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Home My WebLink About2007-11-13 - AGENDA REPORTS - OPEN SPACE PARKLAND PGM (2)Agenda Item: CITY OF SANTA CLARITA AGENDA REPORT PUBLIC FINANCING City Manager Approval: _jkll AUTHORITY NEW BUSINESS Item to be presented by: Darren Hernandez DATE: November 13, 2007 SUBJECT: APPROVAL OF DOCUMENTS RELATED TO THE EXECUTION AND DELIVERY OF THE NOT TO EXCEED $17,200,000 CITY OF SANTA CLARITA CERTIFICATES OF PARTICIPATION, (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES DEPARTMENT: Administrative Services RECOMMENDED ACTION City Council: Authorize the execution and delivery of the not to exceed $17,200,000 Certificates of Participation (Open Space and Parkland Acquisition Program) 2007.Series, approve the execution of sale documents, a trust agreement, a base lease, a lease agreement, assignment agreement, continuing disclosure agreement, and preliminary official statement, and authorize the taking of certain actions in connection with the execution and delivery of such Certificates of Participation. Public Financing Authority: Approve documents in connection with the execution and delivery of not to exceed $17,200,000 in Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series. BACKGROUND On April 24, 2007, City Council adopted a resolution of intent to form an Open Space Preservation District to fund a portion of the City's Open Space, Park and Parkland Program, including the acquisition, preservation, and improvement of open space and parkland, and the I P- O 7- payment of debt service for such projects. A public hearing was held on July 10, 2007 to consider all oral and/or written statements, protests, and communications made or filed by all interested persons. Following the conclusion of the public hearing, assessment ballots received by the City were tabulated by the City Clerk. Ballot tabulation was completed on Friday, July 13, 2007, and the results of the property owner assessment ballot tabulation were that 69% of the weighted ballots cast were in favor of the formation of the Open Space Preservation District. On July 17, 2007, the City formed the Open Space Preservation District and levied the 2007-08 annual assessment. It is now proposed to finance the acquisition of open space and parkland by executing and delivering the not to exceed $17,200,000 Certificates of Participation (Open Space and Parkland Program) 2007 Series (the "COPS"). This represents approximately half of the City's borrowing capacity and will be the first bond issuance in a series of two. The City will use the Santa Clarita Sports Complex as equity, and lease such property (the "Leased Property") to the Authority pursuant to a Base Lease. The Authority will then lease back the Leased Property to the City, and the City will make lease payments to the Authority. Pursuant to the Assignment Agreement, the lease payments will be assigned to the Trustee. Each owner of the COPS will have an undivided interest in the lease payments. The lease payments have an interest and principal component and will be payable semiannually. The proceeds from the sale of the COPS will be deposited into a project fund under the Trust Agreement and used by the City to acquire open space and parkland as determined by the Council. Since the proceeds of the COPS will be used to acquire open space and parkland as authorized by the Open Space Preservation District, the COPs constitute indebtedness for which the Open Space Preservation District assessments may be used. Therefore, the City has pledged the assessments from the Open Space Preservation District to the COPS, and it is intended that the assessments will be used to fund the lease payments prior to that of the general fund. Provisions in the COPS also provide for future issuances to be secured and repaid by the assessments. The COPs have received an underlying bond rating of "AA" from Standard and Poor's Corporation. The Bonds have also been qualified for bond insurance by FGIC and AMBAC. Given the high "AA" underlying bond rating, City Staff and the financial advisor will monitor the market prior to bond sale in order to determine if bond insurance is cost-effective. If bond insurance is purchased, the bond ratings will be "Aaa/AAA" rated. It is proposed that the COPS will be sold at competitive sale during the last week of November or first week of December. Multiple underwriting bids are expected. It is appropriate at this meeting to consider for adoption the resolutions of the City and the PFA authorizing the execution and delivery of the COPS. General Summary of Security_: These COPS are payable from the lease payments to be made by the City. The City covenants to annually budget and appropriate for the lease payments from its general fund or other available funds and maintain insurance on the Leased Property. There is also a reserve fund for the Certificates. Since the proceeds of the COPs will be used to acquire open space and parkland as authorized by the Open Space Preservation District, the COPs constitute indebtedness for which the Open Space Preservation District assessments may be used. Therefore, the City has pledged the assessments from the Open Space Preservation District to the COPS, and it is intended that the assessments will be used to fund the lease payments prior to use of the general fund. Base Lease: Document in which the City leases the Leased Property to the Authority. It is drafted by Special Counsel and executed by the City and Authority. Lease Agreement: Key legal document in which the Authority leases back the Leased Property to the City for lease payments. Also contains the City's covenants to appropriate and maintain insurance and prepayment provisions. It is drafted by Special Counsel and executed by the City and Authority. Trust Agreement: Another key legal document that lays out the legal structure and terms of the COPS. It specifies payment dates, maturity dates; revenues and accounts specifically pledged to the repayment of the COPs; flow of funds, additional debt requirements; default and remedy provisions; and defeasance provisions in the event the COPS are prepaid. It is drafted by Special Counsel and executed by the City, Authority, and Trustee. Assignment Agreement: Document in which the lease payments to the Authority are assigned to the Trustee. It is drafted by Special Counsel and executed by the Trustee and Authority. Official Statement: This document describes the security and discloses potential risks to prospective investors. It will generally describe the sources of payment for the COPs, the City's financial state, particularly its general fund, economic and demographic characteristics of the City, and inherent known risk factors associated with the security. It's important that this document not contain any material misstatements or omissions. The Preliminary Official Statement (often referred to as the "POS") is distributed to prospective investors prior to the sale so that they can make informed purchase decisions. The POS should be as close to final as possible with the actual terms of the pricing (interest rates and principal amounts) left necessarily blank. The Final Official Statement ("FOS") will be prepared shortly after the sale and must be available in time for closing. The POS and FOS are drafted by Special Counsel, acting as disclosure counsel and is executed by the City. Continuing Disclosure Agreement (form in POS): This agreement, attached as an appendix of the POS, outlines the updated information related to the security that the City will agree to provide to the bond markets. Disclosure is required annually, and on an exceptional basis for any major "material" event. This document is drafted by Special Counsel and executed by City. Notice of Sale and Bid Form: The COPS have a term ending on October 1, 2037 and will be sold on a competitive basis at a true interest rate of not to exceed 5.5%, with an underwriter's discount of not to exceed I%. The sale of the COPs is scheduled for late November at the offices of C.M. de Crinis & Co., at which time the City Manager-or Deputy City Manager & Director of Administrative Services will award the COPs to the best bidder. The bid form is electronically submitted on an internet-based bidding platform by potential underwriters on the day of the bond sale, and specifies the actual principal amounts, interest rates, and prices at which the COPS will be purchased. In it, the underwriter commits to purchase the COPS at closing at the agreed upon prices and amounts subject to certain closing conditions. The underwriters are also required to provide a good faith deposit in the amount of $300,000. The City resolution also appoints various consultants, including Fulbright & Jaworski L.L.P., as special counsel and disclosure counsel, and The Bank of New York Trust Company, N.A., as trustee. ALTERNATIVE ACTIONS 1. The City Council may choose not to finance the program. 2. Other action as determined by the City Council. FISCAL IMPACT The Fiscal Impact to the City will be annual lease payments, beginning in the amount of approximately $673,000 per year, which the City is covenanting to annually appropriate from its general fund or other available funds. The lease payments increase each year thereafter proportionally to the approved increase in underlying assessments. The City is also pledging the assessments it collects from the Open Space Preservation District towards this debt service. The City intends that assessments will at all times cover in their entirety the lease payments (debt service). The estimated revenues collected from the Preservation District for 2007-08 is $1.556 million. ATTACHMENTS Resolution of the City Council of the City of Santa Clarita Authorizing the Sale, Execution and Delivery of Not To Exceed $17,200,000 Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series and Approving Sale Documents, a Trust Agreement, an Assignment Agreement, a Base Lease, a Lease Agreement, a Continuing Disclosure Agreement, and Preliminary Official Statement in Connection Therewith and Authorizing the Taking of Certain Actions in Connection Therewith Resolution of the. Board of the Santa Clarita Public Financing Authority Approving Certain Documents in Connection with the Execution and Delivery of Not to Exceed $17,200,000 Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series Base Lease available in the City Clerk's Reading File Assignment Agreement available in the City Clerk's Reading File Preliminary. Official Statement available in the City Clerk's Reading File Trust Agreement available in the City Clerk's Reading File Lease Agreement available in the City Clerk's Reading File Notice of Intention to Sell available in the City Clerk's Reading File Notice of Sale available in the City Clerk's Reading File RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA AUTHORIZING THE SALE, EXECUTION AND DELIVERY OF NOT TO EXCEED $17,200,000 CERTIFICATES OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES, APPROVING THE PLEDGE OF ASSESSMENT REVENUES THERETO, AND APPROVING SALE DOCUMENTS, A TRUST AGREEMENT, AN ASSIGNMENT AGREEMENT, A BASE LEASE, A LEASE AGREEMENT, A CONTINUING DISCLOSURE AGREEMENT, AND PRELIMINARY OFFICIAL STATEMENT IN CONNECTION THEREWITH AND AUTHORIZING THE TAKING OF CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City Council (the "Council") of the City of Santa Clarita (the "City") is authorized pursuant to the Government Code of the State of California to provide for the execution and delivery of certificates of participation, each of which will evidence proportionate interests of the owners thereof in certain lease payments to be made by the City; and WHEREAS, the Santa Clarita Public Financing Authority (the "Authority" ) is a Joint Powers Authority (a public body, corporate and politic) duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Joint Exercise of Powers Act (Articles 1 through 4 of Chapter 5, Division 7, Title 1 of the California Government Code); and WHEREAS, the City proposes to authorize the execution and delivery of its Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series (the "Certificates"), evidencing and representing undivided and proportionate interests in lease payments to be made by the City to the Authority under a lease, in order to finance a portion of the costs of the acquisition of open space lands, parks, and parkland within the City's open space, park, and parkland program (the "Project"); and WHEREAS, the City will lease to the Authority its interest in certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita (the "Leased Property") pursuant to a Base Lease, and the Authority, concurrently with the execution of the Base Lease, will leaseback the Leased Property to the City pursuant to a Lease Agreement (the "Lease"), in consideration for lease payments equal to the principal and interest components coming due with respect to the Certificates; and WHEREAS, it is proposed that assessment revenues from the City of Santa Clarita Open Space Preservation District (the "Assessment District") be pledged to the debt service of the Certificates; and WHEREAS, it has been proposed that the Certificates be sold on a competitive basis in accordance with the terms and provisions of Official Notice of Sale and Bid Form for the Bonds (the "Sale Documents"), the proposed forms of which have been presented to this Council; and WHEREAS, the documents below specified have been filed with the City and the members of the Council, with the aid of its staff, have reviewed said documents; NOW, THEREFORE, IT IS HEREBY RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA CLARITA AS FOLLOWS: 1. The Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series (the "Certificates") in the aggregate principal amount of not to exceed $17,200,000 are hereby authorized to be executed and delivered pursuant to the provisions of the Trust Agreement, as hereinafter defined. 2. The Project consists of an authorized purpose of the Assessment District. The assessments to be derived from the Assessment District (the "Assessment Revenues") may be used for debt service in connection with the financing of the Project. The Assessment Revenues constitute legally available funds to make Lease Payments under the Lease and the City hereby pledges the Assessment Revenues to make such payments as provided in the Lease. 3. The below enumerated documents (collectively, the "Transaction Documents") are hereby approved, and a Responsible Officer (as defined below) is hereby authorized and directed to execute the Transaction Documents in substantially the forms hereto presented, with such revisions, amendments and completions as shall be approved by such Responsible Officer with the advice of Special Counsel to the City, such approval to be conclusively evidenced by the execution and delivery by such Responsible Officer. A Responsible Officer shall include any member of the City Council, the City Manager, the Deputy City Manager/Director of Administrative Services or any officer of the City designated by the Mayor or the City Manager as a Responsible Officer and the City Clerk is hereby authorized and directed to attest to such official's signature. (a) a Base Lease, by and between the City, as lessor, and the Authority, as lessee, pursuant to which the City will lease the Leased Property to the Authority; (b) a Lease Agreement, by and between the Authority, as lessor, and the City, as lessee (the "Lease"), pursuant to which the Authority will leaseback the Leased Property to the City; (c) a Trust Agreement, by and among the Authority, the City and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), relating to the execution and delivery of the Certificates, evidencing the direct, undivided, fractional interests of the owners thereof in lease payments to be made by the City under the Lease (the "Trust Agreement"); (d) an Assignment Agreement, by and between the Trustee and the Authority (the "Assignment Agreement"); and 2 (e) a Continuing Disclosure Agreement, by and between the City and The Bank of New York Trust Company, N.A., as dissemination agent, relating to the Certificates (the "Continuing Disclosure Agreement"). 4. The City hereby approves the Sale Documents in the form thereof on file with the City Clerk, together with such additions, deletions or changes therein as shall be approved by a Responsible Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Responsible Officers is hereby authorized to execute the final form of the Sale Documents, for and in the name and on behalf of the City. Sealed proposals shall be received at the time and place provided for in the Sale Documents. Each Responsible Officer is hereby authorized to accept the best bid, or to reject all bids therefore, in accordance with the terms of the Sale Documents. 5. The City hereby approves the form of Preliminary Official Statement relating to the Certificates. The Responsible Officers, acting for and on behalf of the City, are, and each of them is, hereby authorized and directed to approve such changes, insertions and omissions therein as are necessary to enable such Responsible Officer to certify on behalf of the City that the approved Preliminary Official Statement is deemed final as of its date except for the omission of information as permitted by Section 240.15c2-12 (b)(1) of Title 17 of the Code of Federal Regulations. The Responsible Officers, acting for and on behalf of the City, are, and each of them is, further authorized and directed to cause the City to bring the Preliminary Official Statement into the form of a final Official Statement, with such changes therein, however, as such Responsible Officer may approve, such approval to be conclusively evidenced by the execution and delivery of such final Official Statement. 6. The agreements and documents approved in Sections 3, 4 and 5 of -this Resolution shall, when executed and delivered pursuant to said sections, contain such additions and changes (including additions and changes necessary to satisfy the requirements of any provider of a municipal bond insurance policy for the Certificates) as shall have been approved by the Responsible Officers. Each of the Responsible Officers is hereby authorized to determine, in connection with the execution and delivery of the agreements and documents approved in Sections 3, 4 and 5 hereof, the following with respect to the Certificates: (a) the aggregate principal amount of the Certificates, which shall not exceed $17,200,000 (b) the final maturity with respect to the Certificates, which shall be not later than October 1, 2037; (c) the true interest rate with respect to the Certificates, which shall not exceed 5.5%; and (d) the underwriter's discount, which shall not exceed I%. 7. The form of the Notice of Intention to Sell, on file with the City Clerk, together with such additions thereto and changes therein as may be approved by a Responsible Officer, is t hereby approved, and use of the Notice of Intention to Sell in connection with the offering and sale of the Certificates is hereby authorized and approved. The Responsible Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to cause the Notice of Intention to Sell to be published in The Bond Buyer (or such other financial publication generally circulated throughout the State of California or reasonably expected to be disseminated among prospective bidders for the Certificates as a Responsible Officer shall approve as being in the best interests of the City) at least 5 days prior to date set for the opening of bids in the Sale Documents with such additions thereto and changes therein as a Responsible Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. Additionally, the Responsible Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to cause the Notice of Intention to Sell to be published in a financial publication generally circulated throughout the City prior to date set for the opening of bids in the Sale Documents with such additions thereto and changes therein as a Responsible Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. 8. Any one of the Responsible Officers is hereby authorized (but not required), for and in the name and on behalf of the City, to procure bond insurance for the Certificates on such terms and conditions as they may approve following consultation with the financial advisor to the City. A Responsible Officer is hereby authorized to execute and deliver such commitments or other instruments as they may determine to be necessary or appropriate in connection with such bond insurance, such determination to be conclusively evidenced by the execution and delivery thereof 9. The law firm of Fulbright & Jaworski L.L.P., Los Angeles, California, is hereby retained as Special Counsel and Disclosure Counsel in connection with the execution and delivery of the Certificates, upon such terms and conditions as shall be approved by the Deputy City Manager/Director of Administrative Services, or his designee. 10. The Bank of New York Trust Company, N.A., is hereby retained as Trustee in connection with the execution and delivery of the Certificates, upon such terms and conditions as shall be approved by the Deputy City Manager/Director of Administrative Services, or his designee. 11. Any Responsible Officer of the City, and each of them, is hereby authorized and directed to execute and deliver the Transaction Documents and any and all other documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by this Resolution. adoption. 12. This Resolution shall take effect from and after the date of its passage and PASSED, APPROVED AND ADOPTED this day of November, 2007. CITY OF SANTA CLARITA, CALIFORNIA (e) a Continuing Disclosure Agreement, by and between the City and The Bank of New York Trust Company, N.A., as dissemination agent, relating to the Certificates (the "Continuing Disclosure Agreement"). 4. The City hereby approves the Sale Documents in the form thereof on file with the City Clerk, together with such additions, deletions or changes therein as shall be approved by a Responsible Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Responsible Officers is hereby authorized to execute the final form of the Sale Documents, for and in the name and on behalf of the City. Sealed proposals shall be received at the time and place provided for in the Sale Documents. Each Responsible Officer is hereby authorized to accept the best bid, or to reject all bids therefore, in accordance with the terms of the Sale Documents. 5. The City hereby approves the form of Preliminary Official Statement relating to the Certificates. The Responsible Officers, acting for and on behalf of the City, are, and each of them is, hereby authorized and directed to approve such changes, insertions and omissions therein as are necessary to enable such Responsible Officer to certify on behalf of the City that the approved Preliminary Official Statement is deemed final as of its date except for the omission of information as permitted by Section 240.15c2-12 (b)(1) of Title 17 of the Code of Federal Regulations. The Responsible Officers, acting for and on behalf of the City, are, and each of them is, further authorized and directed to cause the City to bring the Preliminary Official Statement into the form of a final Official Statement, with such changes therein, however, as such Responsible Officer may approve, such approval to be conclusively evidenced by the execution and delivery of such final Official Statement. 6. The agreements and documents approved in Sections 3, 4 and 5 of—, this Resolution shall, when executed and delivered pursuant to said sections, contain such additions and changes (including additions and changes necessary to satisfy the requirements of any provider of a municipal bond insurance policy for the Certificates) as shall have been approved by the Responsible Officers. Each of the Responsible Officers is hereby authorized to determine, in connection with the execution and delivery of the agreements and documents approved in Sections 3, 4 and 5 hereof, the following with respect to the Certificates: (a) the aggregate principal amount of the Certificates, which shall not exceed $17,200,000 (b) the final maturity with respect to the Certificates, which shall be not later than October 1, 2037; (c) the true interest rate with respect to the Certificates, which shall not exceed 5.5%; and (d) the underwriter's discount, which shall not exceed 1 %. 7. The form of the Notice of Intention to Sell, on file with the City Clerk, together with such additions thereto and changes therein as may be approved by a Responsible Officer, is K hereby approved, and use of the Notice of Intention to Sell in connection with the offering and sale of the Certificates is hereby authorized and approved. The Responsible Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to cause the Notice of Intention to Sell to be published in The Bond Buyer (or such other financial publication generally circulated throughout the State of California or reasonably expected to be disseminated among prospective bidders for the Certificates as a Responsible Officer shall approve as being in the best interests of the City) at least 5 days prior to date set for the opening of bids in the Sale Documents with such additions thereto and changes therein as a Responsible Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. Additionally, the Responsible Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to cause the Notice of Intention to Sell to be published in a financial publication generally circulated throughout the City prior to date set for the opening of bids in the Sale Documents with such additions thereto and changes therein as a Responsible Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. 8. Any one of the Responsible Officers is hereby authorized (but not required), for and in the name and on behalf of the City, to procure bond insurance for the Certificates on such terms and conditions as they may approve following consultation with the financial advisor to the City. A Responsible Officer is hereby authorized to execute and deliver such commitments or other instruments as they may determine to be necessary or appropriate in connection with such bond insurance, such determination to be conclusively evidenced by the execution and delivery thereof. 9. The law firm of Fulbright & Jaworski L.L.P., Los Angeles, California, is hereby retained as Special Counsel and Disclosure Counsel in connection with the execution and delivery of the Certificates, upon such terms and conditions as shall be approved by the Deputy City Manager/Director of Administrative Services, or his designee. 10. The Bank of New York Trust Company, N.A., is hereby retained as Trustee in connection with the execution and delivery of the Certificates, upon such terms and conditions as shall be approved by the Deputy City Manager/Director of Administrative Services, or his designee. 11. Any Responsible Officer of the City, and each of them, is hereby authorized and directed to execute and deliver the Transaction Documents and any and all other documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by this Resolution. adoption. 12. This Resolution shall take effect from and after the date of its passage and PASSED, APPROVED AND ADOPTED this day of November, 2007. CITY OF SANTA CLARITA, CALIFORNIA rd ATTEST: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CITY CLERK 5 STATE OF CALIFORNIA COUNTY OF LOS ANGELES CITY OF SANTA CLARITA) I, Sharon L. Dawson, City Clerk of the City of Santa Clarita, DO HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council of the City of Santa Clarita, at a regular meeting thereof, held on the day of November, 2007, by the following vote of the Council: AYES: NOES: ABSENT: CITY CLERK RESOLUTION NO. RESOLUTION. OF THE BOARD OF THE SANTA CLARITA PUBLIC FINANCING AUTHORITY APPROVING CERTAIN DOCUMENTS IN CONNECTION WITH THE EXECUTION AND DELIVERY OF NOT TO EXCEED $17,200,000 CERTIFICATES OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES WHEREAS, the Santa Clarita Public Financing Authority (the "Authority" ) is a Joint Powers Authority (a public body, corporate and politic) duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Joint Exercise of Powers Act (Articles 1 through 4 of Chapter 5, Division 7, Title 1 of the California Government Code), including the power and authority to lease property from and to another public entity and to assist the City of Santa Clarita, California (the "City"), with the financing or refinancing of the acquisition and construction of various public facilities for the use, benefit and enjoyment of the public; and WHEREAS, the City proposes to authorize the execution and delivery of its Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series (the "Certificates"), evidencing and representing undivided and proportionate interests in lease payments to be made by the City to the Authority under a lease, in order to finance a portion of the costs of the acquisition of open space lands, parks, and parkland within the City's open space, park, and parkland program (the "Project"); and WHEREAS, the execution and delivery of the Certificates will result in significant public benefits in the form of demonstrable savings in effective interest rates; and WHEREAS, the City will lease to the Authority its interest in certain real property and the improvements thereon, more commonly known as the Aquatic Center and Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita (the "Leased Property") pursuant to a Base Lease, and the Authority, concurrently with the execution of the Base Lease, will leaseback the Leased Property to the City pursuant to a Lease Agreement (the "Lease"), in consideration for lease payments equal to the principal and interest components coming due with respect to the Certificates; and WHEREAS, the documents below specified have been filed with the Authority and the members of the Board of the Authority, with the aid of its staff, have reviewed said documents; NOW, THEREFORE, IT IS HEREBY RESOLVED BY THE BOARD OF THE SANTA CLARITA PUBLIC FINANCING AUTHORITY AS FOLLOWS: 1. The Authority hereby agrees to assist the City in the financing of the Project through participation in the sale, execution and delivery of the Certificates. 2. The below enumerated documents (collectively, the "Transaction Documents") are hereby approved, and a Responsible Officer (as defined below) is hereby authorized and directed to execute the Transaction Documents in substantially the forms hereto presented, with such revisions, amendments and completions as shall be approved by such Responsible Officer with the advice of Special Counsel to the City, such approval to be conclusively evidenced by the execution and delivery by such Responsible Officer. A Responsible Officer shall include any member of the Board, the Executive Director, the Treasurer or any officer of the Authority designated by the President or the Executive Director as a Responsible Officer and the Secretary is hereby authorized and directed to attest to such official's signature. (a) a Base Lease, by and between the City, as lessor, and the Authority, as lessee, pursuant to which the Authority will lease the Leased Property from to the City; (b) a Lease Agreement, by and between the Authority, as lessor, and the City, as lessee (the "Lease Agreement"), pursuant to which the Authority will leaseback the Leased Property to the City; and (c) a Trust Agreement, by and among the Authority, the City and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), relating to the execution and delivery of the Certificates, evidencing the direct, undivided, fractional interests of the owners thereof in lease payments to be made by the City under the Lease Agreement (the "Trust Agreement"); and (d) an Assignment Agreement, by and between the Trustee and the Authority (the "Assignment Agreement"). 3. Any Responsible Officer of the Authority, and each of them, is hereby authorized and directed to execute and deliver the Transaction Documents and any and all other documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by this Resolution. adoption. ATTEST: 4. This Resolution shall take effect from and after the date of its passage and PASSED, APPROVED AND ADOPTED this day of November, 2007. SANTA CLARITA PUBLIC FINANCING AUTHORITY FA PRESIDENT STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) CITY OF SANTA CLARITA) I, Sharon L. Dawson, Secretary of the Santa Clarita Public Financing Authority, DO HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Board of the Santa Clarita Public Financing Authority, at a meeting thereof, held on the day of November, 2007 by the following vote of the Board: AYES: NOES: ABSENT: M SECRETARY STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) CITY OF SANTA CLARITA) I, Sharon L. Dawson, Secretary of the Santa Clarita Public Financing Authority, DO HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Board of the Santa Clarita Public Financing Authority, at a meeting thereof, held on the day of November, 2007 by the following vote of the Board: AYES: NOES: ABSENT: 11 SECRETARY 10/31/07 BASE LEASE by and between CITY OF SANTA CLARITA, as Lessor and SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessee Dated as of December 1, 2007 City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series TABLE OF CONTENTS Page 1. Definitions..........................................................................................................................1 2. Base Lease......................................................................................................................... 1 3. Term....'...............................................................................................................................1 4. Rental.................................................................................................................................2 5. Purpose...............................................................................................................................2 6. Owner in Fee...................................................................................................................... 2 7. Substitution of Leased Property......................................................................................... 2 8. Release of Leased Property................................................................................................ 3 9. Assignments and Subleases............................................................................................... 4 10. Right of Entry.................................................................................................................... 4 11. Termination........................................................................................................................4 12. Default................................................................................................................................4 13. Quiet Enjoyment................................................................................................................4 14. Waiver of Personal Liability.............................................................................................. 4 15. Taxes..............................................:...................................................................................5 16. Eminent Domain................................................................................................................ 5 17. Partial Invalidity.................................................................................................................5 18. Notices............................................................................................................................... 5 19. Amendment........................................................................................................................5 20. Section Headings............................................................................................................... 5 21. Counterparts.......................................................................................................................6 EXHIBIT A - LEASED PROPERTY DESCRIPTION............................................................A-1 EXHIBIT B - FORM OF AMENDMENT TO BASE LEASE ................................................. B-1 70037847.3 BASE LEASE THIS BASE LEASE, dated as of December 1, 2007, by and between CITY OF SANTA CLARITA, a general law municipal corporation duly organized and existing under and be virtue of the laws of the State of California (the "City"), as lessor, and the SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity duly organized and existing under and by virtue of the laws of the State of California (the "Authority"), as lessee; WITNESSETH: WHEREAS, the Authority intends to assist the City in the financing of a portion of the costs of acquiring open space lands, parks, and Parklandland within the City's open space, park, and Parklandland program (the "Project"), and to lease certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway (collectively, the "Leased Property") to the City by a Lease Agreement, dated as of the date hereof (the "Lease Agreement"), and the City proposes to enter into this Base Lease with the Authority as a material consideration for the Authority's agreement to assist in the financing of the Project; NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED as follows: 1. Definitions. Unless the context otherwise requires, all capitalized terms used in this Base Lease and not defined herein shall for all purposes of this Base Lease have the meanings ascribed thereto in the Lease Agreement or in the Trust Agreement, dated as of the date hereof (the "Trust Agreement"), by and among the Authority, the City and The Bank of New York Trust Company, N.A., as Trustee (the "Trustee"). 2. Base Lease. The City hereby leases to the Authority and the Authority hereby hires from the City, on the •terms and conditions hereinafter set forth, that certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, City of Santa Clarita, State of California, and described in Exhibit A attached hereto and made a part hereof (the "Leased Property"). 3. Tenn. The term of this Base Lease shall commence on the date of recordation of this Base Lease, or memorandum thereof, in the Office of the County Recorder of the County of Los Angeles, State of California, and shall end on October 1, 2037, unless such term is extended or sooner terminated as hereinafter provided. If on such October 1, 2037, the aggregate amount of Lease Payments payable under the Lease Agreement shall not have been paid, or provision shall not have been made for their payment, then the term of this Base Lease shall be extended until such Lease Payments shall be fully paid or provision made for such payment, but in any event not beyond October 1, 2047. If, prior to October 1, 2037, all Lease Payments shall be fully paid or provision made for such payment, pursuant to the prepayment provisions of the Trust Agreement and the City has not been required to surrender possession of the Leased Property 70037847.3 due to a nonappropriation event or an event of default under the Trust Agreement, the term of this Base Lease shall end 10 days after the date of such payment or provision for payment. 