending to restrain or enjoin the issuance, sale, execution or delivery of the Series B Bonds, or in any way contesting or aff~g the validity of the series B Bonds, the proceedings of the Authority taken with respect to the issuance or sale thereof, the pledge or application 'of any moneys or securities provided for the payment of the Series B Bonds, the existence or powers of the Authority or the title of any directors or officers of the Authority to their respective positions.' A certificate of the Authority to this effect will be delivered on the date of delivery of the Series B Bonds. Ratings [Moody's Investors Service and Standard & Poor's Ratings Services have assigned ratings of "Aaa" and "AAA," respectively, to the Series B Bonds, with the understanding that, upon delivery of the Bonds, a policy insuring the payment when due of principal of and interest on the Series B Bonds will be issued by Financial Security.' Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Services, Inc. 99 Church Street, New York, New York 10007; Standard & Poor's Ratings Services, 25 Broadway, New York, New York 10004. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series B Bonds.] Miscellaneous All of the preceding summaries of the Indenture, the Fiscal Agent Agreements, applicable legislation, agreements and other documents are made subject to the provisions of such documents and legislation and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. This Official Statement does not constitute a contract with the purchasers of the Series B Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not sO expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. DOCSLAI-215774.3/4mhq03! 44. 42081-2-WE J-08/20/97 The execution and delivery of this Official Statement have been authorized by the members of the Commission of the Authority. ~ TUSTIN PUBLIC FINANCING AUTHORITY By: Title: Chairman CITY OF TUSTIN By: Title: Mayor 45 DOCSLA1-215774.3/4mhq03 ! 4208 I-2-WF_.J-08/20/97