4. Rental. The City acknowledges receipt from the Authority as and for rental hereunder the sum of One Dollar ($1.00), on or before the date of delivery of the Certificates to be executed and delivered pursuant to the Trust Agreement to the original purchasers thereof. Purpose. The Authority shall use the Leased Property solely for the purpose of leasing the Leased Property to the City pursuant to the Lease Agreement, and for such purposes as may be incidental thereto; provided, that in the event of default by the City under the Lease Agreement, the Authority and its assigns may exercise the remedies provided in the Lease Agreement. 6. Owner in Fee. The City covenants that it is the owner in fee of the Leased Property. Substitution of Leased Property. From time to time, the City may elect to substitute alternate real property for the Leased Property or add additional real property to the Leased Property pursuant to the Lease Agreement, but only by providing the Trustee with a supplement to the Lease Agreement, and with the prior written consent of the Insurer. In connection therewith, the City and the Authority shall enter into a supplement or amendment to this Base Lease substantially in the form attached hereto as Exhibit B. In addition, prior to effecting any such substitution, the City shall deliver the following: (a) an opinion of counsel to the City, to the effect the supplement or amendment to this Base Lease and the Lease has been duly authorized, executed and delivered and constitute the valid and binding obligations of the City and the Authority, enforceable in accordance with their terms except as enforcement may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws affecting the enforcement of creditors' rights, to the application of equitable principles, to the exercise ofjudicial discretion in appropriate cases, and to the limitations on legal remedies against public agencies in the State of California; (b) an amended or substituted policy of title insurance delivered with respect to the original Base Lease and Lease, amending the description of the leasehold estate insured thereunder to reflect the addition or substitution to the Leased Property, subject only to pennitted encumbrances described in the Lease; (c) an opinion of counsel to the City that the exceptions, if any, contained in the title insurance policy as a result of the addition or substitution of property to the Leased Property do not materially interfere with the beneficial use and occupancy of the Leased Property; 70037847.3 (d) an opinion of Special Counsel (as defined in the Trust Agreement) that the addition or substitution of property to the Leased Property does not cause interest with respect to the Certificates or any Additional Certificates to be includable in gross income of the Owners of the Certificates for federal income tax purposes; (e) evidence that the City has complied with the casualty insurance and loss of use insurance covenants contained in the Lease with respect to all property to be added as or substituted for Leased Property; and (f) written confirmation from each rating agency then rating the Certificates, to the effect that its rating on the Certificates will not be withdrawn or lowered as a result of said addition or substitution. In the event that the City effects a substitution of all or a portion of the Leased Property hereunder, the designated portion of the Leased Property formerly subjected to this Base Lease shall be released from the lien hereof upon receipt by the Trustee of the above - referenced documents. The City, the Authority and the Trustee shall execute any and all appropriate legal documents, instruments and certificates to effect such release. After any such addition or substitution, the term "Leased Property" shall be defined as the Leased Property as amended by the supplement or amendment. 8. Release of Leased Property. The City may, with the Insurer's written consent, request release of a portion of the Leased Property at any time during the Term hereof, upon its written certification, with the Insurer's written consent, to the effect that the City certifies that the annual fair rental value of the remaining property will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the remaining property shall be at least equal to the remaining term of the Lease. In addition, the City shall deliver the following: (a) an amendment to the policy of title insurance delivered with respect to the original Base Lease and Lease, amending the description of the leasehold estate insured thereunder to reflect the amendment to the Leased Property, as a result of the release; (b) an opinion of Special Counsel that the release of property from the Leased Property does not cause interest with respect to the Certificates or any Additional Certificates to be includable in gross income of the Owners of the Certificates for federal income tax purposes. Upon delivery of such certification, and confirmation, the City shall be entitled to a release of the requested parcel or parcels from the Leased Property, with the prior written consent of the Insurer. The City, the Authority and the Trustee shall execute any and all appropriate legal documents, instruments and certificates to effect such release. After any such release, the term "Leased Property" shall be deemed to include only the remaining portion of the Leased Property. Upon the payment in full, prepayment or defeasance of the Certificates, the Leased Property shall also be released as described in this paragraph. 70077847.3 3 9. Assignments and Subleases. Unless the City shall be in default under the Lease Agreement, the Authority may not assign its rights under this Base Lease or sublet the Leased Property, except as provided in the Lease Agreement, without the written consent of the Insurer and the City. 10. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property at any reasonable time to inspect the same or to make any repairs, improvements or changes necessary for the preservation thereof. 11. Termination. The Authority agrees, upon the termination of this Base Lease, to quit and surrender the Leased Property in the same good order and condition as the same were in at the time of commencement of the term hereunder, reasonable wear and tear excepted, and agrees that any permanent improvements and structures existing within the Leased Property at the time of the termination of this Base Lease shall remain thereon and title thereto shall vest in the City. 12. Default. In the event the Authority shall be in default in the performance of any obligation of its part to be performed under the terms of this Base Lease, which default continues for 30 days following notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of this Base Lease and of the Lease Agreement shall be deemed to occur as a result thereof, provided, however, that so long as any of the Certificates are Outstanding and unpaid in accordance with the terms thereof, the Lease Payments assigned by the Authority to the Trustee under the Trust Agreement shall continue to be paid to said Trustee. 13. Quiet Enjoyment. The Authority at all times during the term of this Base Lease shall peaceably and quietly have, hold and enjoy all of the Leased Property, subject to the provisions of the Lease Agreement and the Trust Agreement. 14. Waiver of Personal Liability. All liabilities under this Base Lease on the part of the Authority are solely liabilities of the Authority, and the City hereby releases each and every, member, director and officer of the Authority of and from any personal or individual liability under this Base Lease. No member, director or officer of the Authority shall at any time or under any circumstances be individually or personally liable under this Base Lease for anything done or omitted to be done by the Authority hereunder. 70037847.3 -- 4 15. Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property. 16. Eminent Domain. In the event the whole or any part of the Leased Property shall be taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of the then -unpaid Certificates delivered to refinance the Refunded Certificates, including the unpaid principal and interest with respect to any then -Outstanding Certificates and the balance of the award, if any, shall be paid to the City. 17. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Base Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Base Lease shall be affected thereby, and each provision of this Base Lease shall be valid and enforceable to the fullest extent permitted by law. 18. Notices. All notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder by either party to the other shall be in writing and shall be sufficiently given and served upon the other party if delivered personally or if mailed by United States registered mail, return receipt requested, postage prepaid, and, if to the City, addressed to City of Santa Clarita, 23920 Valencia Boulevard, Santa Clarita, California 91355, Attn: Deputy City Manager/Director of Administrative Services or if to the Authority, addressed to Santa Clarita Public Financing Authority, c/o City of Santa Clarita, 23920 Valencia Boulevard, Santa Clarita, California 91355, Attn: Deputy City Manager/Director of Administrative Services, or to such other addresses as the respective parties may from time to time designate by notice in writing. 19. Amendment. This Base Lease may not be altered, modified or amended except as permitted by Article X of the Trust Agreement or to permit the substitution or release of Leased Property pursuant to Section 3.6 of the Lease Agreement and Sections 7 and 8 hereof and to modify the description of the Leased 23920 Valencia Boulevard, Santa Clarita, CA 91355, Attn: Deputy City Manager/Director of Administrative Services Property accordingly. 20. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Base Lease. 70037847.3 5 21. Counterparts. This Base Lease may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same lease. 70037847.3 IN WITNESS WHEREOF, the City and the Authority have caused this Base Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. CITY OF SANTA CLARITA, as Lessor Marsha McLean, Mayor ATTEST: Sharon L. Dawson, City Clerk SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessee Im ATTEST: Sharon L. Dawson, Secretary Kenneth R. Pulskamp, Executive Director EXHIBIT A LEASED PROPERTY DESCRIPTION [to follow] 70037847.3 A-1 EXHIBIT B FORM OF AMENDMENT TO BASE LEASE There is hereby subjected to the terms of that certain Base Lease, dated as of December 1, 2007 (the "Base Lease"), between the Santa Clarita Public Financing Authority (the "Authority") and City of Santa Clarita ("City") the following described property: DESCRIPTION: (Check One) Addition of property only. The property described above is hereby deemed to be incorporated into Exhibit A to the Base Lease and deemed to be added to the definition of Leased Property. 2. Substitution of a portion of the Leased Property. I, the Authorized Representative of the Authority, hereby certify that: (1) the above-described property, and the portion of the Leased Property for which it is being substituted, are located on an identifiable, insurable parcel or parcels of land; (2) the City certifies that the annual fair rental value of the above-described property and remaining portion of the Leased Property after substitution or release will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the above-described property shall be at least equal to the remaining useful life of the portion of the Leased Property for which it was substituted for the remaining term of the Lease; (3) the above-described property may be leased under the provisions of the Base Lease and under the laws of the State of California; (4) no Event of Default under the Lease has occurred and is continuing; (5) the City has obtained an ALTA policy of title insurance insuring the City's leasehold estate under the Lease and the Authority's leasehold estate therein under the Base Lease) in the above-described property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof; and (6) the substitution of the above-described property shall not cause the Authority to violate any of its covenants, representations and warranties made in the Base Lease. The City hereby grants to the Trustee a security interest in the above-described property for the benefit of the Owners of the Certificates and as security therefor, all as described in the Trust Agreement. 70037847.3 B-1 3. Substitution of all of the Leased Property. The Property described above shall, from and after the date of this Amendment to Base Lease, comprise all of the Leased Property which are subject to the terms of said Base Lease; any parcel or parcels in addition to the foregoing real property that may have been the subject of the Base Lease prior to the date hereof shall be released and reconveyed to the City in accordance with the provisions of Section 8 of said Base Lease. I, the Authorized Representative of the Authority, hereby certify that: (1) the above-described property is located on an identifiable, insurable parcel or parcels of land; (2) the City has certified that the annual fair rental value of the above-described property will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the above-described property shall be at least equal to the remaining useful life of the Leased Property for which it was substituted for the remaining term of the Lease; (3) the above-described property may be leased under the provisions of the Base Lease and under the laws of the State of California; (4) no Event of Default under the Base Lease has occurred and is continuing; (5) the City has obtained an ALTA policy of title insurance insuring the City's leasehold estate under the Lease and the Authority's leasehold estate therein under the Base Lease) in the above-described property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof, and (6) the substitution of the above-described property shall not cause the Authority to violate any of its covenants, representations and warranties made in the Base Lease. I, the Authorized Authority Representative, hereby certify that the new portion of the Leased Property described herein is and shall be free and clear of all liens or claims of others, except for the lien of the Trust Agreement referred to in the Base Lease and the rights of the City under the Base Lease, and that the Citywill not otherwise encumber title to the Leased Property while the Certificates remain Outstanding. SANTA CLARITA PUBLIC FINANCING AUTHORITY C Authorized Representative 70037847.3 B-2 10/31/07 ASSIGNMENT AGREEMENT by and between SANTA CLARITA PUBLIC FINANCING AUTHORITY and THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee Dated as of December 1, 2007 City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT, dated as of December 1, 2007, by and between SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity duly organized and existing under the laws of the State of California (the "Authority"), and accepted by THE BANK OF NEW YORK TRUST COMPANY, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States, as trustee (the "Trustee"); WITNESSETH: WHEREAS, the Authority and City of Santa Clarita, a general law municipal corporation duly organized and existing under the laws of the State of California (the "City"), have executed and entered into a Lease Agreement (the "Lease"), dated as of the date hereof, under which the Authority has agreed to lease to the City that certain real property and the improvements thereon, more commonly known as the Aquatic Center and Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita, as described in Exhibit B thereto (the "Leased Property"); and WHEREAS, under and pursuant to the Lease, the City is obligated to make Lease Payments, as defined therein, to the Authority for the use and possession of the Leased Property whose legal description is set forth on Exhibit A hereto, which is incorporated herein by this reference; and WHEREAS, the Authority desires to assign without recourse all its rights to receive the Lease Payments scheduled to be paid by the City under and pursuant to the Lease to the Trustee; and WHEREAS, in consideration of such assignment and the execution and entering into of a Trust Agreement (the "Trust Agreement") to be executed and entered into as of the date hereof, by and among the Trustee, the Authority and the City, the Trustee has agreed to execute and deliver certain certificates of participation (the "Certificates") in an aggregate principal amount equal to the aggregate principal components of such Lease Payments; and WHEREAS, the Authority has determined that all acts; conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Assignment Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Assignment Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: 70038412.2 SECTION 1. Definitions. Unless the context otherwise requires, all capitalized terms used in this Assignment Agreement which are not defined herein shall for all purposes of this Assignment Agreement have the meanings specified therefor in the Lease or the Trust Agreement. SECTION 2. Assignment. The Authority hereby grants, transfers and assigns to the Trustee, for the benefit of the registered owners (the "Owners") of the Certificates executed and delivered under the Trust Agreement, all of the Authority's rights under the Lease (excepting only the Authority's rights under Section 7.4 of the Lease), including, without limitation, (1) the right to receive and collect all of the Lease Payments and prepayments from the City under the Lease, (2) the right to receive and collect any proceeds of any insurance maintained thereunder, of any condemnation award rendered with respect to the Project, or of any lease or sale of the Project in the event of a default by the City under the Lease, (3) all rights in connection with the pledge of the Assessment Revenues; and (4) the right to exercise such rights and remedies conferred on the Authority pursuant to the Lease as may be necessary or convenient: (i) to enforce payment of the Lease Payments, additional payments, prepayments and any other amounts required to be deposited in the Lease Payment Fund established under the Trust Agreement or (ii) otherwise to protect the interests of the Authority in the event of a default by the City under the Lease. All rights assigned by the Authority shall be administered by the assignee thereof according to the provisions of the Trust Agreement and for the equal and proportionate benefit of the Owners. SECTION 3. Acceptance. The Trustee hereby accepts the foregoing assignment for the benefit of the Owners, subject to the conditions and terms of the Trust Agreement, and all such Lease Payments shall be applied and all such rights so assigned shall be exercised by the Trustee under and pursuant to the Trust Agreement. The Trustee does not warrant the statements contained in the recitals hereto. SECTION 4. Conditions. This Assignment Agreement shall confer no rights and shall impose no obligations upon the Trustee beyond those expressly provided in the Trust Agreement. SECTION 5. Governing Law. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State. 70038412.2 2 IN WITNESS WHEREOF, the parties hereto have executed and entered into this Assignment Agreement by their respective officers thereunto duly authorized as of the day and year first above written. SANTA CLARITA PUBLIC FINANCING AUTHORITY Kenneth R. Pulskamp, Executive Director ACCEPTED BY: THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee Authorized Officer EXHIBIT A LEGAL DESCRIPTION 70038412.2 A -I 10/31/07 PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER _, 2007 NEW ISSUE (BOOK -ENTRY ONLY) RATINGS: S&P: MOODY'S: _ L— Insured) Underlying Ratings. S&P: See "RATINGS" herein. Delivery of the Certificates is subject to the receipt ofan opinion ofFulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, to the effect that, ender existing law, interest on the Certificates is exempt from personal income taxes of the State of California, and, assuming continuing compliance after the date of initial delivery of the Certificates with certain covenants contained in the Resolutions authorizing the Certificates and subject to die matters set forth under "TAX MATTERS" herein, interest on the Certificates for federal income tax purposes, under existing statutes, regulations, published ratings, and court decisions will be excludable from the gross income of the owners thereof pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date of initial delivery ofthe Certificates, and will not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations. See '"TAX MATTERS"herein. CERTIFICATES OF PARTICIPATION (Open Space and Parkland Acquisition Program) 2007 Series Evidencing Proportionate Interests of the Owners Thereof in Lease Payments to Be Made by the CITY OF SANTA CLARITA Dated: Date of Delivery Due: October 1, as shown on inside cover This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings set forth herein. The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of December 1, 2007, among the City of Santa Clarita (the "City"), the Santa Clarita Public Financing Authority (the "Authority") and The Bank of New York Trust Company, N.A., as trustee (the "Trustee") to finance a portion of the costs of the acquisition of open space lands, parks, and parkland, both inside and outside the City, in accordance with the City's open space, park, and parkland program (the `Program"), to fund a Reserve Fund and to pay costs of delivery of the Certificates. See the caption "PLAN OF FINANCE" herein. The City will lease certain property (the "Leased Property") from the Authority pursuant to a Lease Agreement, dated as of December 1, 2007 (the "Lease"). The Certificates evidence proportionate interests in lease payments (the "Lease Payments") to be made by the City as lessee under the Lease for the use and possession of the Leased Property. The City's obligation to make Lease Payments is subject to abatement in the event of substantial interference with its use and possession of all or part of the Leased Property. See "RISK FACTORS — Abatement" herein. Interest due with respect to the Certificates is payable on April 1, 2008, and semiannually thereafter on April 1 and October 1. The Certificates will be initially delivered in book -entry form only, registered to Cede & Co., as nominee of The DepositoryTrust Company, New York, New York ("DTC"). Principal and interest with respect to the Certificates will be payable to DTC. DTC is required to remit such principal and interest to its Participants (as defined herein) for subsequent disbursement to the beneficial owners of the Certificates. See "THE CERTIFICATES — Book -Entry Only System." Principal with respect to the Certificates is payable upon surrender of the Certificates at maturity or earlier prepayment at the principal corporate trust office of the Trustee. The Certificates are to be delivered as fully registered certificates in integral multiples of $5,000. The Certificates are subject to optional and extraordinary prepayment prior to their maturity as described herein. The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under a Financial Guaranty Insurance Policy to be issued concurrently with the delivery of the Bonds by Insurer LOGO MATURITY SCHEDULE On Inside Cover The City has covenanted under the Lease that, so long as the Leased Property is available for the City's use, it will take such action as may be necessary to include all Lease Payments and Additional Payments (as defined herein) in its annual budgets, and to make the necessary annual appropriations therefor. See "SOURCES OF PAYMENT OF AND SECURITY FOR THE CERTIFICATES" herein. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS IS NOT A GENERAL OBLIGATION OF THE CITY AND THE CITY'S OBLIGATION TO MAKE LEASE PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES A DEBT OF THE CITY, THE AUTHORITY, THE COUNTY OF LOS ANGELES, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Preliminary, subject to change. 70047651.5 10/31/07 The Certificates are offered when, as and if delivered and received by the Underwriters, subject to approval, as to legality by Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel and Disclosure Counsel. Certain legal matters will be passed upon for the City and the Authority by Burke, Williams & Sorensen, L.L.P., Los Angeles, California, as City Attorney and Authority Counsel. It is anticipated that the Certificates will be available through the facilities of DTC in New York, New York, on or about December _, 2007. Dated: November , 2007 70047651.5 S CERTIFICATES OF PARTICIPATION (Open Space and Parkland Acquisition Program) 2007 Series Evidencing Proportionate Interests of the Owners Thereof in Lease Payments to Be Made by the CITY OF SANTA CLARITA Maturity Dates, Principal Amounts, Interest Rates and Yields Serial Certificates Maturity Maturity Date Principal Interest CUSIPi Date Principal Interest CUSIP* (October 1) Amount Rate Yield ( (October 1) Amount Rate Yield (� Term Certificates due October 1, 20_ - Price: % to Yield _% CUSIP:' Preliminary, subject to change. CUSIP data, copyright 2007, American Bankers Association. CUSIP data herein are provided for convenience of reference only. Neither the City nor the Purchaser assume any responsibility for the accuracy of such data. 70047651.5 Use of Official Statement The information contained herein has been obtained from sources that are believed to be reliable. No representation, warranty or guarantee, however, is made by the Underwriters as to the accuracy or completeness of any information in this Official Statement, including, without limitation, the information contained in the appendices hereto, and nothing contained in this Official Statement is or shall be relied upon as a promise or representation by the Underwriters. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City, the Authority, or the Underwriters to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such information or representation must not be relied upon as having been authorized by any of the foregoing. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale of the Certificates shall under any circumstances create any implication that there has been no change in the affairs of the City or the Authority or other matters described herein since the date hereof. Involvement of Underwriter. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Information Subject to Change. This Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Estimates and Forecasts. Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21 E of the United States Securities Exchange Act of 1934, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget," "project," "forecast' or other similar words. Municipal Bond Insurance. Other than with respect to information concerning the Insurer contained under the captions "CERTIFICATE INSURANCE" and Appendix H — "FORM OF MUNICIPAL BOND INSURANCE POLICY" herein, none of the information in this Official Statement has been supplied or verified by the Insurer and the Insurer makes no representation or warranty, expressed or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Certificates; or (iii) the tax-exempt status of interest with respect to the Certificates. Stabilization of Prices. IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 3(a)(2) OF SUCH ACT. THE TRUST AGREEMENT HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. 70047651.5 CITY COUNCIL OF THE CITY OF SANTA CLARITA, CALIFORNIA Marsha A. McLean, Mayor Robert C. Kellar, Mayor Pro Tempore Frank C. Ferry, Councilmember Laurene F. Weste, Councilmember Timothy B. Boydston, Councilmember CITY OFFICIALS Kenneth R. Pulskamp, City Manager Kenneth W. Striplin, Ed.D., Assistant City Manager Darren P. Hernandez, Deputy City Manager & Director of Administrative Services Robert G. Newman, Director of Public Works Richard E. Gould, Director of Park, Recreation & Community Services Paul D. Brotzman, Director of Community Development Carl K. Newton, City Attorney PROFESSIONAL SERVICES FINANCIAL ADVISOR C.M. de Crinis & Co., Inc. Sherman Oaks, California SPECIAL COUNSEL & DISCLOSURE COUNSEL Fulbright & Jaworski L.L.P. Los Angeles, California TRUSTEE The Bank of New York Trust Company, N.A. Los Angeles, California 70047651.5 Table of Contents INTRODUCTION Page General.................................................................................................................:......................... 9 LeasePayments.............................................................................................................................10 AssessmentRevenues...................................................................................................................10 TheAssessment District...............................................................................................................11 AdditionalPayments.....................................................................................................................12 ReserveFund................................................................................................................................12 Insuranceby the City....................................................................................................................13 17 Budget and Appropriation of Lease Payments.............................................................................14 BondInsurance.............................................................................................................................14 18 CERTIFICATEINSURANCE..................................................................................................................14 CITY OF SANTA CLARITA INFORMATION.......................................................................................14 GeneralBackground.....................................................................................................................14 Geographyand Climate................................................................................................................15 MunicipalGovernment.................................................................................................................15 MunicipalServices........................................................................................................................16 Education......................................................................................................................................16 Population..................................................................................................................................... 17 Employment..................................................................................................................................17 LargestEmployers........................................................................................................................ 18 Commercial Activity and Sales Tax.............................................................................................18 Housing.........................................................................................................................................19 ConstructionActivity....................................................................................................................19 70047651.5 i Table of Contents (Continued) Page Median Household Income...........................................................................................................19 RecreationalActivities..................................................................................................................19 FINANCIAL INFORMATION REGARDING THE CITY......................................................................20 Budgetary Process and Administration.........................................................................................20 Budgeted Revenues and Expenditure...........................................................................................21 Management Discussion of Historic and Project Financial Performance.....................................23 Taxable Property and Assessed Valuation....................................................................................23 LargestTaxpayers.........................................................................................................................24 OtherLocal Taxes.........................................................................................................................25 VehicleLicense Fees....................................................................................................................27 Other Revenue Sources.................................................................................................................28 RetirementPrograms....................................................................................................................28 Deferred Compensation Plan........................................................................................................29 Employee Relations and Collective Bargaining...........................................................................29 RiskManagement.........................................................................................................................29 City Investment Policy and Portfolio............................................................................................29 FinancialStatements.....................................................................................................................30 DEBTSTRUCTURE.................................................................................................................................34 Outstanding Indebtedness of the City...........................................................................................34 Directand Overlapping Debt........................................................................................................34 LIMITATIONS ON TAX REVENUES....................................................................................................36 Article XIIIA of the California Constitution.................................................................................36 Appropriation Limitation—Article XIIIB....................................................................................37 California Constitution Article XIIIC and Article XIIID (Proposition 218) ................................37 Proposition62...............................................................................................................................38 UnitaryProperty...........................................................................................................................38 FutureInitiatives...........................................................................................................................39 RISK FACTORS General Considerations -- Security for the Certificates............ Abatement...................................:............................................. Other Limitations on Liability .................................................. No Acceleration Upon Default ................................................. Limitations on Assessment District Collections ....................... Self-Insurance........................................................................... Limited Recourse on Default .................................................... Investment of City's General Fund ........................................... No Liability by the Authority to the Owners ............................ Risk of Uninsured Loss............................................................. EminentDomain....................................................................... Hazardous Substances............................................................... Bankruptcy................................................................................ Enforcement of Remedies of Lease .......................................... Earthquakes............................................................................... Investment Risks....................................................................... 70047651.5 ii ...................................... 39 Table of Contents (Continued) Page Lossof Tax Exemption.................................................................................................................44 SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LimitedSecondary Market...........................................................................................................44 FORM OF OPINION OF SPECIAL COUNSEL STATE OF CALIFORNIA BUDGET.......................................................................................................44 SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF BudgetProcess..............................................................................................................................44 THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Budget for Fiscal Year 2007-08....................................................................................................45 BOOK -ENTRY ONLY SYSTEM PropositionIA ..............................................................................................................................46 PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT THEAUTHORITY...................................................................................................................................47 FORM OF MUNICIPAL BOND INSURANCE POLICY THECITY.................................................................................................................................................47 LEGALOPINION.....................................................................................................................................47 THEFINANCIAL ADVISOR...................................................................................................................47 LEGAL MATTERS ........................ TAX MATTERS ............................. CONTINUING DISCLOSURE...... RATINGS....................................... ..........47 ................................................................................................. 47 ................................................................................ 50 ........................................................................................ 50 UNDERWRITING....................................................................................................................................50 NOLITIGATION......................................................................................................................................51 ENFORCEABILITYOF REMEDIES......................................................................................................51. OTHERINFORMATION.........................................................................................................................51 APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX B - FORM OF OPINION OF SPECIAL COUNSEL APPENDIX C - SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2006 APPENDIX D - BOOK -ENTRY ONLY SYSTEM APPENDIX E - PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX F - FORM OF MUNICIPAL BOND INSURANCE POLICY 70047651.5 111 OFFICIAL STATEMENT CERTIFICATES OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES Evidencing Proportionate Interests of the Owners Thereof in Lease Payments To Be Made by the CITY OF SANTA CLARITA to SANTA CLARITA PUBLIC FINANCING AUTHORITY INTRODUCTION This Introduction contains only a brief description of this issue and does not purport to be complete. The Introduction is subject in all respects to more complete information in the entire Official Statement and the offering of the Certificates to potential invertors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Oficial Statement to obtain information essential to the making of an informed investment decision (see "RISK FACTORS" herein). General The purpose of this Official Statement, which includes the cover page, Table of Contents and Appendices, is to provide certain information concerning the execution, sale and delivery of the City of Santa-Clarita Certificates of Participation, (Open Space and Parkland Acquisition Program) 2007 Series (the "Certificates"), in the aggregate principal amount of $ evidencing proportionate interests of the registered owners thereof (the "Owners") in lease payments (the "Lease Payments") to be made by the City of Santa Clarita (the "City"), pursuant to a Lease Agreement, dated as of December 1, 2007 (the "Lease"), between Santa Clarita Public Financing Authority, as lessor (the "Authority"), and the City, as lessee, for the use and occupancy of certain real property of the City (see "PLAN OF FINANCE — Leased Property" herein). The Leased Property consists of certain real property and the improvements thereon, more commonly known as the Aquatic Center and Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita. The City intends to apply the net proceeds of the sale of the Certificates to (i) finance a portion of the costs of the acquisition of open space lands, parks, and parkland, both inside and outside the City, in accordance with the City's open space, park, and parkland program (the "Program"), (it) fund a Reserve Fund, and (iii) fund costs of delivery of the Certificates. See "PLAN OF FINANCE" herein. Capitalized terms used, but not otherwise defined, herein shall have the meanings assigned thereto in "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — DEFINITIONS." Security for the Certificates The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of December 1, 2007 (the "Trust Agreement"), by and among the City, the Authority and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). Pursuant to the Lease, the City will lease the Leased Property from the Authority. The City is required under the Lease to pay Lease Payments for the Preliminary, subject to change. 70047651.5 use and possession of the Leased Property and to pay any taxes and assessments and the cost of maintenance and repair of the Leased Property. See "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — THE LEASE — Maintenance, Utilities, Taxes and Assessments." Pursuant to an Assignment Agreement, dated as of December 1, 2007 (the "Assignment Agreement"), by and between the Authority and the Trustee, the Authority will assign to the Trustee, for the benefit of the Owners of the Certificates, substantially all of its rights under the Lease, including its rights (i) to receive and collect certain payments received pursuant to the Lease, including the Lease Payments, (ii) to receive and collect the proceeds of any insurance maintained under the Lease, or any condemnation award rendered with respect to the Leased Property, (iii) in connection with the pledge of the Assessment Revenues (as defined below); and (iv) to exercise such rights and remedies conferred on the Authority pursuant to the Lease as may be necessary or convenient to enforce payment of the Lease Payments and any other amounts required to be deposited in the funds and accounts established under the Trust Agreement, or otherwise to protect the interests of the Owners of the Certificates in the event of a default by the City under the Lease. All rights assigned by the Authority pursuant to the Assignment Agreement shall be administered by the Trustee in accordance with the provisions of the Trust Agreement for the equal and proportionate benefit of all Certificate Owners. The Lease Payments are designed, in both time and amount, to pay, when due, the principal and interest with respect to the Certificates. The City has covenanted in the Lease that it will take such action as is necessary to include the Lease Payments and all other regularly scheduled payments due under the Lease in its annual budgets and to make the necessary appropriations therefor. Lease Payments are subject to abatement during any period during which, by reason of material damage, destruction or condemnation of the Leased Property or any.portion thereof, there is substantial interference with the City's ability to use and possess all or a portion of the Leased Property. Moneys in the Reserve Fund are also available to make Lease Payments on behalf of the City in the event of non-payment by the City for any reason. Under the Lease, the City pledges certain assessments deposited into the Assessment Revenue Fund from the City's Open Space Preservation District (the "Assessment District") to the extent such assessments are eligible to make Lease Payments (the "Assessment Revenues"). See "SOURCE OF PAYMENT OF AND SECURITY FOR THE CERTIFICATES — Assessment Revenues" herein. The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under an insurance policy (the "Policy") to be issued concurrently with the delivery of the Certificates by [Insurer]. See "CERTIFICATE INSURANCE" herein. The obligation of the City to make Lease Payments is not a general obligation of the City and the City's obligation to make Lease Payments does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes a debt of the City, the Authority, the County of Los Angeles, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. Legal Matters All legal proceedings in connection with the execution and delivery of the Certificates are subject to the approving opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel. Such opinion, and certain tax consequences incident to the ownership of the Certificates, including certain exceptions to the tax treatment of the interest component, are described more fully under the heading 7004765 L5 2 "TAX MATTERS" herein. Certain legal matters will be passed on for the City and the Authority by Burke, Williams & Sorensen, L.L.P., Los Angeles, California, 'as City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Professional Services The Bank of New York Trust Company, N.A., will serve as trustee under the Trust Agreement. The Trustee will act on behalf of the Certificateholders for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the Lease Payments and other funds held under the Trust Agreement, and otherwise to hold all the offices and perform all the functions and duties provided in the Trust Agreement to be held and performed by the Trustee. C.M. de Crinis & Co., Inc., Sherman Oaks, California, Financial Advisor, advised the City as to the financial structure and certain other financial matters relating to the Certificates. Fees payable to Special Counsel, Disclosure Counsel and the Financial Advisor are contingent upon the sale and delivery of the Certificates. The City's financial statements for the fiscal year ended June 30, 2006, attached hereto as "APPENDIX C" have been audited by Diehl, Evans & Company, LLP, Certified Public Accountants & Consultants, Irvine, California. The City's financial statements are public documents and are included within this Official Statement without the prior approval of the auditor. Accordingly, the auditor has not performed any post -audit of the financial condition of the City. Further Information This Official Statement contains brief descriptions of, among other things, the City, the Authority, the Certificates, the Trust Agreement, the Base Lease, the Lease, the Assignment Agreement, and certain other matters relating to the security for the Certificates. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to documents and agreements are qualified in their entirety by reference to such documents and agreements and references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Trust Agreement. Copies of such documents will be available for inspection at the principal corporate trust office of the Trustee in Los Angeles, California, after the date of delivery of the Certificates. ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Certificates are to be deposited with the Trustee and are expected to be applied as follows: SOURCES OF FUNDS: Principal Amount of Certificates Less: Net Original Issue Discount Plus Lease Payment Total Sources: USES OF FUNDS Deposit to Project Fund Deposit to Reserve Fund Costs of DeliverytO Total Uses: 01 Includes Underwriter's discount, bond insurance premium, counsel fees and other costs of delivery. 70047651.5 Debt Service Schedule The following table sets forth the scheduled Lease Payments relating to the Certificates. SCHEDULE OF PRINCIPAL AND INTEREST COMPONENTS Interest Payment* Principal Interest Total Date Component Component Total Annual Payments 4/1/2008 10/1/2008 4/1/2009 10/1/2009 4/1/2010 10/1/2010 4/1/2011 10/1/2011 4/1/2012 10/1/2012 4/1/2013 10/1/2013 4/1/2014 10/1/2014 4/1/2015 10/1/2015 4/1/2016 10/1/2016 4/1/2017 10/1/2017 4/1/2018 10/1/2018 4/1/2019 10/1/2019 4/1/2020 10/1/2020 4/1/2021 10/1/2021 4/1/2022 10/1/2022 4/1/2023 10/1/2023 4/1/2024 10/1/2024 4/1/2025 10/1/2025 4/1/2026 10/1/2026 4/1/2027 10/1/2027 4/1/2028 10/1/2028 4/1/2029 10/1/2029 4/1/2030 10/1/2030 4/1/2031 70047651.5 10/1/2031 4/1/2032 10/1/2032 4/1/2033 10/1/2033 4/1/2034 10/1/2034 4/1/2035 10/1/2035 4/1/2036 10/l/2036 4/1/2037 10/1/2037 *Lease Payments are due March 15 and September 15 of the respective year. PLAN OF FINANCE Use of Proceeds The City will apply a portion of the net proceeds of sale of the Certificates to finance a portion of the costs of the acquiring open space lands, parks, and parkland, both inside and outside the City's boundaries, in accordance with the City's open space, park, and parkland program (the "Program"). The City currently faces a deficit of over 600 acres of parkland and continues to seek a greenbelt of open space around the valley. In July 2007, the City formed the Assessment District to expand the existing Program to accelerate vacant land acquisition in and around the City. See "SOURCE OF PAYMENT OF AND SECURITY FOR THE CERTIFICATES — Assessment District" herein. The Engineer's Report for the Assessment District contained an Open Space Acquisition Implementation Work Program which identified categories of undeveloped land which may be acquired, including land preservation, Santa Clara River Watershed, trails and wildlife corridors, and set forth acquisition principles. It is the City's intent to utilize the funding from the Assessment District to accelerate vacant land acquisition in and around the City, by using the proceeds of the Certificates and other surplus revenues. Assessment Revenues are being pledged to make Lease Payments. See "SOURCE OF PAYMENT OF AND SECURITY FOR THE CERTIFICATES — Assessment Revenues, - Assessment District." Leased Property Under the Lease and the Site Lease, the Leased Property is the Santa Clarita Sports Complex. The Sports Complex one- and two-story facilities, made of masonry block, include an Aquatics Center, Gymnasium, and Activities Center located in the City of Santa Clarita on an approximate 22 acre site at 20880 Centre Pointe Parkway. The 25,000 square foot Activities Center was constructed in 2002, the 21,600 square foot Gymnasium was constructed in 1998, and the Aquatics Center, constructed in 2003, includes a 10,800 square foot administration/locker room building, three swimming pools totaling 24,301 square feet, a 2,500 square foot pool equipment building, and a 1,800 square foot concession building. The aggregate cost of the Sports Complex was $19,276,865, including land acquisition costs. The prime features of the Sports Complex include a state -of -the art Olympic size competitive swimming pool, family recreational pool with water play equipment, 25 meter dive pool, skate park, and a multifunctional activities center. The gymnasium includes two full basketball courts which can convert 70047651.5 into volleyball courts, as well as enclosed racquetball courts. The Activities Center includes meeting rooms, a kitchen, classrooms, an arena, and dance studio. The Sports Complex houses the City's Recreation Division staff who provides oversight of recreation programs including aquatics, field management, parks maintenance, and youth sports. The Authority will lease the Leased Property to the City pursuant to the Lease. Under the Lease, the City is required to maintain the Leased Property in working order. The City, based upon insurance coverage estimates, values the Sports Complex at $17.8 million. The City estimates that the total value of the real property comprising Leased Property is at least equivalent to the principal amount of the Certificates. The City has determined that the Lease Payments will comprise fair rental value for the Leased Property. The City has covenanted in the Lease to provide maintenance and insurance on the Leased Property throughout the term of the Lease. See, "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Lease." Substitution or Release The Lease provides that, upon prior written consent of the Insurer and compliance with the other conditions specified therein, the City may release from the Lease any portion of the Leased Property or substitute alternate real property for all or any portion of the Leased Property if the substituted or remaining real property has an annual fair rental value at least equal to the value of the substituted property released, and has a useful life equal to or greater than the useful life of the Leased Property, as constituted prior to such substitution or release. See "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — The Lease - Substitution of Alternate Leased Property and Release of Leased Property." THE CERTIFICATES General Provisions The Certificates will be executed, sold and delivered in the aggregate principal amount of $ and will be dated their date of delivery. Interest with respect to the Certificates will be payable semiannually on each April I and October 1, commencing April 1, 2008 (each, a "Payment Date"), and will mature on the dates provided on the inside cover page hereof. Interest with respect to the Certificates will be computed on the basis of a 360 -day year of twelve 30 -day months. Each Certificate will represent interest from the Interest Payment Date next preceding the date of authentication thereof, unless it is authenticated as of a day during the period after the fifteenth day of the month preceding an Interest Payment Date (the "Record Date") to and including that Interest Payment Date, in which event it shall represent interest from such Interest Payment Date, or unless it is authenticated on or before March 15, 2008, in which event it shall represent interest from the date of execution and delivery of the Certificates, provided, that if at the time of authentication of any Certificate, interest is in default on any outstanding Certificate, such Certificate shall represent interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the Outstanding Certificates. The Certificates evidence and represent proportionate and undivided interests of the Owners thereof in the Lease Payments to be made by the City. Preliminary, subject to change. 70047651.5 6 The Certificates will be executed, sold and delivered in fully registered form, without coupons, in denominations of $5,000 each or any integral multiple thereof. Principal and premium, if any, with respect to the Certificates will be payable upon surrender by the Owners thereof at the principal trust office of the Trustee. Interest with respect to the Certificates will be payable by check mailed to the Owners of record at the addresses shown on the Certificate registration books maintained by the Trustee for such purpose. Owners of Certificates in an aggregate principal amount of $1,000,000 or more may, by providing written instruction to the Trustee, receive interest with respect to the Certificates by wire transfer. Book -Entry Only System The Certificates will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC'). DTC will act as securities depository for the Certificates. Owners will not receive physical certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. See "THE CERTIFICATES - General Provisions" and "APPENDIX D — BOOK -ENTRY ONLY SYSTEM." In the event that the book -entry only system described in APPENDIX D is no longer used with respect to the Certificates, the Certificates will be registered in accordance with the Trust Agreement described herein. See "APPENDIX D — BOOK -ENTRY ONLY SYSTEM — Discontinuation of Book -Entry Only System; Payment to Beneficial Owners." Prepayment The Certificates shall be subject to prepayment as follows: (a) Optional Prepayment. The Certificates maturing on or after October 1, 20 , are subject to prepayment in whole or in part, on any date on or after October 1, 20 , from moneys deposited in the Lease Payment Fund as a result of the exercise by the City of its option to prepay its Lease Payments, exercised by depositing sufficient funds with the Trustee prior to the scheduled prepayment date, as provided in the Lease, at a prepayment price of the principal amount plus accrued interest to the date fixed for prepayment, without premium. (b) Mandatory Sinking Account Prepayment. The Certificates maturing October 1, 20_ (the "20 Term Certificates") will be subject to prepayment in part by lot, on October 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium, provided, however, that if some but not all of the 20_ Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 20_ Term Certificates so prepaid. In addition, in lieu of prepayment thereof, the 20 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking Account (October I) Prepayment ' Final Maturity 70047651.5 7 (c) Prepayment From Net Insurance Proceeds. The Certificates are subject to prepayment, in whole or in part on any date, from Net Insurance Proceeds deposited in the Prepayment Fund at least 35 days prior to the proposed prepayment date and credited towards the Prepayment made by the City pursuant to the Lease, at a prepayment price equal to the Principal Component thereof, together with accrued interest to the date fixed for prepayment, without premium. To the extent that Net Insurance Proceeds are in excess of the principal and interest with respect to Certificates then to be prepaid, any excess amount shall, immediately following the prepayment date in question, be transferred by the Trustee to the Lease Payment Fund as a credit against the next Lease Payment due from the City. Selection of Certificates for Prepayment. All or a portion of any Certificate may be prepaid, but only in a Principal Component equal to $5,000. Except as otherwise provided in the Trust Agreement, whenever provision is made in for the prepayment of Certificates and fewer than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment as directed by the City, and, in the absence of such direction, in inverse order of maturity, and by lot within any maturity, in any manner which the Trustee shall deem appropriate and fair. The Trustee shall promptly notify the City and the Authority in writing of the Certificates selected for prepayment. Notice of Prepayment Notice of any such prepayment shall be given by the Trustee on behalf and at the expense of the City by mailing a copy of a prepayment notice by first class mail at least thirty (30) days and not more than sixty (60) days prior to the date fixed for prepayment to such Owner of the Certificate or Certificates to be prepaid at the address shown on the Certificate registration books maintained by the Trustee; provided, however, that neither the failure to receive such notice nor any defect in any notice shall affect the sufficiency of the proceedings for the prepayment of the Certificates. All notices of prepayment shall be dated and shall state: (i) the prepayment date, (ii) the prepayment price, (iii) if less than all Outstanding Certificates are to be prepaid, the identification (and, in the case of partial prepayment, the respective principal amounts) of the Certificates to be prepaid, (iv) that on the prepayment date the prepayment price will become due and payable with respect to each such Certificate or portion thereof called for prepayment, and that interest with respect thereto shall cease to accrue from and after said date, (v) the place where such Certificates are to be surrendered for payment of the prepayment price, and (vi) whether the City has deposited, or caused the deposit of, an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on such date and, if not, that such notice of prepayment is revocable. Prior to the mailing of any notice of prepayment (other than a mandatory sinking fund prepayment), the City shall deposit, or cause to be deposited, with the Trustee an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on that date. Effect of Notice of Prepayment. Notice of prepayment having been given as aforesaid, the Certificates or portions of Certificates so to be prepaid shall, on the prepayment date, become due and payable at the prepayment price therein specified, and from and after such date (unless the City shall default in the payment of the prepayment price) interest with respect to such Certificates or portions of Certificates shall cease to be payable. Upon surrender of such Certificates for prepayment in accordance with said notice, such Certificates shall be paid by the Trustee at the prepayment price. Upon surrender for any partial prepayment of any Certificate, there shall be prepared for the Owner a new Certificate or Certificates of the same maturity in the amount of the unpaid principal. 70047651.5 8 If, on said date of prepayment, moneys for the prepayment of all of the Certificates to be prepaid, and premium, if any, together with interest accrued thereon to said prepayment date, shall be held by the Trustee so as to be available therefor on such prepayment date, and, if notice of prepayment thereof shall have been given as aforesaid, then, from and after said prepayment date, interest with respect to the Certificates shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates to be prepaid without liability for interest thereon. Trustee The Bank of New York Trust Company, N.A. has been appointed as Trustee for the Certificates under the Trust Agreement. The Trustee may resign or be removed or replaced by the City as provided in the Trust Agreement. For so long as The Bank of New York Trust Company, N.A. is Trustee, its principal corporate trust office shall be 700 South Flower Street, Suite 500, Los Angeles, California 90017, or such other address as the Trustee may designate. See "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — THE TRUST AGREEMENT" for a summary of the rights, duties and obligations of the Trustee. SOURCES OF PAYMENT OF AND SECURITY FOR THE CERTIFICATES General Each Certificate evidences a proportionate and undivided interest in the Lease Payments and Prepayments to be made by the City under the Lease. The Authority, pursuant to the Assignment Agreement, has assigned to the Trustee for the benefit of the Owners substantially all of its rights under the Lease, including its right to receive and collect all the Lease Payments and Prepayments thereunder, its right to receive and collect any proceeds of any insurance maintained pursuant to the Lease, any condemnation award rendered with respect to the Leased Property, its right to take all actions and give all consents under the Lease and to exercise all rights and remedies of the Authority under the Lease. The City will pay Lease Payments directly to the Trustee, as assignee of the Authority. The Lease Payments are designed to be sufficient, in both time and amount, to pay, when due, the principal and interest components due with respect to the Certificates. The City has covenanted under the Lease to make Lease Payments and Additional Payments (to the extent not payable from the proceeds of the Certificates) for the use of the Leased Property and to take such action each year as may be necessary to include all Lease Payments and Additional Payments in its annual budgets (but, with respect to Additional Payments, only to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed) and to appropriate annually an amount necessary to make such Lease Payments and Additional Payments. See "PLAN OF FINANCE" for a description of the real property and improvements thereon that is the subject matter of the Lease. The amounts payable to the Trustee are to be used to make the payments of principal and interest with respect to the Certificates. Under California law, even though the Lease becomes effective as of the date of the Certificates, the obligation of the City to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Lease Payment Fund or the Reserve Fund) must be abated in whole or in part if the City does not have substantial use and possession of the Leased Property. See "RISK FACTORS — Abatement' herein. 70047651.5 The obligation of the City to make Lease Payments is not a general obligation of the City and the City's obligation to make Lease Payments does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes a debt of the City, the Authority, the County of Los Angeles, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. Lease Payments Subject to the provisions of the Lease regarding abatement in the event of substantial interference with the use of any portion of the Leased Property (see "RISK FACTORS — Abatement" herein) and prepayment of Lease Payments (see the provisions under "THE CERTIFICATES — Prepayment" herein), the City agrees to pay to the Authority, its successors and assigns, as annual rental for the use of the Leased Property, the Lease Payments (denominated into components of principal and interest) to be due and payable on the 15i° day of the month prior to each Payment Date which are sufficient in both time and amount to pay when due the principal and interest represented by the Certificates. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than proceeds of Certificates deposited therein pursuant to the Trust Agreement representing advance rental not yet payable with respect to the Certificates and amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of past due principal or interest with respect to any Certificates not presented for payment) shall be credited towards the Lease Payment then due and payable. No Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund and available for credit for the Lease Payment then due and payable are at least equal to the Lease Payment then required to be paid. Assessment Revenues The proceeds of the Certificates will be used to finance a portion of the costs of the acquisition of open space lands, parks, and parkland, both inside and outside of the City, in accordance with the City's open space, park, and parkland program (the "Program"). See "PLAN OF FINANCE — Use of Proceeds." Legally available funds of the City to make Lease Payments include Assessment Revenues since the proceeds of the Certificates constitute indebtedness for the purposes of the Assessment District. The Certificates are secured by a pledge of the Assessment Revenues received by the City from the operation of the Assessment District. Pursuant to the Lease, the City covenants to contribute all or a portion of annual Assessment Revenues collected for Lease Payments and for any Additional Assessment District Obligations (as defined below) as provided in the Lease. As the County pays the annual Assessment Revenues to the City, the City covenants to hold such amounts in a separate fund established by the Lease and held by the Deputy City Manager/Director of Administrative Services known as the "Assessment Revenue Fund," until the amount on deposit therein equals the Lease Payments due for such Certificate Year and the debt service on any Additional Assessment District Obligations. Thereafter, Assessment Revenues in excess of such required deposit are released to the City for any lawful use as authorized by the Assessment District. Under the terms of the Lease, the City covenants to continue to annually impose, levy, and collect the Assessments Revenues as long as there exist Outstanding Certificates subject to the final levy in Fiscal Year 2036/37. The City may pledge the Assessment Revenues or incur obligations secured by the Assessment Revenues on a parity with the pledge of the Assessment Revenues to the Certificates (the "Additional 7004765 1 s 10 Assessment District Obligations") provided the projected Assessment Revenues equal or exceed the debt service of the Certificates and the Additional Assessment District Obligations. The Assessment District The City formed the Assessment District with boundaries congruent to the boundaries of the City pursuant to the Landscape and Lighting Act of 1972 (Section 22500 et seq.) of the Streets and Highways Code of the State of California (the "Act') to finance a portion of the Program. On April 24, 2007, City Council adopted a resolution of intent to form an Open Space Preservation District. A public hearing was held on July 10, 2007 regarding the proposed formation of the Open Space Preservation District and levy of the assessments, and to consider all oral and/or written statements, protests, and communications made or filed by all interested persons. Following the conclusion of the public hearing, assessment ballots received by the City were tabulated by the City Clerk. Ballot tabulation was completed on Friday, July 13, 2007 and the results of the property owner assessment ballot tabulation were $409,974 of assessment (69%) voted "yes" and $182,672 of assessment (31%) voted "no." The duration of the Assessment District is for thirty (30) years beginning in Fiscal Year 2007/08 and will terminate with Fiscal Year 2036/37. The City annually levies and collects assessments on the parcels within the Assessment District boundaries, which are coterminous with the City boundaries, to fund a portion of the Open Space Program for the City, consisting of the acquisition, preservation, improvement, servicing, financing and maintenance of open space lands, parks and parkland and appurtenant equipment and facilities, including the payment of debt service. Facilities include but are not limited to open space land, parks, parklands, the Santa Clara River Watershed, trail systems and wildlife corridors both inside and outside the City limits. See "THE PLAN OF FINANCE — General" herein. Since proceeds of the Certificates will fund open space and parkland acquisition, certain assessment collections from the Assessment District have been assigned to the City and are pledged to the payment of Lease Payments to the extent eligible to make Lease Payments. Of the 51,612 parcels in the Assessment District, approximately 95% are designated as residential properties, and the remaining 5% are designated as business, commercial or industrial or vacant properties. The annual assessments for Fiscal Year 2007/08 are calculated at $25.00 per Benefit Unit (BU) and range from $3.13 a parcel to $9,530.25 a parcel, with single-family residential at $25.000 per dwelling unit. The maximum annual assessment rate will be increased each year by $1.00 per BU. The actual assessments levied in any fiscal year will be as approved by the City Council and may not exceed the maximum. assessment rate without receiving property owner approval for the increase. The total assessed value for Fiscal Year 2007/08 for all of the parcels is $20,277,751,736.00. The District has levied assessments totaling $1,569,347.57 in the Assessment District for collection in Fiscal Year 2007/08. The largest assessment payment by a single property owner in Fiscal Year 2007/08 in the Assessment District is $13,387.50. 70047651.5 11 TABLE2 CITY OF SANTA CLARITA Open Space Preservation District 2007/08 Levy 2007/08 No. of Assessment Range Type Parcels ($25.00/Benefit Unit) Assessed Value 2007/08 Levy Residentialltl 49,033 $6.25-$25.00 $16,241,195,365 $1,305,912.50 Developed NonResidential (2) 1,575 $12.50 - $9;530.25 3,537,256,863 220,686.25 Vacant (3) 1,004 $3.13—$93.75 499,299,508 42,748.82, TOTAL 51,612 $20,277,751,736 $1,569,347.57 (1) Includes single-family home developed at I Benefit Unit (BU) per dwelling unit, single-family home vacant at .25 BU per parcel, Multi- family (including condo) at .75 BU per dwelling unit and Mobile home park at .5 BU per space (2) Includes commercial, industrial, government and church uses at 3 BU per acre with a .5 BU per parcel minimum. (3) Vacant is at .75 BU per acre with a .125 BU per parcel minimum and 3.75 BU per parcel maximum. Source: Engineer's Report, Final Assessment Roll for FY 2007-08 levy. In accordance with the Program, the City is establishing a five -member Open Space Preservation District Financial Accountability and Audit Panel which will review and approve the annual work program to ensure land acquisition priorities are being adhered to; and review and ensure Assessment District funds are spent properly. Additional Payments The City shall pay such amounts ("Additional Payments") as shall be required for the payment of all administrative costs relating to the Leased Property or the Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, fees of auditors, accountants, attorneys or engineers, and all other necessary administrative costs of the City or Authority or charges required to be paid in order to maintain its existence or to comply with the terns of the Certificates or of the Trust Agreement or to indemnify the Authority and its officers and directors. All such Additional Payments to be paid shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. Reserve Fund A Reserve Fund is established under the Trust Agreement, initially funded at the Reserve Requirement, or with a reserve surety deposited with the Trustee in a face amount equal to the Reserve Requirement. The Reserve Requirement is that amount, at any time, equal to the least of. (i) ten percent (10%) of the net proceeds of sale of the Certificates and Additional Certificates; (ii) the maximum prospective aggregate amount of Lease Payments to be paid in any Certificate Year; or (iii) 125% of the average Lease Payments to be paid by the City in the then -current or any future Certificate Year. If the City reduces the amount of Certificates Outstanding through optional or mandatory prepayment, the amounts in the Reserve Fund may, at the direction of the City, decrease proportionately. Amounts on deposit in the Reserve Fund shall be invested and earnings on such fund representing an excess over the Reserve Requirement shall be transferred to and deposited into the Lease Payment Fund. 70047651.5 12 The Reserve Requirement, or any portion thereof, may also be satisfied by the City by crediting to the Reserve Fund a letter of credit, a surety bond insurance policy, or any other comparable credit facility or any combination thereof which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. See "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —Definitions." Insurance by the City Pursuant to the Lease, the City is obligated to obtain a standard comprehensive general public liability insurance policy or policies in protection of the City and the Authority including their respective members, officer, agents, employees and assigns. Said policy or policies must provide for indemnification of said parties against direct or contingent loss or liability foi damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Said policy or policies must provide coverage in such liability limits and be subject to such deductibles as the City deems adequate and prudent. The Lease also requires the City to maintain, or cause to be maintained, casualty insurance insuring the Leased Property against loss or damage to any part of the Leased Property by fire and lightning, with extended coverage insurance. Such insurance is required to be in an amount equal to the lesser of 100% of the replacement cost of the Leased Property or the outstanding principal amount of the Certificates and Additional Certificates if available at commercially reasonable rates. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the City and may be maintained in whole or in part in the form of the participation of the City in a joint powers authority or in the form of self-insurance by the City. The Lease further requires the City to cause to be maintained, throughout the term of the Lease, rental interruption insurance or use and possession insurance to cover the loss, total or partial, of any part of the Leased Property as a result of any hazards covered by the casualty insurance described in the preceding paragraph, in an amount at least equal to Lease payments during any 24 -month period. The Lessee shall obtain an ALTA title insurance policy respecting the ownership and condition of the Leased Property or Alternate Leased Property, in an amount equal to the aggregate principal amount of the Certificates and in form and substance satisfactory to the Insurer. See "APPENDIX A – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – THE LEASE – Insurance." The Lease requires the City promptly to remit to the Trustee the Net Proceeds of any insurance award either to replace or repair the Leased Property or to prepay Certificates, for deposit by the Trustee into the Net Proceeds Fund. The amount of Lease Payments and Additional Payments due under the Lease may be reduced during any period in which material damage or destruction to all or part of the Leased Property substantially interferes with the City's use and possession thereof. See "RISK FACTORS – Abatement" herein. Neither the Trust Agreement nor the Lease requires the City to obtain earthquake insurance with respect to the Leased Property. See "RISK FACTORS –Earthquakes." The City may not create any mortgage, pledge, lien or charge upon the Leased Property other than the "Permitted Encumbrances" as defined in the Trust Agreement. 70047651.5 13 Budget and Appropriation of Lease Payments The Lease provides that, from and after the date on which the City takes possession of the Leased Property and unless the Lease is terminated, the City shall take such action as may be necessary to include all Lease Payments in each of its budgets and to make necessary appropriations for all such Base Rental Payments coming due and payable during the period covered by such budget, and the public officials of the City shall take such actions and do other things required by law to enable the City to carry out and perform this covenant. The amounts payable to the Trustee under the Lease are to be used to make payments of the principal of and interest with respect to the Certificates, plus other fees, expenses and reimbursements as specified in the Trust Agreement. The City's revenues are derived in part from ad valorem property taxes. Such taxes are subject to limitations under Article XHIA of the California Constitution. The City has the capacity to enter into other obligations which may constitute additional charges against its general revenues. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments and Additional Rental payments, if any, may be decreased. Appropriations of the City are subject to limitation under Article X1II13 of the California Constitution. See "RISK FACTORS — Risks Related to Taxation in California." Bond Insurance Payment of the principal of and interest with respect to the Certificates when due will be insured by a municipal bond insurance policy to be issued by [Insurer] simultaneously with the delivery of the Bonds. See "CERTIFICATE INSURANCE" and "APPENDIX F -- SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY." CERTIFICATE INSURANCE To follow. CITY OF SANTA CLARITA INFORMATION General Background The City is located in the Santa Clarita Valley (the "Valley"), which is comprised of the communities of Canyon Country, Newhall, Saugus, and Valencia, all located in Los Angeles County (the "County"). The following information specifically relates to the City and generally to the Santa Clarita Valley. The first discovery of gold in 1842 was the beginning of a transformation of the area of the City, where the once -ancient Alliklik Indians, wild horses, Spanish explorers and European colonists lived. After purchasing Rancho San Francisco (later known as Newhall Ranch) in 1875, Henry Mayo sold a right-of-way to the Southern Pacific Railroad for $1 and a town site known as Newhall for another $1. Not only did it become a rail center, but the first commercially producing oil well began operation in Pico Canyon in 1875, followed by the state's first oil refinery in Railroad Canyon. The City was officially incorporated on December 15, 1987, after a ballot measure was passed by the City's residents. The City is a general law city and operates under a Council -Manager form of government and provides, either directly or under contract with the County, a full range of municipal services including public safety, public works (including the sewer system), parks and recreation, community development, etc. 70047651.5 14 Geography and Climate Santa Clarita Valley is located 35 miles northwest of Los Angeles and 40 miles east of the Pacific Ocean. It covers 150 square miles and forms an inverted triangle with the San Gabriel and Santa Susana mountain ranges, separating it from the San Fernando Valley and the Los Angeles Basin on the south, and the San Joaquin Valley, Mojave Desert and Angeles National Forest to the north. The Santa Clara River and its tributaries drain over 490,000 acres of mountains and canyons forming Santa Clarita Valley. The City of Santa Clarita covers approximately 50 square miles and is located 40 miles from Los Angeles International Airport, 25 miles from the Burbank Airport; and 50 to 60 miles from the ports of Los Angeles and Long Beach, respectively. The City is accessible via Highway 126, the Golden State and the Antelope Valley Freeways. Three Metrolink stations serve rail passengers from the San Fernando Valley and Downtown Los Angeles. In general, the climate in the City is sunny, warm and dry in the summer and semi -moist and mild in the winters. The annual rainfall of 15 to 18 inches occurs primarily between November and March. Municipal Government The City provides general government services either with its own employees or through contracts. The City has a Council Manager form of municipal government. The City Council appoints the City Manager who is responsible for the day -today administration of City business and the coordination of all departments. The City Council is composed of five members elected biannually at large to four-year staggered terms. The Mayor is selected by the Council from among its members. As of July 1, 2007, the City had a staff of 384.75 funded equivalent full time positions. The current members of the City Council, term expiration and their principal occupations are as follows: City Council Marsha A. McLean, Mayor Robert C. Kellar, Mayor Pro !em Laurette F. Weste, Councilmember Frank C. Ferry, Councilmember Timothy B. Boydston, Councilmember' Term Expires Occupation April 2010 Business Owner April 2008 Retired Police Officer April 2010 Community Advocate April 2010 Educator April 2008 Artistic Director • Appointed to 511 vacancy upon election of Councilmember Cameron Smythe to State Assembly, 38th District. 70047651.5 15 Current City Management Staff includes the following: Mr. Ken Pulskamp serves as the City Manager and was appointed to the position November 5, 2002. A twenty-seven year veteran of local government management, Ken previously served as Deputy City Manager of Fresno, California, Assistant City Manager of Bakersfield, California and Assistant City Manager of Santa Clarita. During his tenure with the City Ken has also served as the Acting Department Head of every City department. Ken has a Bachelor of Arts from the California State University, Fresno and a Master of Public Administration from the University of San Francisco. Mr. Ken Striplin is currently the Assistant City Manager and Personnel Officer for the City of Santa Clarita since September 2004. Previously Ken has served Santa Clarita as Assistant to the City Manager, Technology Services Manager, Management Analyst and Administrative Analyst. In addition, Ken has served as Interim Director of two departments: Field Services and Planning and Economic Development. Ken holds Bachelor of Arts and Master of Public Administration degrees from California State University, Northridge, and a Doctor of Education in Organizational Leadership from Pepperdine University. Mr. Darren Hernandez has been the Director of Administrative Services for the City of Santa Clarita since January 2004 and was named Deputy City Manager in July 2007. In this position he provides leadership to the Department of Administrative Services and serves the City as Chief Financial Officer. Previously Darren has served as the Director of Finance & City Treasurer of La Habra, California; Village Manager of Walden, New York; Assistant to the City Manager of Kalamazoo, Michigan; and, Executive Assistant to the Controller of the State of New York. Darren has a Bachelor of Arts degree from the State University of New York and studied public administration as a graduate student at the Maxwell School of Syracuse University. Municipal Services The City provides park and recreation services, transit services, trash collection, street maintenance, building inspection and planning services. As a "contract city," the City purchases certain public services through contracts with other agencies and private companies. Contracting for services enables the City to accomplish the essential administrative and operational functions of a municipality with a relatively small workforce and payroll, and a minimum of facilities and equipment. The primary example of the contract arrangement is the Santa Clarita Police Department, whose sworn and civilian personnel are provided by the Los Angeles County Sheriffs Department. Fire protection is provided by the Los Angeles County Fire Protection District. Other regularly contracted services include refuse and recycling collection, landscaping and public transit services. Education The City is served by 47 elementary schools, 6 middle schools, 7 high schools and numerous private and parochial schools. Three colleges are located in the Valley, California Institute of the Arts, The Masters College and College of the Canyons. Collectively, their student population reached 15,079. California State University — Northridge in the northern part of the San Fernando Valley is nearby and serves as an additional resource for higher-level education. 70047651.5 16 Population The following table shows the City's and County's population from 2003 through 2007 calendar years. TABLE 3 CITY OF SANTA CLARITA AND LOS ANGELES COUNTY Population Year Los Angeles County City of Santa Clarita 2003 9,980,168 162,964 2004 10,101,547 164,905 2005 10,191,080 167,389 2006 10,257,994 167,631 2007 10,331,939 177,158 Source: California State Department of Finance, as of January 1. Employment The following table summarizes the City's employment and unemployment rates for 2002 through 2006 calendar years. TABLE4 CITY OF SANTA CLARITA Civilian Labor Force, Employment and Unemployment Annual Averages 2002 2003 2004 2005 2006 Civilian Labor Force Employment 84,800 84,600 85,300 87,300 88,300 Unemployment 3600 3,700 3500 2900 2600 Total H. 300 Unemployment Rate(.) 4.1% 4.2% 3.9% 3.2% 2.8% W The unemployment rate is calculated using unrounded data. Source: California Employment Development Department 70047651.5 17 Largest Employers Major employers within the Santa Clarita Valley are as follows: TABLE 5 SANTA CLARITA VALLEY Major Employers Company Six Flags Magic Mountain Saugus Union School District William S. Hart Union High School District Princess Cruises U.S. Postal Service College of the Canyons Henry Mayo Newhall Memorial Hospital Newhall School District The Master's College Specialty Laboratories H.R. Textron City of Santa Clarita California Institute of the Arts Arvato Services Aerospace Dynamics Fanfare Media Works Advanced Bionics Pharmavite Castaic Union School District Product/Service Employees Amusement Park 3,878 Education 2,095 Education 2,009 Travel 1,850 Processing & Distribution Center 1,707 Education 1,411 Hospital 1,355 Education 825 Education 741 Medical Research & Development 700 Aerospace 688 Government 606 Education 510 Business Services 505 Aerospace 437 Promotions/Direct Advertising 407 Medical Device 375 Nutritional Supplement 350 Education 350 Retail Store 345 Source: First American Title Company's California Economic Forecast, October 2006 Commercial Activity and Sales Tax The following tables show total taxable transactions and sales tax revenues within the City over the last five calendar years in which annual data is available. TABLE 6 CITY OF SANTA CLARITA Taxable Transactions (Thousands of Dollars) Year Permits Taxable Transactions 2001 5,343 $1,809,538 2002 5,458 1,246,643 2003 5,618 2,095,140 2004 5,999 2,290,510 2005 6,336 2,673,395 Source: State Board of Equalization. 70047651.5 18 There is a geographic area within the City known as the "Santa Clarita Enterprise Zone" that provides tax incentives to business. The Santa Clarita Enterprise Zone covers 97% of all commercial, business, and industrial zoned land within the City. As of its final designation date on July 1, 2007, the Santa Clarita Enterprise Zone will strengthen the region's local economy by providing significant California state tax advantages to businesses located within the Zone. Housing As of January 1, 2007, the California Department of Finance reported that there were 36,020 single family detached units in the City, 6,938 single family attached units, 13,370 multifamily housing units and 2,240 mobile home units. The vacancy rates is approximately 3.16%. Single family homes in the City have values that range from $300,000 to well over $1 million. Rents range from $800 to $2800 per month for one- and two-bedroom apartments, with condominium and townhome rentals ranging slightly higher. Construction Activity The following table shows the valuation of building permits issued in the City for the last six calendar years in which the data is available. Median Household Income The U.S. Census Bureau American FactFinder reports that the median income of households in the City for 2006 is $75,917 compared to $48,451 for the nation. Ninety percent of the households received earnings and fourteen percent received retirement income other than Social Security, with eighteen percent of the households receiving Social Security. These income sources are not mutually exclusive, with some households receiving income from more than one source. Recreational Activities There are a number of recreational and historical facilities located in the Santa Clarita Valley. Among them are Six Flags Magic Mountain Amusement Park and Gene Autry's Melody Ranch. For water enthusiasts there are Castaic Lake, Lake Hughes, Lake Elizabeth, Lake Piro and Lake Pyramid. The Angeles National Forest, Placenta Canyon Nature Center, Saugus Train Station, Vasquez Rocks County Park and the City's community parks are also available for hiking and picnicking. William S. 70047651.5 19 TABLE 7 CITY OF SANTA CLARITA Building Permits and Valuations Year Residential Permits Residential Value Non -Residential Value Total 2001 405 $136,423,000 $ 30,742,000 $167,165,000 2002 441 135,731,000 58,085,000 193,816,000 2003 362 117,949,000 37,054,060 155,003,000 2004 864 261,539,000 51,935,000 313,574,000 2005 506 153,499,000 94,480,000 247,979,000 2006 954 83,497,806 144,909,433 228,407,239 Source: Economic Sciences Corporation/LA Regional Planning Report Median Household Income The U.S. Census Bureau American FactFinder reports that the median income of households in the City for 2006 is $75,917 compared to $48,451 for the nation. Ninety percent of the households received earnings and fourteen percent received retirement income other than Social Security, with eighteen percent of the households receiving Social Security. These income sources are not mutually exclusive, with some households receiving income from more than one source. Recreational Activities There are a number of recreational and historical facilities located in the Santa Clarita Valley. Among them are Six Flags Magic Mountain Amusement Park and Gene Autry's Melody Ranch. For water enthusiasts there are Castaic Lake, Lake Hughes, Lake Elizabeth, Lake Piro and Lake Pyramid. The Angeles National Forest, Placenta Canyon Nature Center, Saugus Train Station, Vasquez Rocks County Park and the City's community parks are also available for hiking and picnicking. William S. 70047651.5 19 Hart Park features a magnificent Spanish colonial mansion museum. Frazier Park and Mountain High are within a 40 mile drive for ski enthusiasts. Also located in the City are the Canyon Theatre Guild, Disney Studios, Santa Clarita Repertory Theater, as well as the Friendly Valley, Valencia Country Club, Robinson's Ranch and Vista Valencia golf courses. Santa Clarita residents enjoy the City's distinctive trail system. There are three County libraries located in the valley. FINANCIAL INFORMATION REGARDING THE CITY The following selected financial information provides a brief overview of the City's finances. This financial information has been extracted from the City's audited financial statements and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as Appendix A hereto. See "APPENDIX C — SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,2006." Budgetary Process and Administration The City uses the following procedures when establishing the budgetary data reflected in its financial statements: The fiscal year of the City begins on the first day of July of each year and ends on the thirtieth day of June the following year.' At such date as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for such department for the ensuing fiscal year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager reviews the estimates, holds conferences thereon with the respective department heads as necessary, and may revise the estimates as he may deem advisable. In June, the City Manager submits to the City Council the proposed budget as prepared by him. After reviewing and making such revisions as it deems advisable, the City Council determines the time for the holding of a public hearing thereon and causes to be published a notice thereof not less than ten days prior to the hearing date. Copies of the proposed budget are available for inspection by the public in the office of the City Clerk at least ten days prior to the hearing. At the conclusion of the public hearing, the City Council further considers the proposed budget and makes any revisions thereof that it deems advisable and on or before June 30 it adopts the budget with revisions, if any, by the affirmative vote of at least a majority of the total members of the Council. From the effective date of the budget, the several amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named, provided that the City Manager may transfer funds from one object or purpose to another within the same fund, department, office or agency. All appropriations lapse at the end of the budget period to the extent that they have not been expended or lawfully encumbered. At any public meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by the affirmative vote of at least a majority of the total members of the City Council. The City Council employs, at the beginning of each fiscal year, an independent certified public accounting firm which, at such time or times as specified by the City Council, at least annually, at such other times as such firm shall determine, examines the books, records, inventories and reports of all officers and employees who receive, control, handle or disburse public funds and of all such other officers, employees or departments as the City Council may direct. As soon as practicable after the end of 70047651.5 20 the fiscal year, a report is submitted by such firm to the City Council and a copy of the financial statements as of the close of the fiscal year is published. Budgeted Revenues and Expenditure The General City Budget includes programs which are provided on a largely city-wide basis. The programs and services are financed primarily by the City's share of sales tax, property tax, revenues from the State and/or federal government, and charges for services provided. Sales and use taxes provide the major source of revenues to the General Fund. Other significant 2007/08 General Fund budgeted revenue sources are property tax (more than half constituting property tax in lieu of vehicle license fees), and development revenue. Parks, recreation and community services account for the largest share of the City's 2007/08 General Fund Operating Budget followed by public works and public safety. The General Fund allocates $10,536,817 towards the City's Capital Improvement Plan for 2007/08. The 2007/08 General Fund Budget reflects 1.6% decrease from tax and fee revenues and an overall 10% increase from operating expenditures for the unaudited actual financials for fiscal year 2006/07. The City has budgeted over 4% decrease in property taxes and a 6% increase in sales tax. The General Fund reserve is budgeted at a total of $23,005,000, which includes a 15% operating reserve that totals $10,990,000. A 15% operating reserve is a goal set by the City Council in previous years. The following table compares the mid -year adjusted year-end budget for the General Fund 2007/08 Budget with unaudited revenue and expenditures for 2006/07. 70047651.5 21 TABLE NO.9 CITY OF SANTA CLARITA COMPARISON OF GENERAL FUND BUDGETED REVENUES AND EXPENDITURES FUNDING SOURCES Taxes and Fees Property Tax Property Tax in Lieu Real Property Transfer Tax Sales Tax Franchise Fees Transient Occupancy Tax Other Taxes/Revenue Code Fines Vehicle License Fee Revenues from State Revenue from Federal Government Interest Income Development Revenues Parks and Recreation Fees Subtotal Taxes and Fees Transfers & Reimbursements Transfers In Overhead Reimbursements Other Financing Sources Total Revenues EXPENDITURES General Government Community Services Public Works Public Safety Parks & Recreation Subtotal Operating Expenditures Debt Service Capital Outlay Transfers Out Total Expenditures Approved Budgeted Budgeted Unaudited 2007/08 Increase/ % Increase/ 2006/07 Actual Budget (Decrease) (Decrease) $11,220,128 $10,725,400 ($495,128) (4.4%) 12,020,349 12,260,760 240,411 2.0 1,073,774 835,000 (238,744) (22.2) 32,175,550 34,243,567 2,068,017 6.4 5,737,972 5,397,500 (340,472) (5.9) 1,804,923 1,730,000 (74,923) (4.2) 2,169,077 708,550 (1,460,527) (67.3) 410,087 331,100 (78,987) (19.3) 1,504,146 1,350,000 (154,146) (102) 268,385 636,982 368,597 137.3 907,104 1,071,387 164,283 18.1 3,164,528 1,575,000 (1,589,528) (50.2) 7,756,820 8,002,925 246,105 3.2 3.910.158 3,897,250 (12,908) 0.3 $84,123,001 $82,765,421 ($1,357,580)(1.6%) 15,630,354 2,720,843 (12,909,511) (82.6) 2,222,416 2,269,601 47,185 2.1 $101,975,771 $87,755,865 ($14,219,906) (13.9%) 13,806,653 14,233,063 426,410 3.1 6,443,059 4,110,759 (2,332,300) (36.2) 13,474,930 15,501,243 2,026,313 15.0 13,875,831 15,794,891 1,919,060 13.8 18.579,886 19,625,911 1,046,025 5.6 $66,180,359 $69,265,867 $3,085,508 4.7% 941,036 2,939,356 1,998,320 212.4 5,367,565 10,536,817 5,169,252 96.3 5.477.635 3.506.648 (1.970.987)3( 6.0) $77,966,595 $86,248,688 $8,282,093 10.6% 1. Includes rental income, business license fees, impound fees, animal license fees, farmer's market revenue, diaper recycling, beverage partnership income, false alarm fees and other miscellaneous revenue items. Source: Cit, ofSanta Clarita. 70047651.5 22 Management Discussion of Historic and Projected Financial Performance As of June 30, 2007, the assets of the City's General Fund exceeded its liabilities by $64,254,183. The increase of $24 million over the prior year amounted to a 61% increase. In preparing the 2007/08 budget, management looked at the following economic factors: Sales tax revenues, which are the largest general fund revenue source, are anticipated to increase by 6% due to anticipated increases in local consumer spending and completion of new retail centers within the City. Challenges in the regional economy with regard to the housing market that could directly impact property tax revenues. Taking into consideration the growing service demands on the City, as well upkeep and maintenance of costly capital projects. The City continued to take a conservative approach in the area of revenue assumptions and recommended expenditures. The budgeted general fund taxes and fee revenues for fiscal year June 30, 2008 are budgeted at $82.8 million, which represents a decrease of 1.6% over the prior year. The City's operating budget for 2007/08 for all funds increased by 10% over the prior year. Taxable Property and Assessed Valuation Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due in two installments, on November 1 and February 1 of the fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of l'/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of IV2% per month begins to accrue on November 1 of the fiscal year. The City has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's Office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. City taxes are assessed and collected by Los Angeles County at the same time and on the same rolls as are County, school and special district taxes. 70047651.5 23 State law exempts $7,000 of the full cash value of an owner -occupied dwelling, but this exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions. The City in fiscal year 2006/07, the City was the fourth largest in assessed valuation within the County. The following table represents the most recent five year history of assessed valuation in the City, including State -reimbursed exemptions: TABLE 10 CITY OF SANTA CLARITA Assessed Valuation (OOOs) Fiscal Year Local Secured Utility Unsecured Total 2002/03 $11,693,004 $ 3,238 $703,858 $12,400,100 2003/04 12,892,636 49,477 664,756 13,606,896 2004/05 14,083,967 16,769 641,522 14,742,258 2005/06 16,266,238 13,172 659,990 16,939,400 2006/07 18,174,521 10,666 730,698 18,915,885 Source: Los Angeles County Assessor. Beginning in 1978/79, Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter -approved indebtedness) and collect all property taxes, and prescribed how levies on county -wide property values are to be shared with local taxing entities within each county. The property tax levies and year-end delinquencies for 2000/01 through 2006/07 are reflected on the following table: TABLE 11 CITY OF SANTA CLARITA Secured Tax Charges and Delinquencies Amount Paid Percent Delinquent Year Total Current Lew June 30 June 30 2000/01 $7,188,685 $6,993,761 2.71% 2001/02 7,741,409 7,542,204 2.57 2002/03 8,494,397 8,274,896 2.58 2003/04 9,271,388 9,066,213 2.21 2004/05t'1 7,866,620 7,679,653 2.38 2005/061[1 9,053,530 8,817,636 2.61 2006/071[1 (1) 1% General Fund apportionment. Taxing District No. 1. Excludes redevelopment agency impounds. Source: California Municipal Statistics, Inc./City of Santa Clarita Largest Taxpayers The following table lists the major taxpayers in the City in terms of their 2006/07 assessed valuation. 70047651.5 24 TABLE 12 CITY OF SANTA CLARITA Largest Local Secured Taxpayers 2006/07 Other Local Taxes In addition to ad valorem taxes on real property, the City receives the following local taxes: Sales and Use Taxes. Sales tax is collected and distributed by the State Board of Equalization. Each local jurisdiction receives an amount equal to one percent of taxable sales within their jurisdiction. Franchise Taxes. The City levies a franchise tax on its cable television, trash collection and utility franchises. Business License Taxes. The City levies a business license tax based primarily on number of employees. Transient Occupancy Taxes. The City levies a 10% transient occupancy tax on hotel and motel bills. See "RISK FACTORS - Proposition 62" herein. Property Transfer Trcres. A documentary stamp tax is assessed for recordation of real property transfers. 70047651.5 _ 25 Property Owner Type of Use Fiscal Year 2006/07 Assessed Valuation Percent of Total Valuel'I 1. Valencia Town Center Venture LP Shopping Center $ 271,644,621 1.49% 2. Newhall Land and Farming Co. Land Holdings 110,389,291 0.61 3. Prado Town Center West LLC Commercial/Residential 91,500,000 0.50 4. Casden Santa Clarita LLC Undeveloped 76,499,999 0.42 5. FOR Valencia LLC Apartments 55,970,730 0.31 6. EQR Town Center LLC Apartments 51,689,867 0.28 7. Lexington Lion Clarita LP Industrial 49,616,675 0.27 8. EQR Essex Place Financing LP Apartments 49,573,576 0.27 9. CPF Promenade LLC Shopping Center 49,164,000 0.27 10. Town Center Apartments Inc. Apartments 49,089,050 0.27 11. Dennis J. Wong Shopping Center 48,761,372 0.27 12. DLGP V Hills LLC Apartments 43,224,800 0.24 13. Wal Mart Real Estate Commercial 41,945,790 0.23 14. Westcreek Properties Ltd. Apartments 41,429,653 0.23 15. Thompson Rarich Joint Development Undeveloped 39,721,836 0.22 LLC 16. Regency Centers LP Shopping Center 38,084,336 0.21 17. Gateway Santa Clarita Property LLC Hotel 37,971,982 0.21 18. Arden Realty LP Office Building 35,750,659 0.20 19. Pan Pacific Retail Properties Inc. Shopping Center 33,449,673 0.18 20. Opus West Corporation Office Building 32,516,084 0.18 $1,247,993,994 6.87% 2006-07 Local Secured Assessed Valuation: $18,174,521,684 Source: California Municipal Statistics, Inc. Other Local Taxes In addition to ad valorem taxes on real property, the City receives the following local taxes: Sales and Use Taxes. Sales tax is collected and distributed by the State Board of Equalization. Each local jurisdiction receives an amount equal to one percent of taxable sales within their jurisdiction. Franchise Taxes. The City levies a franchise tax on its cable television, trash collection and utility franchises. Business License Taxes. The City levies a business license tax based primarily on number of employees. Transient Occupancy Taxes. The City levies a 10% transient occupancy tax on hotel and motel bills. See "RISK FACTORS - Proposition 62" herein. Property Transfer Trcres. A documentary stamp tax is assessed for recordation of real property transfers. 70047651.5 _ 25 The following table shows the tax revenues of the General Fund for the past three fiscal years. TABLE 13 CITY OF SANTA CLARITA Tax Revenues By Source Year End Unaudited Budget 2004/05 2005/06 2006/07 2007/08 Property Taxes (1) $ 6,965,744 Property Tax in Lieu (VLF) 8,802,080 Real Property Transfer Tax 1,300,000 Sales and Use Taxes 28,775,000 Franchise Taxes 5,067,730 Transient Occupancy Taxes 1,475,000 Business License Taxes 186.673 $ 8,972,523 $11,220,128 $10,725,400 11,322,913 12,020,349 12,260,760 1,544,535 1,073,774 835,000 31,166,410 32,175,550 34,243,567 5,471,293 5,737,972 5,397,500 1,824,394 1,804,923 1,730,000 206,366 214,877 190,000 Total General Fund Tax $52,572,227 $60,508,434 $64,247,573 $65,382,227 Net of State Legislative shift of property tax. Source: City of Santa Clarita. Sales and use taxes provide the major source of revenues to the General Fund, comprising approximately 40% of the City's 2006/07 unaudited year-end General Fund revenues and more than half of such General Fund taxes. A sales tax is imposed on retail sales or consumption of personal property. The statewide sales tax rate is established by the State Legislature. In March 2004, voters approved Proposition 57, the California Economic Recovery Bond Act, which allowed the state to purchase bonds to reduce the state budget deficit. The legislature enacted provisions that will change how sales and use taxes and other revenues are distributed to schools and local governments on and after July 1, 2004. These changes will remain in effect until the State Director of Finance notifies the Board of Equalization that the state's bond obligations have been satisfied. Under the new revenue "swapping" procedures, commonly referred to as the "triple flip," the statewide base sales and use tax rate will remain at 7.25%. However, the local government portion of the statewide rate will decrease by 0.25°/x, and the state portion will increase by 0.25%. Local sales and use tax losses will be offset by property tax revenues. The County Auditor in each county will use property tax revenues to reimburse the county and cities within the county. They will set aside some funds from the County Educational Revenue Augmentation Fund and place them in a Sales and Use Tax Compensation Fund. In January and May of each year, the State Director of Finance will instruct County Auditors to allocate revenues from the Compensation Fund to the county and to the cities within the county. The State General Fund revenues will then be used to help schools. In Los Angeles County the sales tax rate is 8.25%. 7.25% is collected and administered by the State on taxes collected within the City as follows: State General Fund .................................... 5.00% Proposition 172 (public safety use) ................ 0.50% Proposition 57 (State financing bond) ............. 0.25% County Health/Welfare................................. 0.50% County Transportation ................................ 0.25% City......................................................... 0.750 0 70047651.5 26 The 0.75% sales tax revenue is collected by the State and deposited monthly into the City's General Fund. The remaining 1.0% Los Angeles sales tax is authorized locally under Propositions A and C for transportation including bus, rail and some streets and road projects. These funds are collected by the State but administered by the Los Angeles County Metropolitan Transportation Authority. A portion of the Proposition A and C funds are returned to the Cities for use on approved projects. The following table shows a breakdown of the taxable sales within the City for 2005 calendar year (the latest calendar year in which information is available). TABLE 14 CITY OF SANTA CLARITA Taxable Sales — 2005 Type of Business Permits Taxable Transactions Retail Stores Apparel Stores 310 $ 111,662,000 General Merchandise Stores 146 371,126,000 Food Stores 78 112,033,000 Eating and Drinking Places 386 251,414,000 Home Furnishings and Appliances 219 81,813,000 Bldg. Material and Farm Implements 63 234,977,000 Auto Dealers and Auto Supplies 107 640,051,000 Service Stations 41 211,902,000 Other Retail Stores 1 765 270,300,000 Retail Stores Total 3,115 $2,285,278,000 All Other Outlets 3 221 388.117,000 Totals All Stores 6,336 $2,673,395,000 Source: State Board of Equalization. Vehicle License Fees The State's vehicle license fee ("VLF") is an annual fee on the ownership of a registered vehicle in California. Automobiles, motorcycles, pick-up trucks, commercial trucks and trailers, rental cars, and taxicabs are all subject to the VLF. The VLF revenues are distributed by the State to cities and counties. Approximately three-fourths of the VLF revenues (one-half to cities and one-half to counties) can be used for any lawful purpose, with the remaining funds allocated to counties to pay for "realignment" health and social services programs. Vehicle license fees, over and above the costs of collection and refunds authorized by law, are constitutionally defined local revenues. Chapter 322, Statutes of 1998 ("Chapter 322"), established a VLF offset program, scheduled to be implemented in successive stages if State General Fund revenues meet certain targets. Pursuant to Chapter 322, vehicle license fees were reduced (offset) by 25 percent 70047651.5 27 beginning January 1, 1999. Later legislation increased the offset to 35 percent for 2000 and the first half of calendar year 2001. Beginning July 1, 2001, the offset was increased to 67.5 percent. In response to revenue growth, the State Legislature provided an additional 32.5 percent VLF reduction for the period January 1, 2001, through June 30, 2001. This additional reduction is returned to taxpayers in the form of a rebate. The State Legislature appropriated $2.052 billion in 2000/01 to fund taxpayer rebates in 2000/01 and a portion of the 67.5 percent offset in 2001/02. In 2003, the State triggered an increase in the VLF to be effective beginning October 1, 2003 but deferred payment to local agencies until August 2006 of the amount of VLF backfill for the period from June 30, 2003 to September 30, 2003, when the higher VLF went into effect. This VLF "gap" or "loan" was approximately $825 million statewide. The City's share of the "loan" was $2,761,918. The State 2004/05 budget included a reduction in VLF from 2% to 0.65% and eliminated the VLF backfill. Instead cities and counties, including the City, will receive increased property tax revenues to compensate for the reduction in VLF. The State allocates the revenues equally between cities and counties, apportioned based on population. For fiscal year 2004/05 and 2005/06, each category of cities, counties and special districts gave up $350 million of property tax revenues, with redevelopment agencies contributing $250 million. The City's Property Tax in Lieu (VLF) was approximately $8.8 million for fiscal year 2004/05, $11.3 million for fiscal year 2005/06, $12.0 million for fiscal year 2006/07 and the City estimates that it will be $12.3 million for fiscal year 2007/08. Other Revenue Sources Licenses and Permits. These City General Fund revenues consist primarily of business license taxes and building construction permit fees. Fines, Forfeitures and Penalties. These City General Fund revenues include parking citations, municipal court fines, asset seizure proceeds and other fines for municipal code violations. Use of.Money and Property. These City General Fund revenues consist primarily of investment earnings. Charges for Services. The City charges recording fees, booking fees, court filing fees, plan checking, building inspection, waste collection and other municipal services. Retirement Programs The City contributes to the California Public Employee's Retirement System (PERS) an agent multiple -employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. All full-time and part-time employees are eligible to participate in the PERS. Benefits vest after 5 years of service. Benefits for employees vary based upon final yearly compensation, safety or non - safety status and age at retirement. PERS also provides death and disability benefits. City employees contribution rates are 8 percent of monthly earnings. The City currently pays the employees contribution to PERS for both miscellaneous and safety employees. The City is required to contribute remaining amounts necessary to fund the benefits for its members using the actuarial basis recommended by PERS. The PERS contribution for 2007 was $4,279,569. 70047651.5 28 As of the latest actuarial valuation, June 30, 2005, the City's unfunded Entry Age Normal Accrued Liability (AAL) is $8.114 million. Deferred Compensation Plan The City offers its employees a deferred compensation plan. Participation is optional, and allows certain classifications of management to defer a portion of their salaries until future years. The deferred compensation is not available to employees until death, retirement, termination, disability or certain unforeseeable emergencies. City participation in contributions to the plans is mandatory. The City is obligated to contribute amounts ranging from $2,000 to $15,000 per participant per year. During the 2006/07 year, there were 25 participants. The City contributed a total of $75,082 and employees contributed $51,533. Total plan assets at June 30, 2006 were $1,830,847. In addition to deferred compensation retirement benefits, the City provides post- retirement health care benefits to all employees who retire from the City on or after attaining the age of 50 with 5 years PERS credited service. The City pays the cost of the retirees enrollment including enrollment of family members in a health benefit plan to a maximum of $913 per month. The City funds these amounts on a pay-as-you-go basis. For 2006/07 there were 30 eligible participants, for which the City paid $196,181 for medical insurance premiums. Employee Relations and Collective Bargaining The City has a collective bargaining agreement with the Service Employees International Union (SEN) Local 347. The contract's term is January 1, 2005 through January 1, 2007. A new contract is currently under negotiation and is expected to be finalized within the next few months. Risk Management The City joined the Special Districts Risk Management Authority (SDRMA) in the fall of 2005. SDRMA is a self insurance risk pool that serves as a not-for-profit public agency to its members. Through SDRMA, the City currently holds a $500 general liability deductible. All general liability claims above $500 and up to a limit of $10,000,000 are handled by SDRMA. On June 30, 2007, $100,000 was accrued by the City for general liability claims that were received prior to the partnership with SDRMA. While the ultimate losses that occurred prior to SDRMA are dependent on future events, the City's management believes that the aggregate accrual is adequate to cover such losses. Settled claims have not exceed any of these coverage amounts in any of the last three fiscal years and there were no reductions in the City's insurance coverage during the year ended June 30, 2007. In addition to general liability, the City maintains individual policies for autos, property, flood, special events and earthquake damage where appropriate. Workers' compensation claims are currently administered through the State Compensation Fund. City Investment Policy and Portfolio The City has adopted policies and procedures for the management of the investment of unexpended funds for the City itself and for other entities of the City, including the Authority, for which the City provides financial management services. The three basic objectives of the 'policies and procedures are: safety of invested funds, maintenance of sufficient liquidity to meet cash flow needs and attainment of the maximum yield possible consistent with the first two objectives. The most recently revised Investment Policy for the City was adopted on May 8, 2007. Under the City's Investment Policy and in accordance with the Government Code, the City may invest in the following types of investments: bankers acceptances to a maximum term of 180 days; commercial paper to a maximum maturity of 270 70047651.5 29 days; "A" rated corporate notes; certificates of deposit; obligations of the United States Treasury; repurchase agreements to a maximum term of l year; obligations of the State of California; municipal bonds; mutual funds; the Local Agency Investment Fund (LAIF) managed by the State Treasurer and the Los Angeles County Pooled Investment Fund (LACPIF) administered by the Los Angeles County Treasurer and Tax Collector. In accordance with the Government Code, the City requires certain collateralization for public deposits in banks and savings and loans, and has long-established safekeeping and custody procedures. Estimated investments as of August 31, 2007 in all funds of the City had a weighted average maturity of 749 days and were comprised of the following: Money Market Funds Treasury Securities Non -Callable Agencies Callable Agencies Commercial Paper Corporate Bonds LAIF LACPIF Principal Amount % of Total $ 1,832,229 1.23% 3,004,659 2.01 47,486,435 31.82 41,769,761 27.99 0 0.00 33,476,738 22.44 20,313,983 13.61 1,331,940 0.89 $149,215,745 100.00% Source: City of Santa Clarita Finance Department. Financial Statements The City's accounting policies conform to generally accepted accounting principles and reporting standards set forth by the State Controller. The audited financial statements also conform to the principles and standards for public financial reporting established by the National Council of Government Accounting and the Governmental Accounting Standards Board. Basis of Accounting and Financia! Statement Presentation. The government -wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. GASB No. 34. The Governmental Accounting Standards Board (GASB) published its Statement No. 34 "Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments" on June 30, 1999. Statement No. 34 provides guidelines to auditors, comptrollers, and financial officers on requirements for financial reporting for all governmental agencies in the United States. Retroactive reporting is required four years after the effective date on the basic provisions for all 70047651.5 30 major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after June 30, 1980. The City was required to implement the provision of GASB 34 for the fiscal year ending June 30, 2003. Audited Financial Statements. The City retained the firm of Diehl, Evans & Company, LLP, Certified Public Accountants, Irvine, California, to examine the general purpose financial statements of the City as of and for the year ended June 30, 2005. The following two tables summarize the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance of the City's General Fund for the fiscal years 2001/02 through 2006/07. The City is the recipient of the GFOA Certificate of Achievement for Excellence in Financial Reporting for the last five fiscal years. The California Society of Municipal Finance Officers (CSMFO) has awarded a Certificate of Award for Outstanding Financial Reporting to the City for its comprehensive annual financial reports for the last five consecutive years. The audited financial statements for fiscal year ended June 30, 2006 are attached hereto as "APPENDIX C." The audited combined financial statements of the City are available through links obtained at the City's website at www.santa-clarita.com/cityhalUadmin/cafr. The City has contracted with Diehl, Evans & Company, LLP to audit its financial statements for the fiscal year ended June 30, 2007. The City expects such financial statements to be available in January, 2008. [Balance ofpage intentionally left blank] 70047651.5 31 TABLE 15 CITY OF SANTA CLARITA GENERAL FUND BALANCE SHEET As of June 30 2002 Assets 2004 Cash and investments $9,879,417 Accounts receivable 3,974,297 Interest receivable 167,674 Due from other funds 5,074,045 Due from other governments 1,418,764 Prepaid items 76,978 Deposit with County --- Advances to other funds 10.766,749 Total Assets 31.357.924 5,192,042 Liabilities and Fund Balance 11,165,887 Liabilities: 2,478,123 Accounts payable and accrued 1,250,797 liabilities $ 4,264,127 Deferred revenue 2,464,630 Due to other governments 45,667 Deposits 46.594 Total Liabilities $ 6.821,018 --- Fund Balance: 13,330,607 Reserved for encumbrances $11,638,618 Reserved for continuing 10,161,521 appropriations 9,652,407 Reserved for advances to other $6�i,234.780 funds 76,978 Reserved for prepaid items --- Unreserved: 19,886,287 Designated for self-insurance 388,525 Designated for capital improve. 2,780,378 Undesignated -- 2003 2004 2005 2006 2007* $15,516,304 $24,797,061 $35,053,799 $51,424,723 $57,421,910 6,271,376 10,091,818 9,346,972 8,694,564 1,502,603 162,155 205,815 375,364 471,946 5,251,467 5,192,042 4,488,748 11,165,887 2,193,391 2,478,123 1,118,321 1,250,797 1,083,380 348,967 1,178,449 189,092 126,442 --- 68,354 196,843 --- --- --- --- 13,330,607 8.957.717 8.989.009 9.209.378 10,161,521 16,126,213 4 0 49.949.694 $6�i,234.780 $73.363.466 $97.486.215 $ 4,259,183 $ 3,772,105 $ 4,515,479 19,886,287 21,175,401 3,431,521 7,873,412 9,149,642 6,296,345 3,551,938 --- 1,076,441 --- --- 2.754.477 3,152,222 5,074,766 7,385,439 8,504,693 $10.445.181 $14.797.739 $19.815.328 $33.568.071 $33.232.032 $ 4,887,806 $ 4,513,332 $ 7,857,348 $12,890,316 $7,338,266 --- 8,957,717 --- 7,402,408 --- 7,781,165 -- 7,827,370 --- 9,654,696 189,092 126,442 --- 68,354 196,843 462,995 220,616 220,616. 220,616 220,616 --- 12,464,216 --- 22.889,157 --- 30.560,323 --- 18.788,739 --- 46.843,762 Total Fund Balance $24.536.906 $26.961.826 $35,151,955 Total Liabilities and Fund Balance I 7.92 37.4 49.949.694 Source: City 70047651.5 32 $46,419.452 $39.795.395 $64.254.183 TABLE 16 CITY OF SANTA CLARITA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30 2002 2003 2004 2005 2006 2007• Revenues: Taxes Licenses and permits Investment income Revenue from other agencies Fines and forfeitures Charges for services Other revenue Overhead reimbursement Total Revenues Expenditures: Current: General government Public safety Public works Parks and recreation Community development Exchange Prop A Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under ) Expenditures $35,589,227 $39,067,338 $42,899,730 3,407,091 3,512,857 5,303,309 1,150,106 1,211,784 483,496 9,694,039 9,716,105 7,577,429 247,077 226,585 296,357 5,299,683 6,274,621 7,540,674 369,802 726,839 1,257,811 954.700 923.745 1.565.065 $52,098,808 $60,603,518 $66,201,773 5,127,705 5,009,506 4,203,933 1,349,736 1,234,317 3,164,528 3,680,369 1,991,509 2,679,635 304,074 332,873 410,087 8,694,570 8,262,640 7,463,045 335,540 277,278 --- L630,469 469 1.625,798 2.222.416 $56,711,725 $61,659,874 $66,923,871 $73,221,271 $79,337,439 $86.345.417 $ 9,070,832 $10,916,153 $ 7,994,616 $ 9,945,796 $12,493,094 $13,806,653 10,747,718 11,554,043 11,646,574 12,164,420 13,350,383 13,875,831 5,145,519 4,191,911 5,415,519 4,297,992 3,626,100 13,474,930 10,492,037 14,027,601 11,193,941 15,770,184 16,795,652 18,579,886 9,361,141 10,876,617 11,736,209 12,445,611 15,319,611 6,443,059 19.086 730 9.029 001 4,373.349 20.329 257 5,367,565 S63,903.977 $57,015.860 $55,939,674 $59,360.373 $81,914.097 $71,547.924 ($ 7,192,252) $ 4.644014 510.984.194 $13.860,898 ( $2576,658) $14,797,493 Other Financing Sources (Uses): Operating transfers in 7,201,539 3,571,277 4,397,759 3,234,519 2,655,215 15,630,354 Operating transfers out (4,709,877) (5,848,468) (7,191,827) (5,827,920) (6,757,459) (5,477,635) Proceeds from the long-term debt 58.097 54,845 Total Other Financing Sources (Uses) $ 2.491 662 ($ 2,219,094) ($ 2.794.068) ($ 2.593.401) ($ 4.047 399) Excess (Deficiency) of Revenues and Other Sources Over (Under) Expenditures and Other Uses Fund Balance, July 1 Fund Balance, June 30 '-Unaudited. Source. City ($ 4,700,590) $ 2,424,920 S 8,190,129 $11,267,497 ( $6,624,057) $29.237.496 $24.536.906 $26.961.826 $35.151,955 $46,419.452 $39,795.395 $24.536.906 $26.961.826 $35.151.955jl(AL9 452 DJ.ZL5X5 70047651.5 33 DEBTSTRUCTURE Outstanding Indebtedness of the City The City had the following outstanding indebtedness as of June 30, 2007, exclusive of obligations to be paid from specifically pledged revenues, such as general obligation bonds, revenue bonds, tax allocation bonds and assessment district bonds. The City has never defaulted on any of its obligations.. Category of Indebtedness Original Issue Amount Outstanding Final Maturity 2005 Refunding Certificates of Participation $17,700,000 $16,760,000 2021 Lease Revenue Bonds, Series 2007 $13,785,000 $13,785,000 2037 Capital lease payable 40,256 Loans payable 4,328,206 Compensated Absences* 1,780,826 Indefinite Claims payable* 100,000 " As of June 30 , 2007 Source: City of Santa Clarita Comprehensive Annual Financial Report The City is considering a number of future capital projects, whose financing sources may include the City's general fund or lease payments payable from the City's general fund. The City prepares a five- year capital improvement program (CIP) which includes potential capital projects that reflect the desires of the community, as well as projects that address operational and maintenance needs of the City. The City's 2008-12 CIP consists of improvements and projects totaling $31,106,398 for fiscal year 2007-08. Unfunded projects for 2009-2012 total $395,665,050, some of which will ultimately be financed by the City's general fund. Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc., as of October 31, 2007. The Debt Report is included for general information purposes only. The City has not reviewed the Debt report for completeness or accuracy and makes no representations in connection therewith. Any inquiries concerning the scope and methodology of procedures carried out to compile the information presented should be directed to California Municipal Statistics, Inc., San Francisco, California. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations are not payable from the City's General Fund nor are they necessarily obligations secured by property within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 70047651.5 34 TABLE NO. 17 CITY OF SANTA CLARITA DIRECT AND OVERLAPPING DEBT (As of October 31, 2007) [to follow] 70047651.5 35 LIMITATIONS ON TAX REVENUES There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax and assessment revenues. Article XIII A of the California Constitution On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the California Constitution. This amendment, which added Article XIII A to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975/76 tax bill under `full cash value', or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Legislation enacted by the California Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) is allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation the following year. The City is unable to predict the nature or magnitude of future revenue sources .which may be provided by the State of California (the "State") in lieu of lost property tax revenues, if any. Article XIII A effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIII A has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other limited circumstances. There have been many challenges to Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The City cannot predict whether there will be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the City's revenues should a future decision hold unconstitutional the method of assessing property. 70047651.5 36 Appropriation Limitation - Article XIIIB On November 6, 1979, the voters of the State approved Proposition 4, known as the Gann Initiative, which added Article XIIIB to the State Constitution. On June 5, 1990, the voters approved Proposition 111, which amended Article XIIIB in certain respects. Under Article XIIIB, as amended, state and local government entities each have an annual "appropriations limit" which limits the ability to spend certain monies which are called "appropriations subject to limitation" (consisting of most tax revenues and certain state subventions, together called "proceeds of taxes," and certain other funds) in an amount higher than the "appropriations limit." Article XIIIB does not affect the appropriation of monies which are excluded from the definition of "appropriations limit," including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by two thirds of the voters. The "appropriations limit" is adjusted annually for changes in the cost of living and in population, for transfers in the financial responsibility for providing services, and in the case of certain declared emergencies. If a City receives any proceeds of taxes in excess of its appropriations limit, it may, by resolution of the City's governing board, increase its appropriations limit to equal that amount (provided that the State has excess appropriations limit of its own in that fiscal year). The City's appropriations limit for fiscal year 2007-08 is $236,196,423, and appropriations subject to limitation are estimated at $42,999,158. California Constitution Article XIIIC and Article XIIID (Proposition 218) On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added to the State Constitution Articles XIIIC and XIIID, which contain a number of provisions affecting the ability of local agencies, including cities, to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a "general tax" (imposed for general governmental purposes ) or a "special tax" (imposed for specific purposes); prohibits special purpose government agencies such as cities from levying general taxes; and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two thirds vote. Article XIIIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. The initiative power could be exercised by voters to reduce revenues currently received by the City. However, the City does not believe that Article XIIIC grants to the voters the power to reduce or repeal local taxes, assessments, fees and charges received by the City to an extent that would prevent the City from performing its existing contractual obligations. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure which would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Article XIIID deals with assessments and property -related fees and charges. Article XIIID limits the application of assessments, fees and charges and requires certain existing, new and increased assessments, fees and charges to be submitted to property owners for approval or rejection, after notice and public hearing. The City does not expect Proposition 218 to have any immediate material effect on the revenues from which Lease Payments are expected to be appropriated. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the City. 70047651.5 37 The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Certificates as well as the market for the Certificates. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its impact on the City and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination. [more to follow] Proposition 62 On November 4, 1986, California voters adopted Proposition 62, a statutory initiative which amended the California Government Code by the addition of Sections 53720-53730. Proposition 62 requires that (i) any local tax for general governmental purposes (a "general tax") must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a "special tax") must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency's property tax allocation. Provisions applying Proposition 62 retroactively from its effective date to 1985 are unlikely to be of any continuing importance; certain other restrictions were already contained in the Constitution. The requirements of Proposition 62 have generally been superseded by the enactment of Article XIIIC of the Constitution (Proposition 218) in 1996. Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. By its terms, Proposition 62 applies to cities, but because the City does not receive any material amount of tax revenues from any tax levied in contradiction to Proposition 62, the City has not experienced nor does it expect to experience any substantive adverse financial impact as a result of the passage of this initiative or the Santa Clara decision. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction will receive up to 102% of its prior year state - assessed revenue; and (2) if county -wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all. Unitary Property except railroads, whose 'valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any state -assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB. 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. 700476515 38 Future Initiatives Article XIII A, Article XIII B, XIII C and XIII D were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adopted, further affecting the City's current revenues or its ability to raise and expend revenues. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating any purchase of the Certificates. The following is not an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to refect the relative importance of any such risks. General Considerations -- Security for the Certificates The obligation of the City to make Additional Payments or to make the Lease Payments does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments under the Lease constitutes a debt of the City, the State, or any of their respective political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction. The obligation of the City to make Lease Payments and Additional Payments is in consideration of the right of the City to the use and possession of the Leased Property. Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay the Lease Payments and Additional Payments from any source of legally available funds and the City covenants in the Lease that, for so long as the Leased Property is available for its use, it will make the necessary annual appropriations within its budgets for Lease Payments and Additional Payments. The City is currently liable and may become liable on other obligations payable from general revenues, such as employee salaries and benefits and repayment of tax and revenue anticipation notes, some of which may have a priority over the Lease Payments and Additional Payments. Furthermore, the City has reserved the right to cause the Trustee to execute and deliver Additional Certificates in accordance with the Trust Agreement. All Additional Certificates and similar general fund obligations of the City would be parity obligations with the Certificates offered hereunder. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments and Additional Payments may be decreased. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other activities before making Lease Payments and Additional Payments and other payments due under the Lease. Abatement The current annual fair rental value of the Leased Property at least equals the annual Lease Payments. During any period in which, by reason of damage, destruction or taking by eminent domain or condemnation, there is substantial interference with the use and possession of any portion of the Leased Property, the obligation of the City to pay Lease Payments will be abated to the extent that the fair rental value of the remaining portion of the Leased Property is insufficient. The amount of any such abatement is determined by the City such that the resulting Lease Payments represent fair rental value for the use and possession of the portion of the Leased Property not damaged, destroyed, or taken. Such abatement will 70047651.5 39 commence with such damage, destruction or taking and end with the substantial completion of the replacement or repair. During abatement, available moneys on deposit in the Lease Payment Fund and the Reserve Fund and any other legally available sources of money will be applied to pay the Lease Payments. In the event fair rental value at the time of any cessation of such abatement is greater than the fair rental value represented by the Lease Payments, the Lease Payments will be increased to reflect such incremental value so that all amounts abated will, to the extent permissible by law, be recouped during the remaining term of the Lease. Notwithstanding the foregoing, the resulting payments made under the Lease may not be sufficient to pay the remaining principal and interest with respect to the Certificates. Reduction in Lease Payments due to abatement as provided in the Lease does not constitute a default thereunder. Other Limitations on Liability Although the City covenants to budget and appropriate annually to provide for Lease Payments, the City has not pledged its full faith and credit to such payments. In the event that the City's revenue sources are less than its total obligations in any year, the City could choose to fund other City services before paying its Lease Payments. The enforceability of the rights and remedies of the Owners of the Certificates, and the obligations incurred by the City, may become subject to the following: the Federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. No Acceleration Upon Default In the event of a default, there is no available remedy of acceleration of the total Additional Payments due over the term of the Lease or any acceleration of the Lease Payments. The City will only be liable for Additional Payments and Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for such fiscal year's Lease Payments and Additional Payments. THE TRUSTEE MAY NOT DECLARE THE CERTIFICATES TO BE DUE AND PAYABLE AND ACCELERATE PAYMENT OF THE CERTIFICATES. Limitations on Assessment District Collections Under the provisions of the Act, the City Council must annually approve the levy of assessments as described in the annual engineer's report. However, no assurance can be given that sufficient annual assessments to make the Lease Payments will be levied in the future and the City will be required to use moneys. in its General Fund, to the extent available therefore, to make such Lease Payments. 7004765 t s 40 Self -Insurance The City may self -insure for all insurance with the exception of rental interruption. Should the City self -insure, no assurance can be given that such self-insurance at the time of any casualty or loss will be adequate to cover any claims that may arise. For a discussion of (i) the insurance requirements for the Leased Property, and (it) the conditions under which the City is permitted to self -insure, see "SOURCES OF PAYMENT OF THE CERTIFICATES – Insurance by the City." For a general description of the City's insurance and risk management programs, see "FINANCIAL INFORMATION RELATING TO THE CITY – Risk Management" and "APPENDIX C – SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2006." Limited Recourse on Default The enforcement of any remedies provided in the Lease and Trust Agreement could prove both expensive and time-consuming. Although the Lease provides that, if the City defaults the Trustee may repossess the Leased Property and relet it, portions of the Leased Property may not be easily recoverable, and even if recovered, could be of little value to others. Additionally, the Trustee may have limited ability to relet the Leased Property to provide a source of rental payments sufficient to pay the principal represented by the Certificates. The Trustee is not empowered to sell the Leased Property for the benefit of the Owners. In addition, due to the essential government functions of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re -letting with respect thereto. Investment of City's General Fund While Certificate proceeds, Lease Payments and any Additional Payments paid to the Trustee pursuant to the Lease will be entirely held in trust by the Trustee pursuant to the Trust Agreement, the City's general operating fund is held and invested by the City. For a description of the City's general fund, see "FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY." No Liability by the Authority to the Owners Except as expressly provided in the Trust Agreement, the Authority shall not have any obligation or liability to the Owners of the Certificates with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement. Risk of Uninsured Loss The City covenants under the Lease to maintain certain insurance policies on the Leased Property. See "SOURCE OF PAYMENT AND SECURITY FOR THE CERTIFICATES — Insurance by the City." These insurance policies do not cover all types of risk, and the City need not obtain insurance except as available on the open market from reputable insurers. For instance, the City does not covenant to maintain earthquake insurance. The Leased Property could be damaged or destroyed due to earthquake or other casualty for which the Leased Property is uninsured. Additionally, the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances an abatement of Lease Payments could occur and could continue indefinitely. There can be no assurance that the providers of the City's liability and rental interruption insurance will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. 70047651.5 41 Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Leased Property will be sufficient to prepay the Certificates. Eminent Domain If the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease will cease as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease will continue in full force and effect and will not be terminated by virtue of such taking, and (b) there will be a partial abatement of Lease Payments as a result of the application of net proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and the Authority such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Leased Property. The City covenants in the Lease to contest any eminent domain award which is insufficient to either: (i) prepay the,Lease Payments in whole, if all the Leased Property is condemned; or (ii) prepay a pro rata share of Lease Payments, in the event that less than all of the Leased Property is condemned. Hazardous Substances The existence or 'discovery of hazardous materials may limit the beneficial use of the Leased Property. In general, the owners and lessees of the Leased Property may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition of the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. Further it is possible that the beneficial use of the Leased Property may be limited in the future resulting from the current existence on the Leased Property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the Leased Property 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 in which it is handled. All of these possibilities could significantly limit the beneficial use of the Leased Property. The City is unaware of the existence of hazardous substances on either the current Leased Property which would materially interfere with the beneficial use thereof. Bankruptcy The City is a unit of State government and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the "Bankruptcy Code"). However, pursuant to Chapter 9 of the Bankruptcy Code, the City may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter, 9 proceeding. Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or 70047651.5 42 court -approved secured debt which may have a priority of payment superior to that of Owners of Certificates; and (iv) the possibility of the adoption of a plan for the adjustment of the City's debt (a "Plan") without the consent of the Trustee or all of the Owners of Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. In addition, the City could either reject the Lease or assume the Lease despite any provision of the Lease which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease, the Trustee, on behalf of the Owners of the Certificates, would have a pre- petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or Owners of the Certificates. Moreover, such rejection would terminate the Lease and the City's obligations to make payments thereunder. The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code, In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Trust Agreement. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or court -approved secured debt which may have priority of payment superior to that of the Owners of the Certificates; and (iv) the possibility of the adoption of a plan for the adjustment of the Authority's debt without the consent of the Trustee or all of the Owners of the Certificates, which plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. However, the bankruptcy of the Authority, and not the City, should not affect the Trustee's rights under the Lease. The Authority could still challenge the assignment, and the Trustee and/or the Owners of the Certificates could be required to litigate these issues in order to protect their interests. Enforcement of Remedies Under the Lease If the City defaults on its obligation to make Lease Payments with respect to the Leased Property, the Authority's only effective remedy is to sue for Lease Payments as they become due. In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease. The City, while it is the lessee under the Lease, will only be liable for Lease Payments on a semiannual basis, and the Authority would be required to seek a separate judgment for each year's defaulted Lease Payment. Any such suit for money damages would be subject to limitations on legal remedies against cities in the State, Earthquakes The City, like much of California, is subject to seismic activity. The City is located in a seismically dynamic region featuring two active fault systems: the San Andreas System which includes the San Andreas and the San Gabriel faults; and a system of faults associated with the transverse ranges including the Sierra Madre and San Fernando faults. The City sustained approximately $255,000 in damages to the sewer system as a result of the 1994 Northridge Earthquake. Repairs to the system were completed expeditiously and were paid by FEMA. The City has adopted a Seismic Safety Element to the City's General Plan and implemented the Element's recommendation by ordinance. The ordinance specifies development restrictions and 70047651.5 43 requirements for engineering and geologic reports based on the type of project, intensity of use and proximity to the identified hazard zones. City development has generally avoided these areas of highest risk and General Plan policy will prevent development in high risk areas. The City is not obligated under the Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Property. Depending on its severity, an earthquake could result in abatement of Lease Payments under the Lease. See "RISK FACTORS -- Abatement" above. Investment Risks The City administers a pooled investment program of moneys in its funds and accounts, including moneys in the City's General Fund which will be used to make Lease Payments. The City has established an investment policy which it believes to be prudently conservative. Nevertheless, the City's investments will be subject to market fluctuations and other risks over which the City has no control, and which could impair the City's ability to make Lease Payments. Loss of Tax Exemption As discussed under the caption "TAX MATTERS," in order to maintain the exclusion from gross income for federal income tax purposes of the interest component with respect to the Lease Payments, the City has covenanted in the Lease not to 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 with respect to the Certificates under section 103 of the Internal Revenue Code of 1986, as amended. Interest with respect to the Certificates could become includable in gross income for purposes of Federal income taxation retroactive to the date.the Certificates were executed and delivered, as a result of acts or omissions of the -City in violation of the Code. Should such an event of taxability occur, the Certificates are not subject to early prepayment and will remain outstanding to maturity or until prepaid under the optional prepayment [or mandatory sinking fund prepayment] provisions of the Trust Agreement. Limited Secondary Market As stated herein, investment in the Certificates poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Certificates should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Certificates or, if a secondary market exists, that the Certificates can or could be sold for any particular price. STATE OF CALIFORNIA BUDGET The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City does not guaranty the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Certificate is payable from the General Fund of the City. Budget Process The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of 70047651.5 44 projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line -item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Budget for Fiscal Year 2007-08 The 2007-08 Budget Act (the "2007=08 Budget") was signed by Governor Schwarzenegger on August 24, 2007. Due to shortfalls in revenue collections and in recognition of the State's continuing structural deficit and other concerns, the State Legislature took actions to reduce spending and increase funds available, increasing the total reserve to $3.4 billion. The Governor reduced spending with $703 million in General Fund vetoes, raising the total reserve to $4.1 billion. As a result, General Fund spending growth in the 2007-08 Budget is held to $0.6 billion, or 0.6 percent. Despite the modest year - over -year increase in General Fund spending in the 2007-08 Budget, it nonetheless fully funds K-12 education (providing a 3.4 -percent increase in per -pupil spending), law enforcement and the Governor's compacts with higher education and the judiciary. Local governments receive a variety of subventions from the State for designated purposes such. as health, welfare, and public safety programs. The State also provides general-purpose revenue to counties, cities, and special districts when special circumstances occur. The Local Government Financing program includes those payments to local governments where the funds may be used for any general government purpose as well as funds for one-time, designated purposes. The 2007-08 Budget includes the following items affecting local government Judicial Branch - The 2007-08 Budget includes $3.8 billion for support of the judicial branch, including $2.2 billion from the General Fund and $499 million transferred from the counties to the State. Funding of trial court operations is the single largest component of the judicial branch budget. The 2007- 08 Budget also includes $126.6 million General Fund to reflect the application of the annual growth factor adjustment to the trial courts, which is based on the year -over -year change in the State Appropriations Limit (SAL). This adjustment is consistent with the statutory requirement that provides an annual SAL adjustment to fund the general operations of the trial courts. In addition, the 2007-08 Budget includes $27.8 million General Fund for 50 new trial court judgeships, which is the second installment of a plan to add 150 judges over a three-year period. The 2007-08 Budget also includes $36 million from the State Court Facilities Construction Fund for acquisition related to 12 courthouse construction projects. Local Transportation Capital Improvements - The 2007-08 Budget appropriates significant amounts of Proposition 1B bond funds for local transportation improvements. These include $950 million for local streets and road improvements, $600 million for local transit capital projects, and $100 million to improve local transit security. 70047651.5 45 Local Assistance Programs - The 2007-08 Budget establishes two one-time probation pilot projects mainly to improve probation supervision and services'to serve at -risk youth from age 18 to 25 ($]0 million General Fund). The programs would be administered by the Corrections Standards Authority (CSA) within the Department of Corrections. The spending plan also reduces funding (by $15 million General Fund) for the Mentally III Offender Crime Reduction program (also now administered by CSA) aimed at reducing recidivism among adult and juvenile offenders. In addition, the 2007-08 Budget includes a spending plan for an anti -gang coordinator position and three new gang prevention grant programs in the Office of Emergency Services ($466,000 from the General Fund and $9.5 million from the Restitution Fund). The grant programs target specific cities with heavy gang concentrations, provide competitive grants to cities as a whole, and support community-based organizations that provide services designed to reduce gang activity. The 2007-08 Budget also provides $820,000 General Fund to expand to additional juvenile institutions Project IMPACT, a program to deter offenders from gang participation. Juvenile Justice Programs - The 2007-08 Budget plan enacts a major policy change under which nonviolent juvenile offenders would no longer be held at state juvenile facilities and new grant programs would be created to support programs for these offenders at the local level. In approving this change, the Governor vetoed about $15 million in one-time grants to assist with this transition. Also, $100 million in bond funding would be provided to construct or renovate local juvenile facilities. (The fiscal impact of this policy change is a net savings of about $12 million in 2007-08 that eventually reaches $70 million in subsequent years.) The 2007-08 Budget provides additional support and capital outlay funding to comply with the legal settlement of the Farrell lawsuit to remedy inadequate conditions for offenders held in institutions operated by the Division of Juvenile Facilities within Department of Corrections. These projects include modular buildings to expand program space, telecommunication improvements, and renovation of existing buildings ($10 million General Fund). Further information about the State budget is available from the Public Finance Division of the State Treasurer's Office. In addition, information about the State budget is regularly available at various State -maintained websites, including www.dofca.gov (Department of Finance), www.lao.ca.gov (Legislative Analyst's Office) and www.treasurer.ca.gov (State Treasurer). The above-mentioned websites are included herein for informational purposes only. The City makes no representation concerning, and does not take any responsibility for, the accuracy or timeliness of information posted on such websites or the continued maintenance of such websites by the respective entities. Proposition lA On November 2, 2004, California voters approved Proposition ]A, which amends the State Constitution to significantly reduce the State's authority over, major local government revenue sources. Under Proposition I A, the State may not (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two -third approval of both houses of the State Legislature, or (iv) decrease Vehicle License Fees revenues without providing local governments with equal replacement funding. Beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (b) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition IA does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. See "FINANCIAL INFORMATION REGARDING THE CITY — Property Taxes" and "Budget for Fiscal Year 2007-08" above. 7004765L5 46 THE AUTHORITY The Authority was established pursuant to a Joint Exercise of Powers Agreement dated July 9, 1991, by and between the City and the Santa Clarita Redevelopment Agency (the "Agency") in accordance with the provisions of the Joint Exercise of Powers Act, consisting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code (the "Joint Powers Act"). Pursuant to the Joint Powers Act and its formation documents, the Authority is empowered to act as lessor under the Lease in this financing. The members of the City Council of the City comprise the Authority's Board of Directors. The Authority has no independent staff and consequently is dependent upon the City's officers and employees to administer the day-to-day activities of the Authority on its behalf. LEGAL OPINION The legal opinion of Fulbright & Jaworski L.L.P., Special Counsel to the City, attesting to the validity of the Certificates, will be supplied to the original purchasers of the Certificates without charge. A copy of the legal opinion will be attached to or printed on the Certificates. A copy of the proposed form of opinion of Special Counsel is attached hereto as APPENDIX B. THE FINANCIAL ADVISOR The Financial Advisor has advised the Authority and the City as to the financial structure and certain other financial matters relating to the Certificates. The information set forth herein has been obtained from sources, which are believed to be reliable, but such information is not guaranteed by the Financial Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financial Advisor are contingent upon the sale and delivery of the Certificates. LEGAL MATTERS Special Counsel's employment is limited to review of the legal proceedings required for the authorization of the Certificates and to rendering the opinion substantially in the form set forth in APPENDIX B hereof. Special Counsel will receive compensation contingent upon sale and delivery of the Certificates. Fulbright & Jaworski L.L.P. also serves as Disclosure Counsel to the City and Authority. Certain legal matters will be passed upon for the City and the Authority by Burke, Williams & Sorensen L.L.P., Los Angeles, California. TAX MATTERS The Internal Revenue Code of 1986 (the "Code") imposes certain requirements that must be met subsequent to the execution and delivery of the Lease for the interest component of each Lease Payment (the "Interest Component"), and the allocable portion thereof distributable in respect of each Certificate (the "Certificate Interest Distribution"), to be and remain excluded from the gross income of the owner of such Certificate for federal income tax purposes. Noncompliance with such requirements could cause such amounts to be included in gross income for federal income tax purposes retroactive to the date of delivery of the Lease and the Certificates. The City and the Authority have covenanted in the Lease and in the Trust Agreement to maintain the exclusion pursuant to section 103(a) of the Code of the Interest Component from the gross income of the owners thereof for federal income tax purposes. Upon the delivery of the Certificates, Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, will deliver its opinion that, under existing law, and assuming compliance with the aforementioned covenants, the Interest Component allocable to and the Certificate Interest Distributions in respect of a Certificate are excluded pursuant to section 103(a) of the Code from the gross income of 70047651.5 47 the owner of the Certificate for federal income tax purposes; inasmuch as the Lease is not a "specified private activity bond' within the meaning of section 57(x)(5) of the Code, neither the Interest Component nor any Certificate Interest Distribution is an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. It is noted that the Interest Component allocable to and Certificate Interest Distributions in respect of a Certificate owned by a corporation for federal income tax purposes may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such amounts are taken into account in determining the adjusted earnings of that corporation (75 percent of the excess (if any) of such adjusted current earnings over the alternative minimum taxable income being an adjustment to the alternative minimum taxable income (determined without regard to the adjustment or to the alternative tax net operating loss deduction)). Further, on that same day Special Counsel will render its opinion, based solely on the foregoing, and upon existing provisions of the laws of California, that such Interest Component and Certificate Interest Distributions are exempt from personal income taxes of the State of California. To the extent that a purchaser of a Certificate acquires that Certificate at a price that exceeds the aggregatenmount of scheduled distributions (other than distributions of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Certificate (determined, in the case of a prepayable Certificate, under the assumption described below) (the "Stated Redemption Price at Maturity"), such excess will constitute "bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Certificate that is subject to prepayment, the determination whether there is.amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Certificate will be prepaid on the permitted date that would minimize the purchaser's yield on the Certificate (or that the Certificate will not be prepaid prior to the stated maturity date in respect of that Certificate if that would minimize the purchaser's yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Certificate owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Certificate to the owner. The excess, if any, of the Stated Redemption Price at Maturity of a Certificate of a maturity over the initial offering price to the public of the Certificates of that stated maturity set forth on the inside cover page of this Official Statement is "original issue discount". Such original issue discount accruing in respect of a Certificate is treated for federal income tax and California personal income tax purposes as additional interest in respect of that Certificate and is excluded from the gross income of the owner thereof for federal income tax purposes and exempt from the California personal income tax. Original issue discount accruing in respect of any Certificate purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term to the stated maturity date in respect of the Certificate on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount in respect of such a Certificate accruing during each period is added to the adjusted basis of such Certificate to determine taxable gain upon disposition (including upon sale, prepayment or payment on maturity) of such Certificate. The Code includes certain provisions relating to the accrual of original issue discount in the case of a purchaser of a Certificate who purchases that Certificate other than at the initial offering price and pursuant to the initial offering of that Certificate. Any person considering purchasing a Certificate at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, prepayment or other disposition 70047651.5 48 of the Certificate. Any person considering purchasing a Certificate of a maturity in respect of which there is original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of such Certificate, including the treatment of a purchaser who does not purchase in the original offering and at the original offering price of that Certificate, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount in respect of such Certificate under federal individual and corporate alternative minimum taxes. Special Counsel has not undertaken to advise in the future whether any events after the date of delivery of the Lease and the Certificates may affect the tax status of the Interest Component and Certificate Interest Distributions. No assurance can be given that future legislation, or amendments to statutes of the State of California or of the United States, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of such amounts from personal income taxes of the State of California or of the exclusion of such amounts from the gross income of the owners of Certificates for federal income tax purposes. Furthermore, Special Counsel will express no opinion as to any federal, state, or local tax law consequences with respect to the Lease, Certificates, Interest Component, or Certificate Interest Distributions, if any action is taken with respect to the Lease, the Certificates, or the proceeds thereof, or the Trust Agreement permitted or predicated upon the advice or approval of counsel if such advice or approval is given by counsel other than Fulbright & Jaworski L.L.P. Although Special Counsel is of the opinion that Interest Component and Certificate Interest Distributions in respect of a Certificate are exempt from state personal income taxation and excluded from the gross income of the owner thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Certificate. The nature and extent of these other tax consequences will depend upon the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of Certificates should be aware that: (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Certificates or, in the case of a financial institution, that portion of an owner's interest expense allocated to the Certificates; (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including Interest Component and Certificate Interest Distributions in respect of Certificates owned by such companies; (iii) Interest Component and Certificate Interest Distributions accrued in respect of Certificates owned by certain foreign corporations doing business in the United States for federal income tax purposes could be subject to a branch profits tax imposed by section 884 of the Code; (iv) passive investment income, including Interest Component and Certificate Interest Distributions accrued in respect of Certificates, accruing to a Subchapter S corporation that at the close of a taxable year has Subchapter C earnings and profits may be subject to federal income taxation under section 1375 of the Code if greater than 25% of the gross receipts of such Subchapter S corporation in passive investment income; (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, Installments Interest and Certificate Interest Distributions accrued in respect of Certificates owned by such recipients for federal income tax purposes; and (vi) under section 32(i) of the Code, receipt of investment income, including Interest Component and Certificate Interest Distributions accrued in respect of Certificates, may disqualify the owner thereof from obtaining the earned income credit. Special Counsel has expressed no opinion regarding any such other tax consequences. Special Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Special Counsel, and Special Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Lease is 70047651.5 49 commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest with respect to the Certificates, the City may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Certificates, regardless of the final disposition of the audit. A copy of the proposed form of opinion of Special Counsel is attached hereto as Appendix B. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Owners (including beneficial owners of the Certificates) to provide certain financial information and operating data relating to the City (the "Annual Report") by not later than 240 days following the end of the City's fiscal year (which currently ends June 30), commencing with the report for the 2006-07 Fiscal Year (which is due no later than March 31, 2008), and to provide notices of the occurrence of certain enumerated events, if material. The City has entered into a Continuing Disclosure Agreement ("Continuing Disclosure Agreement") for the benefit of the Certificate Owners with The Bank of New York Trust Company, N.A. ("The Bank of New York") under which the City has designated The Bank of New York as Dissemination Agent. The Annual Report and any notices of material events will be filed with each Nationally Recognized Municipal Securities Information Repository (and with the appropriate State information repository, if any) (the "Repositories"). The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized under the caption "APPENDIX E — PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2 -12(b)(5) (the "Rule"). Since the effective date of the continuing disclosure requirements under the Rule, the City has filed annual reports to comply with its disclosure requirements. However, during 2005, the report for an existing indebtedness consisting of the City's 2003-04 audited financials was not filed in a timely manner but has since been filed. The City's 2003-04 audited financials were, however, on file with the Repositories due to the City's timely filing of reports for its remaining undertakings. The City has taken steps to better monitor its compliance and ensure timely filing of future annual reports and is currently in compliance with its disclosure requirements. The City is currently in compliance with all of its undertakings. RATINGS Standard & Poor's Ratings Services ("S&P") and Moody's Investors Service ("Moody's") have assigned to the Certificates the municipal bond rating of "AAA" and "Aaa," respectively, based upon the issuance of the Policy simultaneously with the delivery of the Certificates. In addition, S&P has assigned an underlying rating of "_" to the Certificates based on its assessment of the City's ability to make payments with respect to the Certificates without giving effect to the Policy. Such rating reflects only the view of such rating agencies, and an explanation of the significance of such rating may be obtained from such rating agencies. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. UNDERWRITING The Certificates were sold at a competitive bid sale to "Underwriter"). The Underwriter has agreed, subject to certain conditions, a purchase price of $ , which comprises the principal amour 70047651.5 50 (the to purchase the Certificates at it of the Certificates, less an Underwriter's discount of $ , less a net original issue discount of $ The Underwriter intends to offer the Certificates to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Certificates to the public. The Underwriter may offer and sell Certificates to certain dealers (including dealers depositing the Certificates into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. NO LITIGATION At the time of delivery of and payment for the Certificates, the City and the Authority will certify that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body pending, or to the knowledge of the City or the Authority threatened, against the City or by Authority in any material respect (a) restraining or enjoining the sale or delivery of any of the Certificates, (b) questioning or affecting the validity of the Certificates, (c) questioning or affecting the validity of any of the proceedings for the authorization, sale, execution or delivery of the Certificates, (d) questioning or affecting the validity or enforceability of the Lease or Trust Agreement, or (e) contesting the completeness or accuracy of this Official Statement or any amendment or supplement hereto or which would adversely affect the exclusion from gross income for federal income tax proposes of interest payable with respect to the Certificates or the exemption of such interest from State of California personal income taxation, nor to the best of the City's or the Authority's knowledge, is there any basis therefor. ENFORCEABILITY OF REMEDIES The remedies available to the Trustee or the Owners of the Certificates upon an Event of Default under the Lease are in many respects dependent upon judicial actions which are often subject to discretion and delay, and such remedies may not be readily available or may be limited. For example, acceleration is not available in such instance. The various legal opinions to be delivered concurrently with the Certificates (including Special Counsel's approving opinion) will be qualified, as to the enforceability of the various legal instruments, by limitation imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by general principles of equity applied in the exercise of judicial discretion. OTHER INFORMATION References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the documents mentioned in this Official Statement are available for inspection at the City and following delivery of the Certificates will be on file at the offices of the Trustee in Los Angeles, California. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Certificates. 70047651.5 51 The execution and delivery of this Official Statement has been duly authorized by the City Council of the City. CITY OF SANTA CLARITA M City Manager 70047651.5 52 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of the provisions of the Lease, the Trust Agreement, the Agency Agreement, the Assignment Agreement and the Base Lease. This summary is not intended to be definitive and is qualified in its entirety by reference to these documents for the complete terms thereof. Copies of the Lease, the Trust Agreement, the Agency Agreement, the Assignment Agreement and the Base Lease are available upon request from the City. For the purposes of this Summary, the Authority shall also be referred to as the "Lessor" and the City shall also be referred to as the "Lessee. " 70047651.5 A-1 APPENDIX B FORM OF OPINION OF SPECIAL COUNSEL [Closing Date] City of Santa Clarita 23920 Valencia Boulevard Santa Clarita, California 91355 Re: $ City of Santa Clarita, Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series Ladies and Gentlemen: In our role as Special Counsel with respect to the execution and delivery of the captioned Refunding Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series (the "Certificates") on behalf of the City of Santa Clarita (the "City"), representing and evidencing undivided interests in certain lease payments (the "Lease Payments") for certain property pursuant to a Lease Agreement, dated as of December 1, 2007 (the "Lease") by and between the City and Santa Clarita Public Financing Authority (the "Authority"), we have examined certified copies of the proceedings taken in connection therewith. We have also examined supplemental documents famished to us and have obtained such certificates and documents from public officials as we have deemed necessary for the purposes of this opinion. The Certificates are executed and delivered pursuant to a Trust Agreement, dated as of December 1, 2007 (the "Trust Agreement"), by and among the City, the Authority and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"), and pursuant to the authorizing resolutions of the Boardmembers of the Authority and the City Council of the City. Proceeds of the Certificates will be applied to: (i) to finance a portion of the costs of the acquisition of open space lands, parks, and parkland within the City's open space, park, and parkland program, (ii) fund a Reserve Fund, and (iii) fund costs of delivery of the Certificates. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Trust Agreement and the Lease, as applicable. The Certificates are executed and delivered as fully registered certificates in the denomination of $5,000 or any integral multiple thereof. The Certificates are dated their date of delivery. The interest component of the Certificates is payable semiannually on April 1 and October 1, commencing April 1, 2008. Agreement. The Certificates are subject to prepayment prior to maturity as provided in the Trust Based upon the foregoing, we are of the opinion that: 1. The Trust Agreement has been duly and validly authorized, executed and delivered by the City and, assuming such Trust Agreement constitutes the legally valid and binding obligation of the Authority and the Trustee, constitutes the legally valid and binding obligation of the 70047651.5 B-1 City, enforceable against the City in accordance with its terms, and the Certificates are entitled to the benefits of the Trust Agreement. 2. The Lease has been duly and validly authorized, executed and delivered by the City and, assuming such Lease constitutes the legally valid and binding obligation of the Authority, constitutes the legally valid and binding obligation of the City, enforceable against the City in accordance with its terms. 3. The Base Lease has been duly and validly authorized, executed and delivered by the City and, assuming such Base Lease constitute the legally valid and binding obligation of the Authority, constitute the legally valid and binding obligations of the City, enforceable against the City in accordance with their terms. 4. Based upon the foregoing, pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance with the provisions of the Lease, the Interest Component of the Lease Payments (and the allocable portion thereof distributable in respect of each Certificate (the "Certificate Interest Distribution") (l) is excludable from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes, and (2) is not included in computing the alternative minimum taxable income for federal income tax purposes of the owners thereof who are individuals or, except as described below, corporations. We call to your attention that, with respect to our opinion in clause (2) above, interest on all tax-exempt obligations, such as the Interest Component of the Lease Payments (and the allocable portion thereof distributable in respect of each Certificate), owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit (REMIC), a real estate investment trust (REIT), or a financial asset securitization investment trust (FASIT). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Ownership of tax-exempt obligations such as the Certificates may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. In addition, under existing statutes, the portion of Lease Payments due under the Lease designated and comprising interest with respect to the Certificates is exempt from present State of California personal income taxes. We have not undertaken to advise in the future whether any events after the date of delivery of the Lease may affect the tax status of the Payment Interest or Certificate Interest Distributions. No assurance can be given that future legislation, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exclusion of such amounts from the gross income of the owner of Certificates for federal income tax purposes. Furthermore, we express no opinion as to any federal, state, or local tax law consequences with respect to the Lease, the Certificates, Payment Interest, or Certificate Interest Distributions, if any action is taken with respect to the Lease, the Trust Agreement, 70047651.5 B-2 the Certificates, or the proceeds thereof, permitted or predicated upon the advice or approval of counsel if such advice or approval is given by counsel other than us. Except as stated in the preceding. paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Lease or Certificates. We have not been requested to express, and do not express, any view as to the compliance by any person with federal and state securities laws. With the exception of the opinions expressed above, we have not been requested to express and do not express, any opinion as to any matter affected by any taxing or other law of the State of California. The foregoing opinions are qualified to the extent that the enforceability of the Trust Agreement, the Lease and the Certificates, respectively, may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws affecting creditors' rights generally or as to the availability of any particular remedy. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, 70047651.5 B-3 APPENDIX C SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2006 70047651.5 C-1 APPENDIX D BOOK -ENTRY ONLY SYSTEM The information in the following sections entitled "DTC's Book -Entry System" has been provided by DTC for use in securities offering documents, and the City takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the Certificates or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Certificates, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with Direct Participants are on file with DTC. The Depository Trust Company, New York, NY ("DTC") will act as securities depositoryfor the Certificates. The Certificates will be issued as fully -registered securities without coupons registered in the name of Cede & Co. (DTC's partnership nominee). One fully -registered Certificate will be issued for each annual maturity of the Certificates, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing City" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non -U.S. equity, corporate and municipal debt issues, and money market instrument from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant 70047651.5 D -I through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of the Beneficial Owner(s). Beneficial Owner(s) will not receive certificates representing their ownership interests in the Certificate, except in the event that use of the book -entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. if less than all of the Certificates within an issue are being redeemed. DTC's practice is to determine, by lot, the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC or Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, the Certificates are required to be printed and delivered and the registration and transfer provisions of the Trust Agreement described under "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" will apply. 70047651.5 D-2 The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, the Certificates will be printed and delivered to DTC and the registration and transfer provisions of the Trust Agreement described under "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" will apply. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. 70047651.5 D-3 APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (this "Agreement") is executed and delivered by the City of Santa Clariia (the "City") in connection with the execution and delivery of $ aggregate principal amount of the City's Certificates of Participation, (Open Space and Parkland Acquisition Program), 2007 Series (the "Certificates"). The Certificates are being executed and delivered pursuant to a Trust Agreement dated as of December 1, 2007 among the City, the Santa Clarita Public Financing Authority and The Bank of New York Trust Company, N.A., as Trustee (the "Trust Agreement"). Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Trust Agreement. In consideration of the execution and delivery of the Certificates by the City and the purchase of such Certificates by the Underwriter described below, the City hereby covenants and agrees as follows: SECTION 1. Purpose of the Agreement. This Agreement is being executed and delivered by the City for the benefit of the Certificate holders and in order to assist Wells Fargo Securities, Inc., (the "Underwriter") in complying with Rule 15c2 -12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. SECTION 2. Additional Definitions. In addition to the above definitions and the definitions set forth in the Trust Agreement, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 4 and 5 of this Agreement. "Certificate holder" or "Holder" means any holder of the Certificates or any beneficial owner of the Certificates so long as they are immobilized with DTC. "Designated Material Event" means any of the events listed in Section 6(a) of this Agreement. "Dissemination Agent" shall mean any Dissemination Agent, or any alternate or successor Dissemination Agent, designated in writing by the Deputy City Manager/Director of Administrative Services (or otherwise by the City), which Agent has evidenced its acceptance in writing. Initially, and in the absence of the specific designation of a successor or alternate Dissemination Agent, the Dissemination Agent shall be The Bank of New York Trust Company, N.A. "Material Events Disclosure" means dissemination of a notice of a Material Event as set forth in Section 6. "MSRB" shall mean the Municipal Securities Rulemaking Board. "NRMSIRs" shall mean, as of any date, all Nationally Recognized Municipal Securities Information Repositories then recognized by the Securities and Exchange Commission (the "SEC") for purposes of the Rule as set forth in the SEC Website located at http://www.sec.gov/info/municipal/nrmsir.htm. "Repository" shall mean each NRMSIR and each State Repository. 70047651.5 F -I "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for purposes of the Rule. As of the date of this Agreement, no State Repository exists in the State of California. SECTION 3. CUSIP Numbers and Final Official Statement. The CUSIP Numbers for the Certificates have been assigned. The Final Official Statement relating to the Certificates is dated November _, 2007 (`Final Official Statement"). SECTION 4. Provision of Annual Reports. (a) The City shall cause the Dissemination Agent, not later than 240 days after the end of the City's fiscal year (currently ending June 30), commencing with the report for the fiscal year ending June 30, 2007, to provide to each Repository an Annual Report which is consistent with the requirements of Section 5 of this Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in Section 5 of this Agreement; provided that the audited financial statements of the City may be submitted, when and if available, separately from the balance of the relevant Annual Report. (b) If the City is unable to provide to the Repositories an Annual Report by the date required in paragraph (a) above, the City shall send a notice to each Repository in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine the name and address of each Repository each year prior to the date established hereunder for providing the Annual Report; and (ii) if the Dissemination Agent is other than the City or an official of the City, to the extent it can confirm such filing of the Annual Report, the Dissemination Agent shall file a report with the City certifying that the Annual Report has been provided pursuant to this Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 5.. Content of Annual Report. The City's Annual Report shall contain or incorporate by reference the following: (a) Financial information including the general purpose financial statements of the City for the preceding Fiscal Year, prepared in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. If audited financial information is not available by the time the Annual Report is required to be filed pursuant to Section 4(a) hereof, the financial information included in the Annual Report may be unaudited, and the City will provide audited financial information to each Repository as soon as practical after it has been made available to the City. (b) Operating data, including the following information with respect to the City's preceding Fiscal Year (to the extent not included in the audited financial statements described in paragraph (a) above): (i) Outstanding indebtedness and lease obligations; (ii) General fund budget and actual results; 70047651.5 F-2 (iv) Assessed valuations; and (v) Largest local secured taxpayers. (c) Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or to the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each other document so incorporated by reference. SECTION 6. Reporting of Designated Material Events. (a) The City agrees to provide or cause to be provided, in a timely manner, to each NRMSIR or to the MSRB notice of the following events with respect to the Certificates, if material: difficulties. difficulties. Certificates. (i) Principal and interest payment delinquencies. (ii) Nonpayment -related defaults. (iii) Unscheduled draws on any debt service reserves reflecting financial (iv) Unscheduled draws on any credit enhancements reflecting financial (v) Substitution of or failure to perform by any credit provider. (vi) Adverse tax opinions or events affecting the tax exempt status of the (vii) Modifications to rights of security holders. (viii) Certificate calls (other than mandatory, scheduled redemptions, not otherwise contingent upon the occurrence of an event). . (ix) Defeasances. (x) Release, substitution or sale of any property securing the repayment of the Certificates. (xi) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal Securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (viii) and (ix), need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Trust Agreement. 70047651.5 F-3 SECTION 7. Termination of, Reporting Obligation. The City's obligations under this Agreement shall terminate when the City is no longer an obligated person with respect to the Certificates, as provided in the Rule, upon the defeasance, prior redemption or payment in full of all of the Certificates. SECTION 8. Dissemination Agent. The Deputy City Manager/Director of Administrative Services may, from time to time, appoint or engage an alternate or successor Dissemination Agent to assist in carrying out the City's obligations under this Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent agrees to perform only those duties of the Dissemination Agent specifically set forth in the Agreement, and no implied duties, covenants or obligations shall be read into this Agreement against the Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the City. The Trustee and Dissemination Agent shall be paid compensation for its services provided hereunder, and reimbursement for its costs and expenses. The Dissemination Agent shall not be responsible for the form or content of any document provided by the City hereunder. SECTION 9. Amendment. Notwithstanding any other provision of this Agreement, the City may amend this Agreement under the following conditions: (a) The amendment may be made only in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the obligated person, or type of business conducted; (b) This Agreement, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment does not materially impair the interests of Holders, as determined either by parties unaffiliated with the City or another obligated person (such as the Special Counsel) or by the written approval of the Certificate holders; provided, that the Annual Report containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. Neither the Trustee nor the Dissemination Agent shall be obligated to enter into any amendment which increases or affects their duties or obligations. SECTION 10. Additional Information. If the City chooses to include any information from any document or notice of occurrence of a Material Event in addition to that which is specifically required by this Agreement, the City shall have no obligation under this Agreement to update such information or to include it in any future disclosure or notice of occurrence of a Designated Material Event. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Designated Material Event, in addition to that which is required by this Agreement. SECTION 11. Default. The City shall give notice to each NRMSIR or to the MSRB of any failure to provide the Annual Report when the same is due hereunder, which notice shall be given prior to May 1 of that year. In the event of a failure of the City to comply with any provision of this Agreement, 70047661.5 F4 any Certificate holder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Agreement. A default under this Agreement shall not be deemed an event of default under the Trust Agreement, and the sole remedy under this Agreement in the event of any failure of the City or the Dissemination Agent to comply with this Agreement shall be an action to compel performance. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. Article IX of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent, the Trustee and their officers, directors, employees, attorneys, agents and receivers, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or the Trustee's respective negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. The Dissemination Agent may conclusively rely upon the Annual Report provided to it by the City as constituting the Annual Report required of the City in accordance with this Disclosure Agreement and shall have no duty or obligation to review such Annual Report. The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the City in a timely manner in a form suitable for filing with the Repositories. In accepting the appointment under this Agreement, the Dissemination Agent is not acting in a fiduciary capacity to the Holders or Beneficial Owners of the Certificates, the City, the Participating Underwriters or any other party or person. No provision of this Disclosure Agreement shall require the Dissemination Agent to risk or advance or expend its own funds or incur any financial liability. Any company succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. SECTION 13. Beneficiaries. This Agreement shall inure solely to the benefit of the City, the Dissemination Agent, the Underwriter and Holders from time to time of the Certificates, and shall create no rights in any other person or entity. SECTION 14. Assignment. The City shall not transfer its obligations under the Trust Agreement unless the transferee agrees to assume all obligations of the City under this Agreement that would have been obligations of the transferee under the Rule, as amended as of the date of this Agreement. 70047651.5 F-5 SECTION 15. Governing Law. This Agreement shall be governed by the laws of the State, applicable to contracts made and performed in such State. Dated as of December 1, 2007 CITY OF SANTA CLARITA By: Darren P Hernandez, Deputy City Manager/Director of Administrative Services ACCEPTED: THE BANK OF NEW YORK TRUST COMPANY, N.A., as Dissemination Agent M Authorized Officer 70047651.5 F-6 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Santa Clarita Name of Issue: $ Certificates of Participation, (Open Space and Parkland Acquisition Program), 2007 Series Date of Issuance: December , 2007 NOTICE IS HEREBY GIVEN that the above-named Issuer has not provided an Annual Report with respect to the above-named Certificates as required by Section 4(a) of the Continuing Disclosure Agreement dated December 1, 2007. The Issuer anticipates that the Annual Report will be filed by Dated: (ISSUER] M 70047651.5 F-7 EXHIBIT B NAME AND CUSIP NUMBERS OF BONDS Name of Issuer: City of Santa Clarita Name of Issue: $ Certificates of Participation, (Open Space and Parkland Acquisition Program), 2007 Series Date of Issuance: December , 2007 Date of Official Statement: November 2007 CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number.' CUSIP Number. CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number. CUSIP Number. CUSIP Number: CUSIP Number. CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number.' CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number. CUSIP Number: 70047651.5 F-8 APPENDIX F FORM OF MUNICIPAL BOND INSURANCE POLICY 700476515 G-1 10/31/07 TRUST AGREEMENT by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee and SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessor and CITY OF SANTA CLARITA, as Lessee Dated as of December 1. 2007 Entered into in Connection with the Sale and Delivery of $ City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series TABLE OF CONTENTS Page ARTICLE I DEFINITIONS...................................................................................................................2 SECTION 1.1 Definitions and Rules of Construction...........................................................2 SECTION 1.2 Authorization.........................................:......................................................10 ARTICLE II THE CERTIFICATES OF PARTICIPATION................................................................10 SECTION 2.1 Authorization.. ..... ................................................... .................................... 10 SECTION 2.2 Dating; Payment of Interest..........................................................................10 SECTION 2.3 Maturity; Interest Rates................................................................................10 17 SECTION 2.4 Registration; Interest....................................................................................11 SECTION 2.5 Form of Certificates; Temporary Certificates..............................................12 SECTION 4.1 SECTION2.6 Execution......................................................................................................12 SECTION 4.2 SECTION 2.7 Application of Proceeds...............................................................................12 SECTION 4.3 SECTION 2.8 Transfer and Exchange. .................................. ...................................... % ...... 13 SECTION 2.9 Mutilated, Lost, Destroyed or Stolen Certificates........................................13 SECTION 4.5 SECTION 2.10 Use of Depository Trust Company...............................................................14 SECTION 4.6 SECTION 2.11 Certificate Register.......................................................................................15 SECTION 4.7 SECTION 2.12 Execution and Delivery of Additional Certificates......................................15 SECTION 4.8 SECTION 2.13 Proceedings for Execution and Delivery of Additional Certificates ............ 16 ARTICLE III DELIVERY COSTS FUND AND PROJECT FUND.....................................................17 SECTION 3.1 Establishment of Delivery Costs Fund ......................................................... 17 SECTION 3.2 Delivery Costs Fund.....................................................................................17 SECTION 3.3 Establishment of Project Fund ............... .,.................................. r................. 17 SECTION 3.4 Project Fund................................................................:................................17 ARTICLE IV PREPAYMENT OF CERTIFICATES............................................................................18 Application of Moneys.................................................................................22 SECTION 4.1 Establishment of Prepayment Fund. ............................................................. 18 SECTION 4.2 Prepayment From Net Insurance Proceeds..................................................18 Surplus............................................:.............................................................22 SECTION 4.3 Optional Prepayment....................................................................................18 SECTION 4.4 Selection of Certificates for Prepayment ............ .........................................19 SECTION 4.5 Notice of Prepayment...................................................................................19 SECTION 4.6 Partial Prepayment of Certificates................................................................20 SECTION 4.7 Effect of Notice of Prepayment....................................................................20 SECTION 4.8 Purchase of Certificates................................................................................20 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND........................................................21 SECTION 5.1 Security Provisions.......................................................................................21 SECTION 5.2 Establishment of Lease Payment Fund........................................................21 SECTION 5.3 Establishment of the Excess Earnings Account...........................................21 SECTION 5.4 Deposits and Notification.............................................................................21 SECTION 5.5 Application of Moneys.................................................................................22 SECTION 5.6 Investment Earnings.....................................................................................22 SECTION5.7 Surplus............................................:.............................................................22 ARTICLEVI RESERVE FUND............................................................................................................22 SECTION 6.1 Establishment of Reserve Fund....................................................................22 SECTION6.2 Deposits........................................................................................................22 SECTION 6.3 Transfers of Excess......................................................................................23 SECTION 6.4 Replenishment of Reserve Fund...................................................................23 70037800.3 TABLE OF CONTENTS (continued) Page SECTION 6.5 Application of Reserve Fund in Event of Deficiency in Lease SECTION 8.2 PaymentFund...............................................................................................23 SECTION 6.6 Transfer to Make All Lease Payments ..................... .................................... 24 ARTICLE VII NET INSURANCE PROCEEDS FUND.........................................................................24 Accounting...................................................................................................26 SECTION 7.1 Establishment of Net Insurance Proceeds Fund; Application of Net Valuation of Investments.............................................................................26 Insurance Proceeds.......................................................................................24 Deposit and Investment of Moneys in Funds...............................................26 SECTION 7.2 Excess Net Insurance Proceeds....................................................................25 Rebate of Excess Investment Earnings to Federal Govermnent...................26 SECTION7.3 Cooperation..................................................................................................25 Tax Covenants..............................................................................................35 ARTICLE VIII MONEYS IN FUNDS; INVESTMENT..........................................................................25 SECTION 8.1 Held in Trust.................................................................................................25 SECTION 8.2 Investments Authorized................................................................................25 SECTION 8.3 Disposition of Investments...........................................................................25 SECTION8.4 Accounting...................................................................................................26 29 SECTION 8.5 Valuation of Investments.............................................................................26 SECTION 8.6 Deposit and Investment of Moneys in Funds...............................................26 33 SECTION 8.7 Rebate of Excess Investment Earnings to Federal Govermnent...................26 ARTICLE IX THE TRUSTEE...............................................................................................................27 SECTION 9.1 Appointment of Trustee ........ ......................................................................27 SECTION 9.2 Liability of Trustee.......................................................................................28 SECTION 9.3 Merger or Consolidation..............................................................................29 SECTION 9.4 Protection and Rights of the Trustee............................................................ 29 SECTION 9.5 Compensation of the Trustee........................................................................30 SECTION 9.6 Indemnification of Trustee...........................................................................31 33 SECTION 9.7 Removal of Trustee......................................................................................31 ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS.........................................31 SECTION 10.1 Amendments Permitted................................................................................31 SECTION 10.2 Procedure for Amendment with Written Consent of Owners ......................32 SECTION 10.3 Disqualified Certificates...............................................................................33 SECTION 10.4 Effect of Supplemental Agreement..............................................................33 SECTION 10.5 Endorsement or Replacement of Certificates Delivered After SECTION 11.6 Amendments........................:........................................................................ 33 SECTION 10.6 Amendatory Endorsement of Certificates....................................................33 ARTICLE XI COVENANTS; NOTICES..............................................................................................33 SECTION 11.1 Compliance with and Enforcement of the Lease..........................................33 SECTION 11.2 Payment of Taxes.........................................................................................34 SECTION 11.3 Observance of Laws and Regulations..........................................................34 SECTION I i.4 Prosecution and Defense of Suits.................................................................34 SECTION 11.5 Lessee Budgets.............................................................................................34 SECTION 11.6 Pledge of Assessment Revenues..................................................................34 SECTION 11.7 Further Assurances.......................................................................................35 SECTION 11.8 Tax Covenants..............................................................................................35 SECTION 11.9 Arbitrage Covenant......................................................................................35 ARTICLE XII LIMITATION OF LIABILITY.......................................................................................35 70037800.3 ii TABLE OF CONTENTS (continued) Pape SECTION 12.1 Lim ted Liability of the Lessee....................................................................35 SECTION 12.2 No Liability of the Lessee or Lessor for Trustee Performance ....................35 SECTION 12.3 Limited Liability of Trustee .........................................................................35 SECTION 12.4 Opinion of Counsel......................................................................................36 37 SECTION 12.5 Limitation of Rights to Parties and Owners.................................................36 ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS..........................................36 SECTION 13.1' Assignment of Rights...................................................................................36 SECTION13.2 Remedies......................................................................................................36 SECTION 13.3 Application of Funds....................................................................................36 SECTION 13.4 Institution of Legal Proceedings................................................................... 37 SECTION13.5 Non-waiver...................................................................................................37 SECTION 13.6 Remedies Not Exclusive..............................................................................37 SECTION 13.7 Power of Trustee to Control Proceedings.....................................................37 SECTION 13.8 Limitation on Owners' Right to Sue............................................................38 SECTION 13.9 Agreement to Pay Attorneys' Fees and Expenses .............. ..........................38 SECTION 13.10 Insurer's Default -Related Provisions...........................................................38 ARTICLE XIV MISCELLANEOUS........................................................................................................ 39 SECTION 14.1 Defeasance...................................................................................................39 SECTION14.2 Records.........................................................................................................40 SECTION 14.3 .........................................................40 Notices ............................................... .. SECTION 14.4 Notices to be Given to the Insurer................................................................40 SECTION 14.5 Governing Law.............................................................................................41 SECTION 14.6 Consent of the Insurer..................................................................................41 SECTION 14.7 Insurer Deemed Sole Holder........................................................................41 SECTION 14.8 Provisions Relating to Surety .......................................................................41 SECTION 14.9 Third Party Beneficiaries.............................................................................41 SECTION 14.10 Interested Parties..........................................................................................42 SECTION 14.11 Binding Effect; Successors.............................:.............................................42 SECTION 14.12 Execution in Counterparts............................................................................42 SECTION 14.13 Destruction of Cancelled Certificates...........................................................42 SECTION14.14 Headings.......................................................................................................42 SECTION 14.15 Waiver of Notice..........................................................................................42 SECTION 14.16 Separability of Invalid Provisions................................................................42 EXHIBIT A - FORM OF CERTIFICATE OF PARTICIPATION EXHIBIT B - SCHEDULE OF PRINCIPAL AND INTEREST COMPONENTS EXHIBIT C - FORM OF WRITTEN REQUISITION 70037800.3 In TRUST AGREEMENT THIS TRUST AGREEMENT, dated as of December I, 2007, by and among The Bank of New York Trust Company, N.A., a national banking association duly organized under the laws of the United States, as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California, as lessor under the Lease Agreement hereinafter described (the "Lessor"), and the CITY OF SANTA CLARITA, a municipal corporation duly organized and existing under the laws of the State of California, as lessee under said Lease Agreement (the "Lessee"); WITNESSETH: WHEREAS, the Lessee and the Lessor have entered into a Lease Agreement, dated as of the date hereof (the "Lease"), whereby the Lessee has agreed to lease certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita (the "Leased Property") from the Lessor; and WHEREAS, the Lessee and the Lessor wish to authorize hereunder the execution and delivery of certain certificates of participation (the "2007 Certificates"), each evidencing and representing an undivided and proportionate interest of the owner thereof in certain lease payments (the "Lease Payments") to be made by the Lessee under the Lease to finance certain capital improvements; and WHEREAS, the net proceeds obtained through the execution, sale and delivery of the 2007 Certificates will be deposited with the Trustee under this Trust Agreement and used in part by the Lessee to finance a portion of the costs of the acquisition of open space lands, parks, and Parklandland within the Lessee's open space, park, and Parklandland program (the "Program"); and WHEREAS, [Insurer] (the "Insurer") has agreed to deliver, simultaneously with the delivery of the 2007 Certificates, its municipal bond insurance policy (the "Bond Insurance Policy"), which will insure payment of principal and interest with respect to the 2007 Certificates, when due for payment; and WHEREAS, the Lessee will pay Lease Payments under the Lease representing the fair rental value of the Leased Property in amounts sufficient to pay the components of principal, premium, if any, and interest evidenced and represented by the 2007 Certificates; and WHEREAS, pursuant to an Assignment Agreement, by and between the Lessor and the Trustee, dated as of the date hereof (the "Assignment Agreement"), the Lessor will assign to the Trustee its rights to receive all Lease Payments due under the Lease and pursuant to this Trust Agreement, the Lessor and Lessee will grant a security interest in all moneys held by the Trustee hereunder, and the Lessor will grant a security interest in the Leased Property, all to the Trustee for the benefit of the owners of the Certificates and as security therefor; and WHEREAS, in consideration of such assignment and the execution of this Trust Agreement, the Trustee has agreed to execute and deliver. the 2007 Certificates, each evidencing and representing undivided and proportionate interests of the owners thereof in the Lease Payments and Prepayments (as defined herein) made by the Lessee under the Lease, which will provide the moneys required to be deposited hereunder; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 70037800.3 ARTICLE I DEFINITIONS SECTION 1.1 Definitions and Rules of Construction. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Trust Agreement, have the meanings specified herein or in the Lease. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms as used in this Trust Agreement, refer to this Trust Agreement as a whole. "Additional Payments" means those payments due as provided in Section 4.6 of the Lease. "Additional Certificates" means those certificates of participation authorized and delivered hereunder, on a parity with the 2007 Certificates, subsequent to the Closing Date, in accordance with Section 2.13 hereof. "Assessment District" means the City of Santa Clarita Open Space Preservation District. "Assessment Revenues" means annual assessments levied and collected by the Lessee from the operation of the Assessment District. "Assignment Agreement" means the Assignment Agreement, dated as of the date hereof, by and between the Trustee and the Lessor, and any duly authorized and executed amendments or supplements thereto. "Authorized Representative" means, depending upon the context, the authorized representative of the Lessee or the Lessor for purposes of this Trust Agreement, the Lease Agreement, the Base Lease, or the Assignment Agreement, and shall particularly mean, in the case of the Lessee, the City Manager or Deputy City Manager/Director of Administrative Services of the Lessee, or such other officer as may be designated for such purpose in a resolution of the City Council of the Lessee, and in the case of the Lessor, the President or Chairman of the Board of the Lessor, or such,other officer as may be designated for such purpose in a resolution of the Board of the Lessor. "Base Lease" means the Base Lease, dated as of the date hereof, by and between the Lessor, as lessee thereunder, and the Lessee, as lessor thereunder, and any duly authorized and executed amendments or supplements thereto. `Bond Insurance Policy" means, the municipal bond new issue insurance policy issued by the Insurer that guarantees payment of principal of and interest with respect to the 2007 Certificates. `Business Day" means any day (other than a Saturday or Sunday) on which banks in San Francisco or Los Angeles, California, or New York, New York, are not authorized or obligated by law or executive order to remain closed and the New York Stock Exchange is not closed. "Certificate Year" means any October 2 to October 1, except that the first Certificate Year shall be the Closing Date until October 1, 2008. "Certificates" means all of the certificates of participation executed and delivered hereunder and under any Supplemental Trust Agreement; the term "2007 Certificates" means the $ aggregate principal amount of City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series, to be executed and delivered pursuant to this Trust Agreement. 70037800.3 "City Council" means the City Council of the Lessee. "Closing Date" means the day upon which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended. "Computation Date" has the meaning set forth in Section 5.10 of the Lease. "Defeasance Obligations" means the Permitted Investments described in subparagraphs (1) or (2) of the definition thereof. "Delivery Costs" means all items of expense directly or indirectly payable by or reimbursable to the Lessee or the Lessor relating to the execution and delivery of the 2007 Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, financing discounts, initial fees and charges of the Trustee (including its first annual fee), legal fees and charges, financing and other professional consultant fees, rating agencies fees for credit ratings, the premium for the Bond Insurance Policy, fees for the Trustee's execution, transportation and safekeeping of Certificates and other charges and fees in connection with the foregoing. "Depository Trust Company" or "DTC" means The Depository Trust Company, New York, New York, as initial securities depository for the Certificates, unless the Lessee shall designate some other securities depository for the Certificates, in which case references to DTC shall be construed as references to such successor securities depository. "Earnings Holding Account" means the Earnings Holding Account established within the Lease Payment Fund pursuant to Section 5.6 hereof. "Event of Default" means an event of default under the Lease, as defined in Section 9.1 thereof, provided, however, that it shall not be an Event of Default hereunder for the Lessee to fail to make Lease Payments when due but it shall instead be an Event of Default hereunder for the Owners of the Certificates to fail to receive their proportionate shares of Interest Component and Principal Component as and when due. "Excess Earnings Account" means the Excess Earnings Account established within the Lease Payment Fund pursuant to Section 5.3 hereof. `Excess Investment Earnings" means those investment earnings more particularly described in Section 8.7 hereof. "Federal Securities" means any of the following (which solely for purposes of Section 14.1(iii) hereof are noncallable and nonprepayable) and which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein: cash, direct non - callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated AAA by S&P or Moody's (or any combination of the foregoing) shall be used to effect defeasance of the Certificates unless the Insurer otherwise approves. 70037800.3 ["Financial Guaranty Agreement" means the Financial Guaranty Agreement, dated as of as amended, by and between the Lessee and the Insurer relating to the Surety.] "Fiscal Year" means the fiscal year of the Lessee, presently commencing July I of each calendar year and ending June 30 of the following calendar year. "Gross Proceeds" shall have the meaning ascribed to such term in Section 5.10 of the Lease. "Independent Counsel" means an attorney duly admitted to practice law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Lessor, the Trustee or the Lessee. "Information Services" means Financial Information, Inc.'s "Daily Called Special Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent/FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the City may designate in a request of the City delivered to the Trustee. "Insurer" means [Insurer], or any successor thereto or assignee thereof, as provider of the Insurance Policy securing payments with respect to the 2007 Certificates, when due for payment. "Interest Component" means the portion of the Lease Payments designated as interest with respect to the Certificates, which shall be determined by the rate of interest applicable to the respective Certificates. "Interest Payment Date" means April 1 and October 1 of each year, commencing April 1, 2008. "Lease" or "Lease Agreement" means the Lease Agreement, dated as of the date hereof, by and between the Lessee and the Lessor, and any duly authorized and executed amendments or supplements thereto. "Lease Payment" means any payment required to be paid by the Lessee to the Lessor pursuant to Section 4.3 of the Lease. "Lease Payment Date" has the meaning set forth in Section 4.3(a) of the Lease. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.2 hereof. "Leased Property" means the property that is the subject matter of the Lease, as more particularly described on Exhibit B thereto. "Lessee" or "City" means the City of Santa Clarita. "Lessor" means Santa Clarita Public Financing Authority, a joint exercise of powers agency duly organized and existing under the laws of the State of California, its successors and assigns. "Moody's' means Moody's Investor Service, a corporation organized and existing under the laws of the State of New York, its successors and assigns. 70037800.3 "Municipal Obligations" shall mean those obligations, rated "A" or its equivalent or higher or "VMIG-1" or "MIG -1" or "SP -1+" or its equivalent or higher by the Rating Agencies, on which the interest payable is excludable from federal gross income pursuant to Section 103(a) of the Code (other than a "specified private activity bond" as defined in Section 57(a) (5) (C) of the Code) or the rated stock of a qualified regulated investment company that during any quarter of its taxable year (i) is a regulated investment company as defined in Section 851(a) of the Code that meets the requirements of Section 852(a) of the Code; (ii) has only one class of stock authorized and outstanding; and (iii) invests all its assets in tax-exempt bonds which are rated "A" or its equivalent or higher by the Rating Agencies or VMIG-I or MIG -1 or SP -1+ or the equivalent or higher by the Rating Agencies and at least 98% of its gross income is derived from interest on or gains from the dispositions of such bonds or at least 98% of the weighted average value of its assets is represented by investments in tax-exempt bonds. "Net Insurance Proceeds" means any net proceeds of insurance or condemnation proceeds paid with respect to the affected portion of the Leased Property remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Insurance Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Section 7.1 hereof. "Nonpurpose Investments" has the meaning ascribed to such term in Section 5.10 of the Lease. "Original Purchaser" means as the original purchasers of the 2007 Certificates. .. "Outstanding," when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 10.3 and 14.1) all Certificates theretofore executed and delivered by the Trustee under this Trust Agreement except: (i) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (ii) Certificates for the payment or prepayment of which funds or Federal Securities in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates) in accordance with Section 14.1 hereof; provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in Section 4.5 hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (iii) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to Sections 2.8 and 2.9 hereof. "Owner" or "Certificate Owner" or "Owner of a Certificate," or any similar term, when used with respect to a Certificate, means the person in whose name such Certificate is registered on the registration books of the Trustee. "Payment Date" means any Interest Payment Date or Principal Payment Date. "Permitted Encumbrances" means, with respect to the Leased Property, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the Lessee may, pursuant to the provisions of Article V of the Lease, permit to remain unpaid; (it) the Base Lease; (iii) the Assignment Agreement; and (iv) the Lease. 70037800.3 "Permitted Investments" means any of the following which are legal investments under the laws of the State of California for the moneys proposed to be invested therein at the direction of the Authorized Representative of the Lessee to the extent determined by the Lessee as not prohibited by the Code or resulting in a material adverse effect on the tax status of the Interest Component: Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America ("U.S. Government Securities"). 2. Bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they are stripped by the agency itself): (a) Farmers Home Administration (FmHA) — Certificates of beneficial ownership (b) Federal Housing. Administration Debentures (FHA) (c) General Services Administration Participation certificates (d) Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage-backed bonds GNMA - guaranteed pass-through obligations (participation certificates) (not acceptable for certain cash-flow sensitive issues) (e) U.S. Maritime Administration — Guaranteed Title XI financings (f) U.S. Department of Housing & Urban Development (HUD) Project Notes, Local Authority Bonds 3. Bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they are stripped by the agency itself): (a) Federal Home Loan Bank System — Senior debt obligations (Consolidated debt obligations) (b) Federal Home Loan Morteage Corporation (FHLMC or "Freddie Mac") — Participation Certificates (mortgage-backed securities) and Senior debt obligations (c) Federal National Mortgage Association (FNMA of "Fannie Mae") — Mortgage-backed securities and senior debt obligations (excluded are stripped mortgage securities which are valued greater than par on the portion of unpaid principal) (d) Student Loan Marketing Association (SLMA or "Sallie Mae") — Senior debt obligations 70037800.3 (e) Resolution Funding Corporation (REFCORP) — Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable (f) Farm Credit System – Consolidated systemwide bonds and notes 4. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, having a rating by S&P of AAAm-G; AAAm; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2, including funds for which the Trustee or its affiliates provides investment advisory or other management services. 5. Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. CD's must have a one year or less maturity. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks which may include the Trustee and its affiliates whose short term obligations are rated "A-1+" or better by S&P and "Prime -1" by Moody's., The collateral must be held by a third party and the Certificate Owners must have a perfected security interest in the collateral. 6. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by the FDIC, including BIF and SAIF. 7. Investment agreements, including guaranteed investment contracts, acceptable to the Insurer. 8. Commercial paper rated at the time of purchase "Prime -1" by Moody's and "A- W' or better by S&P. 9. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. 10. Federal funds or bankers acceptances with a maximum term of one year of any bank which may conclude the Trustee and its affiliates and which has an unsecured, uninsured and unguaranteed obligation rating of "Prime -t" or "A3" or better by Moody's and "A-1+" by S&P. 11. Repurchase agreements acceptable to the Insurer. 12. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. 13. The Local Agency Investment Fund (LAIF) created pursuant to Section 16429.1 et seq. of the California Government Code. 14. Any other investment approved in writing by the Insurer. 70037800.3 "Prepayment" means any payment made by the Lessee pursuant to Article X of the Lease as a Prepayment of the Lease Payments. "Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.1 hereof. "Principal Component" means the portion of the Lease Payments designated as principal represented by the Certificates. "Principal Office" means the principal corporate trust office of the Trustee in Los Angeles, California, or the principal corporate trust office of any successor Trustee, provided, however, for transfer, registration, exchange, payment and surrender of Certificates means the office or agency of the Trustee where, at any particular time, its corporate trust agency business shall be conducted, or such other office designated by the Trustee from time to time. "Principal Payment Date" means October 1 of each year, commencing October 1, 2008. "Proiect Fund" means the fund by that name established and held by the Deputy City Manager/Director of Administrative Services pursuant to Section 3.3 hereof. "Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct -pay letter of credit or surety bond issued by a commercial bank, insurance company or other financial institution and deposited with the Trustee pursuant to Section 6.2, provided that all of the following requirements are met: (i) at all times during the term of such letter of credit or surety bond, the long-term credit rating of such bank is within the highest rating category of Moody's and S&P, or the claims paying ability of such insurance company is rated within the highest rating category of A.M. Best & Company and S&P; (ii) such letter of credit or surety bond has a term which ends no earlier than the last Interest Payment Date of the Series of Certificates to which the Reserve Requirement applies; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 6.2; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder amounts necessary to cavy out the purposes specified in Article VI, including the replenishment of the Interest Account or the Principal Account. "RatingA eg ncies" means Moody's and S&P and any successors thereto, or if either such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by Lessee with the consent of the Insurer. "Rebate Amount" has the meaning set forth in Section 5.10 of the Lease. "Record Date" means the fifteenth day of the calendar month prior to each Interest Payment Date, whether or not such first day is a Business Day. With respect to any payment of defaulted interest, a special record date shall be established in accordance with the provisions of this Trust Agreement. "Registrar" means the Trustee. "Regulations" means the applicable regulations of the United States Department of the Treasury proposed or promulgated under Section 103 or Sections 141 through 148 of the Code or of the Internal Revenue Code of 1954, as amended. 70037800.3 "Requisition" means any of the requisitions executed by the Authorized Representative and filed with the Trustee or Deputy City Manager/Director of Administrative Services, as applicable, requesting disbursement of amounts from the Delivery Costs Fund or the Project Fund, substantially in the form attached hereto as Exhibit C. "Reserve Fund" means the fund by that name established and held by the Trustee pursuant to Section 6.1 hereof. Moneys or instruments in the Reserve Fund shall at all times be or be in a coverage amount equal to the Reserve Requirement. "Reserve Requirement" means that amount, or an instrument reflecting an amount, to be deposited into the Reserve Fund in accordance with Section 6.2 hereof. The Reserve Requirement shall initially equal $ and shall thereafter be.calculated as the lesser of. (i) ten percent (10%) of the net proceeds of the Certificates; (ii) the maximum aggregate amount of Lease Payments to be paid in a Certificate Year, or (iii) 125% of the average Lease Payments to be paid in the then -current or any future Certificate Year. Notwithstanding the foregoing, at any time following a payment, partial prepayment or defeasance of Certificates hereunder, the Reserve Requirement shall be recalculated by the Lessee, and established at the lesser of (1) the maximum aggregate amount of Lease Payments to be paid in any single remaining Certificate Year, or (2) 125% of the average remaining Lease Payments to be paid in the then -current or any future Certificate Year. "Responsible Officer" means any Vice President, Assistant Vice President or Administrator of the Trustee having regular responsibility for the obligations of the Trustee under this Agreement. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, or, if such corporation shall for any reason no longer perform the function of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized rating agency designated by the City with the approval of the City and the Insurer. "Special Counsel" means an attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax status of interest on obligations issued by states and their political subdivisions. "State" means the State of California. "Supplemental Lease Agreement" means any lease agreement hereafter duly authorized and entered into by and between the Lessee and the Lessor, supplementing, modifying or amending the Lease; but only if and to the extent that such Supplemental Lease Agreement is specifically authorized hereunder. "Supplemental Trust Aereement" means any trust agreement hereafter duly authorized and entered into among the Lessor, the Lessee and the Trustee, supplementing, modifying or amending this Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized hereunder. "SureV' means the Qualified Reserve Fund Credit Instrument provided by the Insurer to satisfy the Reserve Requirement for the Certificates. "Tax Certificate" means that certain Tax Exemption Certificate delivered by the Lessee on the Closing Date. 70037800.3 Lease. "Term" means the time during which the Lease is in effect, as provided in Section 4.2 of the "Treasurer" means the Deputy City Manager/Director of Administrative Services of the City. "Trustee" means The Bank of New York Trust Company, N.A., and its successors or assigns hereunder, if any. "Trust Aereement" means this Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. "Yield" shall have the meaning ascribed to such term in Section 5.10 of the Lease. SECTION 1.2 Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Trust Agreement, and has taken all actions necessary to authorize the execution of this Trust Agreement by the officers and persons signing it. ARTICLE II THE CERTIFICATES OF PARTICIPATION SECTION 2.1 Authorization. The Trustee is hereby authorized and directed, upon written request of the Authorized Representative of the Lessee, to execute and deliver, to the Original Purchaser, the 2007 Certificates in an aggregate principal amount of $ in denominations of $5,000 or any integral multiple thereof, evidencing and representing proportionate and undivided ownership interests of the Owners of the Certificates in the Lease Payments and the Prepayments to be made by the Lessee under the Lease. SECTION 2.2 Dating; Payment of Interest. Each Certificate shall be dated as of the date of its execution, and the Interest Component shall be payable from the Interest Payment Date immediately preceding the date of execution thereof, unless (i) it is executed as of an Interest Payment Date, in which event the Interest Component shall be payable from the date of execution thereof, (ii) it is executed after a Record Date and before the following Interest Payment Date, in which event the Interest Component shall be payable from such following Interest Payment Date; or (iii) it is executed on or before the first Interest Payment Date following the date of delivery of such Certificates, in which event the Interest Component shall be payable from said date of delivery; provided, however, that if, as of the original date of execution of any Certificate, the Interest Component has not been paid when due for any Outstanding Certificates, such Interest Component for such Certificate shall be payable from the Payment Date to which the Interest Component has previously been paid or made available for payment with respect to the Outstanding Certificates. There shall be no execution or registration of transfer of Certificates during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. SECTION 2.3 Maturity; Interest Rates. (a) Maturities and Interest Rates for the 2007 Certificates. The 2007 Certificates shall mature on October 1 of the following years and shall represent interest at the following rates: 70037800.3 10 Maturity Date Principal Interest (October 1) Component Rate (b) Payment with Respect to Certificates Equal to Total Lease Payments. The total Principal Component and Interest Component due on all Certificates shall not exceed the total Lease Payments due under the Lease. (c) Payment of the Principal Component and the Interest Component of the Certificates. The principal, if any, and interest payable with respect to the Certificates shall be payable in lawful money of the United States of America by check, being any coin or currency of the United States of America which; at the respective dates of payment thereof, is legal tender for the payment of public and private debts. Interest shall be paid by the Trustee on the Interest Payment Date with regard to such Certificate to the Owner thereof at the close of business on the Record Date with respect to such interest payment and shall be paid by check mailed on the applicable Interest Payment Date by first class mail to such Owner at his address as it appears on the Certificate registration books or, upon the written request of an Owner of at least $1,000,000 in principal amount of Certificates received at least fifteen (15) days prior to a Record Date, by wire transfer in immediately available funds to an account in the United States designated by such Owner, irrespective of the cancellation of such Certificate upon any transfer or exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, unless the Lessee shall default in the payment of interest due with respect to such Interest Payment Date. Payment of principal or premium due shall be paid only upon surrender of such Certificate at the Principal Office of the Trustee. In the event of any default in the payment of interest, such defaulted interest shall be payable to the Owner of such Certificate on a special record date for the payment of such defaulted interest, which date shall be established by the Trustee by notice mailed first class mail by or on behalf of the Lessee to the Owners of Certificates not less than fifteen (15) days preceding such special record date. SECTION 2.4 Rceistrati= Interest. The Certificates shall be delivered in the form of fully registered Certificates without coupons, bearing CUSIP Service Bureau numbers, and in denominations of $5,000 each or any integral multiple thereof. The Certificates shall be individually numbered as determined by the Trustee. The Certificates shall be registered initially in the name of "Cede & Co.," as nominee of Depository Trust Company and shall be evidenced by one Certificate for each Principal Payment Date in the total aggregate principal amount of the Certificates of such Principal Payment Date. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except as set forth in Section 2.8 hereof. 70037800.3 11 In the event the Lessee determines that the continuation of the system of book -entry -only transfers through DTC (or a successor securities depository) is not in the best interests of the DTC participants, beneficial owners of the Certificate Owners, or the Lessee, the Lessee will notify the Trustee, whereupon the Trustee will notify DTC of the availability through DTC of certificates for the Certificates. In such event, the Trustee shall execute and deliver and shall transfer and exchange Certificates as requested by DTC of like principal amount, class, series, priority and maturity, in authorized denom nations to the identifiable beneficial owners in replacement of the beneficial interests of such beneficial owners with respect to the Certificates. The Interest Component shall be payable on each Interest Payment Date to the date of maturity or prepayment of the Certificates, whichever is earlier. Said Interest Component shall represent the portion of Lease Payments designated as interest and coming due during the six-month period immediately preceding each Interest Payment Date with respect to the Certificates computed on the basis of a 360 -day year, comprised of 12 months of 30 days each. The proportion of the Lease Payments designated as the Interest Component shall be determined by the rate of interest applicable to the respective Certificates. SECTION 2.5 Form of Certificates; Temporary Certificates. The Certificates and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and incorporated herein, with appropriate changes to indicate series, terms and maturities. Pending the preparation of definitive Certificates, at the request of the Original Purchaser, the Trustee may, at the request of the Lessee, deliver the Certificates in temporary form, in lieu of definitive Certificates and subject to the same limitations and conditions, exchangeable for definitive Certificates when ready for delivery. The temporary Certificates may be printed, lithographed or typewritten, shall be of such denominations as may be requested by the Original Purchaser, shall be without coupons and may contain such reference to any of the provisions of this Trust Agreement as may be appropriate. Every temporary Certificate shall be executed by the Trustee upon the same conditions and in substantially the same manner as the definitive Certificates. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, and bearing the same rate or rates of interest and date or dates of maturity as that of the temporary Certificates, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office, and the Trustee shall cancel the same. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under this Trust Agreement as definitive Certificates. SECTION 2.6 Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. SECTION 2.7 Application of Proceeds. The proceeds received by the Trustee from the sale of the 2007 Certificates shall forthwith be set aside by the Trustee in the following respective funds and in the following order of priority: (a) The Trustee shall deposit in the Delivery Costs Fund the amount of $ [less $ which will be paid directly to the Insurer to pay the Bond Insurance Policy gross premium]; (b) The Trustee shall deposit in the Reserve Fund the amount of $ equal to the initial Reserve Requirement; and 70037800.3 12 (e) Services the The Trustee shall transfer to the Deputy City Manager/Director of Administrative balance of the net proceeds of the 2007 Certificates in an amount equal to for deposit in the Project Fund. The proceeds received by the Trustee from the sale of any Series of Additional Certificates shall be set aside by the Trustee as set forth in the Supplemental Trust Agreement pursuant to which such Additional Certificates are issued. The Trustee may, in its discretion, establish one or more temporary funds or accounts to facilitate or properly account for the foregoing deposits and transfers. SECTION 2.8 Transfer and Exchange. (a) Transfer of Certificates. Any Certificate may, in accordance with its terms, and subject to Section 2. 10, be transferred upon the books required to be kept pursuant to the provisions of Section 2.11 by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office of the Trustee, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed; provided, however, that the Trustee shall not effect the transfer of any Certificate during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. The Trustee may require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Lessee. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same maturity and interest rate, and for a like aggregate principal amount in authorized denominations. (b) Exchange of Certificates. Certificates may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Certificates of other authorized denominations of the same series, maturity and interest rate; provided, however, there shall be no exchange of Certificates during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. The Trustee may require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the Lessee. All Certificates surrendered pursuant to the provisions of this Section shall be cancelled by the Trustee and shall not be redelivered. SECTION 2.9 Mutilated, Lost, Destroyed or Stolen Certificates. If any Certificate shall become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor and maturity in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity satisfactory to the Trustee shall be given, the Trustee, shall execute and deliver a new Certificate of like tenor and maturity and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee from the Owner of such lost, stolen or destroyed Certificates for each new Certificate delivered under this Section. Any Certificate executed and delivered under the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this Trust Agreement with all other Certificates secured by this Trust Agreement. The Trustee shall not be required to treat both the original Certificate and any replacement Certificate as being Outstanding for the purpose of 70037800.3 13 determining the principal amount of Certificates which may be executed and delivered hereunder or for the purpose of determining any percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate which has been mutilated, lost, destroyed or stolen, and which has matured, or which has been called for prepayment, the Trustee may make payment with respect to such Certificate upon receipt of indemnity satisfactory to the Trustee. (a) Payment Procedure Pursuant to Bond Insurance Policy. To follow SECTION 2.10 Use of Depository Trust Company. Notwithstanding any provision of this Trust Agreement to the contrary: (a) The Certificates shall be initially delivered and registered as provided in Section 2.4. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except: (i) To any successor of the DTC or its nominee, or to any substitute depository designated pursuant to clause (ii) of this subsection (a) ("substitute depository"); provided that any successor of DTC or a substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; (ii) To any substitute depository designated by the Lessee and not objected to by the Trustee or the Insurer, upon (l) the resignation of DTC or its successor (or any substitute depository or its successor) or (2) a determination by the Lessee that DTC or its successor (or any substitute depository or its successor) is no longer able to carry out its functions as the Lessee's security depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) To any person as provided below, upon (l) the resignation of DTC or its successor (or substitute depository or its successor) from its functions as depository; provided that no substitute depository which is not objected to by the Trustee or the Insurer can be obtained or (2) a determination by the Lessee that it is in the best interests of the Lessee to remove DTC or its successor (or any substitute depository or its successor) from its functions as securities depository hereunder. (b) In the case of any transfer pursuant to clause (i) or clause (ii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee, together with a request from the Lessee to the Trustee, a single new Certificate shall be executed and delivered in the aggregate principal amount of the Certificates then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such request from the Lessee. In the case of any transfer pursuant to clause (iii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee, new Certificates shall be executed and delivered in such denominations numbered in consecutive order from R-1 up and registered in the names of such persons as are requested in such a request from the Lessee, subject to the limitations of Section 2.4 hereof, provided that the Trustee shall not be required to deliver such new Certificates within a period less than sixty (60) days from the date of receipt of such a request from the Lessee. (c) In the case of partial prepayment or an advance refunding of the Certificates evidencing all or a portion of the principal amount thereof Outstanding, DTC shall make an appropriate notation on the Certificates indicating the date and amounts of such reduction in principal. The Trustee shall not be liable for any error or omission by DTC in making such notation and the records of the Trustee as to the outstanding principal amount of the Certificates shall be controlling. 70037800.3 - 14 (d) The Lessee, the Insurer and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Owner thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee , the Insurer or the Lessee; and the Lessee, the Insurer and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying or otherwise dealing with any beneficial owners of the Certificates. None of the Lessee, the Insurer or the Trustee will have any responsibility or obligations, legal or otherwise, to the beneficial owners or to any other party including DTC or its successors, except for the Owner of any Certificate. (e) So long as the Outstanding Certificates are registered in the name of Depository Trust Company or its registered assigns, the Lessee and the Trustee shall cooperate with Depository Trust Company, as sole registered Owner, and its registered assigns, in effecting payment of the principal of and prepayment premium, if any, and interest on the Certificates by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. SECTION 2.11 Certificate Register. The Trustee will keep or cause to be kept, at its Principal Office, sufficient books for the registration and transfer of the Certificates which shall at all times be open to inspection by the Insurer, the Lessee and the Lessor during regular business hours with reasonable prior notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred on said books, Certificates as hereinbefore provided. The Lessee, the Lessor, the Insurer and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue, and the Lessee, the Lessor, the Insurer and the Trustee shall not be affected by any notice to the contrary. Such books of record and account shall be available for inspection by the Authority, the Insurer and the City during regular business hours with reasonable prior notice. It shall be the responsibility of the Trustee to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety and to the amounts paid and owing to the Insurer under the terms of the Surety. SECTION 2.12 Execution and Delivery of Additional Certificates. In addition to the 2007 Certificates, the Trustee shall, upon written request of the Authorized Representative of the Lessee, with the written consent of the Insurer, by Supplemental Trust Agreement establish one or more other series of Certificates, representing undivided interests in Lease Payments and secured by the pledge made under this Trust Agreement equally and ratably with any Certificates previously executed and delivered, in such principal amount as shall be determined by the Lessee, but only upon compliance with the provisions hereof and any additional requirements set forth in the applicable Supplemental Trust Agreement, which are hereby made conditions precedent to the execution and delivery of Additional Certificates: (a) No Event of Default shall have occurred and be then continuing; (b) The Supplemental Trust Agreement providing for the execution and delivery of such Additional Certificates shall specify the purposes for which such Additional Certificates are then proposed to be delivered, which shall be one or more of the following: (i) to acquire additional open space or parkland pursuant to the Program, including reimbursements to the Lessee for any sums advanced for such purposes, by establishing and depositing into a project fund the proceeds of such Additional Certificates to be so applied; (ii) to provide for the payment or prepayment of Lease Payments with respect to Certificates theretofore Outstanding hereunder, by depositing with the Trustee moneys and/or investments required for such purpose under the provisions of Section 14.1 hereof, or (iii) to provide moneys needed to refund or refinance all or part of any other current or future obligations of the Lessee with respect to capital improvements. Such Supplemental Trust Agreement may, but shall not be 70037800.3 15 required to, provide for the payment of expenses incidental to such purposes, including the Costs of Delivery of such Additional Certificates, interest components on the Lease Payments for any period authorized under the Code and, in the case of any Additional Certificates intended to provide for the payment or prepayment of existing Certificates, or other obligations of the Lessee, expenses incident to calling, prepaying, paying or otherwise discharging the amounts to be paid off with the proceeds of the Additional Certificates; (c) The Lessee and the Lessor, with the prior written consent of the Insurer, shall have entered into an amendment or supplement to the Lease Agreement and the Base Lease, which requires an increase in the amount of Lease Payments sufficient to provide for the payment of principal and interest with respect to all Certificates to be then Outstanding, and verification, based upon an independent appraisal of the Leased Property subject to the Base Lease and Lease Agreement, that the fair market value of the Leased Property, as supplemented, is equal to or exceeds the aggregate principal amount of the then -outstanding Certificates plus the Additional Certificates; (d) The Lessee shall deliver or cause to be delivered to the Trustee, from the proceeds of such Additional Certificates or from any other lawfully available source of moneys, an amount sufficient to increase the balance in the Reserve Fund to the Reserve Requirement for all Certificates to be then Outstanding hereunder; (e) The Additional Certificates shall be payable as to principal on October I and as to interest on April 1 and October I of each year during their term, except that the first installment of interest due with respect thereto may be payable on either April 1 or October I and shall be for a period of not longer than twelve (12) months; (f) Fixed serial maturities or mandatory sinking account payments, or any combination thereof, shall be established in amounts sufficient to provide for the retirement of all of the Additional Certificates of such series on or before their respective maturity dates. (g) The aggregate principal amount of Certificates executed and delivered hereunder shall not exceed any limitation imposed by law or by any Supplemental Trust Agreement; (h) The Insurer shall have consented to the execution and delivery of such Additional Certificates in writing; and (i) The Trustee shall be the Trustee for the Additional Certificates Nothing in this Section or in this Trust Agreement contained shall prevent or be construed to prevent the Supplemental Trust Agreement's providing for the execution and delivery of Additional Certificates that are to be secured by additional real property or revenues of the Lessee or that have other or additional credit enhancement of any type, nor shall this Trust Agreement limit in any way the power and authority of the Lessee to incur other obligations payable from its General Fund which do not represent an interest in Lease Payments due with respect to the Leased Property. SECTION 2.13 Proceedings for Execution and Delivery of Additional Certificates. Whenever the Lessee shall determine to file its written request with the Trustee for the execution and delivery of Additional Certificates, the Lessee shall authorize the execution and delivery of a Supplemental Trust Agreement, specifying the aggregate principal amount and describing the forms of Certificates of such additional series and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining same), Lease Payments and Lease Payment Dates, prepayment provisions and place or places of payment of principal or prepayment 70037800.3 16 price, if any, and interest represented by such Additional Certificates not inconsistent with the terms of this Trust Agreement. Before any series of Additional Certificates may be executed and delivered by the Trustee, the Lessee shall file the following documents with the Trustee: (a) An executed copy of the applicable Supplemental Trust Agreement; (b) A statement of the Lessee to the effect that the requirement of Section 2.13(a) is met; (c) Executed counterparts of the amendments or supplements to the Lease Agreement, the Base Lease and the Assignment Agreement, as applicable; (d) In the case of a series of Additional Certificates delivered for the purpose described in Section 2.13(b)(ii), irrevocable instructions to the Trustee to give notice as provided in Article N hereof of prepayment of all Certificates to be prepaid in connection therewith; (e) An opinion or opinions of Special Counsel, to the effect that the execution and delivery of the Additional Certificates, the Supplemental Trust Agreement and related supplements or amendments have been duly authorized by the Lessor and the Lessee and meet the requirements of Section 2.13 and this Section; and that the execution and delivery of such Additional Certificates will not, in and of themselves, cause the interest component of the Lease Payments to become included within gross income for purposes of Federal income taxation; and (f) The written consent of the Insurer. ARTICLE III DELIVERY COSTS AND PROJECT FUND SECTION 3.1 Establishment of Delivery Costs Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Delivery Costs Fund" (the "Delivery Costs Fund"), which shall be maintained by the Trustee as a separate trust account and shall be administered in accordance with the provisions of this Article. SECTION 3.2 Delivery Costs Fund. Amounts on deposit in the Delivery Costs Fund shall be applied by the Trustee to the payment of Delivery Costs upon receipt of a Requisition from the Lessee, stating the amount of each such payment, the payee and the purpose for which such payment will be applied. Each such Requisition of the Lessee shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. On the date which is 180 days following the Closing Date, any amounts remaining on deposit in the Delivery Costs Fund shall be transferred to the Lease Payment Fund for application to Lease Payments. SECTION 3.3 Establishment of Project Fund. There is hereby established a special fund designated as the "City of Santa Clarita 2007 Certificates Project Fund" (the "Project Fund"), which shall be held and maintained by the Deputy City Manager/Director of Administrative Services as a separate trust account and shall be administered in accordance with the provisions of this Article. SECTION 3.4 Project Fund. There is hereby established a separate fund to be held and maintained by the Deputy City Manager/Director of Administrative Services to be known as the "City of Santa Clarita 2007 Certificates Project Fund" (the "Project Fund"). The Deputy City Manager/Director of Administrative Services shall disburse or transfer all amounts in the Project Fund, as stated in a 70037800.3 17 Requisition of the Lessee (as described below) for the payment of the cost of the Project (including reimbursement to the Lessee for any such costs paid by it). Before any payment of money is made from the Project Fund, the Lessee shall file a Requisition in substantially the form set forth as Exhibit C hereto. Upon receipt of each such Requisition, the Deputy City Manager/Director of Administrative Services shall pay the amount set forth in such requisition as directed by the terms thereof. When the Project has been completed, a Certificate of the Lessee shall be delivered to the Deputy City Manager/Director of Administrative Services, stating the fact and date of such completion and stating that all the Project Costs have been determined and paid (or that all such costs have been paid less specified claims which are subject to dispute and for which a retention in the Project Fund is to be maintained in the full amount of such claim until such dispute is resolved). Following the delivery of such certificate, the Deputy City Manager/Director of Administrative Services shall transfer amounts then on deposit in the Project Fund (but less the amount of any such retention) to the Trustee for deposit in the Lease Payment Fund for application to Lease Payments. . ARTICLE IV PREPAYMENT OF CERTIFICATES SECTION 4.1 Establishment of Prepayment Fund. (a) The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Prepayment Fund" (the "Prepayment Fund"); shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. Prior to any prepayment, sufficient moneys 'and/or Permitted Investments to be used for prepayment of the Certificates shall be deposited by the Lessee into the Prepayment Fund and be used solely for the purpose of prepaying the Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates. The Lessee shall provide notice to the Trustee of a Prepayment at least 45 days prior to the prepayment date. SECTION 4.2 Prepayment From Net Insurance Proceeds. The Certificates are subject to prepayment, in whole or in part on any date, from Net Insurance Proceeds deposited in the Prepayment Fund at least 30 days prior to the proposed prepayment date and credited towards the prepayment made by the Lessee pursuant to Section 102 of the Lease, at a prepayment price equal to the Principal Component thereof, together with accrued interest to the date fixed for prepayment, without premium. The Trustee shall notify the Insurer of such prepayment. To the extent that Net Insurance Proceeds are in excess of the principal and interest with respect to Certificates then to be prepaid, any excess amount shall, immediately following the prepayment date in question, be transferred by the Trustee to the Lease Payment Fund as a credit against the next Lease Payment due from the Lessee. Whenever Net Insurance Proceeds are set aside for prepayment of Certificates under this Section, they shall, promptly upon receipt and upon the Trustee's receipt of written instructions from the Lessee, be invested in securities in the State and Local Govemment Series of the United States Department of Treasury or in Municipal Obligations, in each case, maturing in time and amount to provide payment in full of the Interest Component and Principal Component of the affected Certificates. SECTION 4.3 Optional Prepayment. The Certificates maturing on or after October I, [2018], are subject to prepayment in whole or in part (in integral multiples of $5,000), on any date on or after October 1, 2017], from moneys deposited in the Lease Payment Fund as a result of the exercise by the Lessee of its option to prepay its Lease Payments, exercised by depositing sufficient funds with the Trustee prior to the scheduled prepayment date, as provided in the Lease Agreement, at a prepayment price of principal amount plus accrued interest to the date fixed for prepayment, without premium. 70037800.3 18 In the event that the Lessee gives written notice to the Trustee of its election to prepay Lease Payments in accordance with the Lease and makes a deposit with the Trustee which is either insufficient for the payment of the full prepayment price of affected Certificates or is untimely for the giving of notice of prepayment to the Owners, the Trustee shall not then give such notice, but, at the written direction of the Lessee, shall either return such prepayment to the Lessee or credit it against the next Lease Payments due from the Lessee, as the Lessee may elect, and the Lessee shall subsequently continue to make its Lease Payments as if no such notice of election to prepay had been given hereunder or under the Lease. The Trustee shall give contingent notice to Owners of optional prepayment hereunder. SECTION 4.4 Selection of Certificates for Prepayment. All or a portion of any Certificate may be prepaid, but only in a Principal Component equal to $5,000. Except as otherwise provided herein, whenever provision is made in this Trust Agreement for the prepayment of Certificates and fewer than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment in such order as the Lessee shall direct, and, in the absence of such direction, in inverse order of maturity, and by lot within any maturity, in any manner which the Trustee shall deem appropriate and fair. The Trustee shall promptly notify the Lessee and the Lessor in writing of the Certificates so selected for prepayment. SECTION 4.5 Notice of Prepayment. Notice of any such prepayment shall be given by the Trustee on behalf and at the expense of the City by mailing a copy of a prepayment notice by first class mail at least thirty (30) days and not more than sixty (60) days prior to the date fixed for prepayment to such Owner of the Certificate or Certificates to be prepaid at the address shown on the Certificate registration books maintained by the Trustee; provided, however, that neither the failure to receive such notice nor any defect in any notice shall affect the sufficiency of the proceedings for the prepayment of the Certificates. All notices of prepayment shall be dated and shall state: (i) the prepayment date, (ii) the prepayment price, (iii) if less than all .Outstanding Certificates of a Series are to be prepaid, the identification (and, in the case of partial prepayment, the respective principal amounts) of the Certificates to be prepaid, (iv) that on the prepayment date the prepayment price will become due and payable with respect to each such Certificate or portion thereof called for prepayment, and that interest with respect thereto shall cease to accrue from and after said date, (v) the place where such Certificates are to be surrendered for payment of the prepayment price, and (vi) whether the City has deposited, or caused the deposit of, an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on such date and, if not, that such notice of prepayment is revocable. Prior to the mailing of any notice of prepayment (other than a prepayment in accordance with Section 4.3), the City shall deposit, or cause to be deposited, with the Trustee an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on that date. Notice of prepayment having been given as aforesaid, the Certificates or portions of Certificates so to be prepaid shall, on the prepayment date, become due and payable at the prepayment price therein specified, and from and after such date (unless the City shall default in the payment of the prepayment price) interest with respect to such Certificates or portions of Certificates shall cease to be payable. Upon surrender of such Certificates for prepayment in accordance with said notice, such Certificates shall be paid by the Trustee at the prepayment price. Installments of interest due on or prior to the prepayment date shall be payable as herein provided for payment of interest. Upon surrender for any partial prepayment of any Certificate, there shall be prepared for the Owner a new Certificate or Certificates of the same Series and maturity in the amount of the unpaid principal. All Certificates which have been 70037800.3 19 prepaid shall be canceled by the Trustee, shall not be redelivered and shall be destroyed pursuant to Section 14.14. In addition to the foregoing notice to the Owners, notice shall also be given by the Trustee at least thirty (30) days before the prepayment date, by telecopy, registered, certified or overnight mail, or by such other method acceptable to such institutions, to the Insurer, to the Depository Trust Company and to an Information Service which shall state the information set forth above, but no defect in said notice nor any failure to give all or.any portion of such further notice shall in any manner defeat the effectiveness of a call for prepayment if notice thereof is given as prescribed above. The Trustee shall have no responsibility for a defect in the CUSIP number that appears on any Certificate or in the prepayment notice. The prepayment notice may provide that the CUSIP numbers have been assigned by an independent service and are included in the notice solely for the convenience of Certificate Owners and that the Trustee, the Lessee and the Lessor shall not be liable in any way for inaccuracies in said numbers. SECTION 4.6 Partial Prepayment of Certificates. Upon surrender by the Owner of a Certificate for partial prepayment, payment of such partial prepayment of the Principal Component will be made by check mailed by first class mail to the Owner at his address as it appears on the registration books of the Trustee. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the Lessee, a new Certificate or Certificates which shall be of authorized denominations equal in aggregate principal amount to the unprepaid Principal Component of the Certificate surrendered and of the same interest rate, series and maturity. Such partial prepayment shall be valid upon payment of the amount thereby required to be paid to such Owner, and the Lessee, the Lessor and the Trustee shall be released and discharged from all liability to the extent of such payment. SECTION 4.7 Effect of Notice of Prepayment. Notice having been given as aforesaid, and the moneys for the prepayment (including the Interest Component accruing through the applicable date of prepayment) having been set aside in the Prepayment Fund, the Certificates so called shall become due and payable on said date of prepayment, and upon presentation and surrender thereof at the office or offices specified in said notice, said Certificates shall be paid in the amount of the unpaid Principal Component, plus the Interest Component accrued and unpaid to said date of prepayment. If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, and premium, if any, together with interest accrued to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as aforesaid, then, from and after said date of prepayment, the interest with respect to such Certificates shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of this Article shall be cancelled upon surrender thereof. SECTION 4.8 Purchase of Certificates. In lieu of prepayment of Certificates as provided in this Article IV, amounts held by the Trustee for such prepayment may also be used on any date, upon receipt by the Trustee at least seventy-five (75) days prior to the purchase date of the written request of an Authorized Representative of the Lessee, for the purchase of the Certificates at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the Lessee may in its discretion direct, but not to exceed the prepayment price which would be payable if such Certificates were prepaid. Remaining moneys if any shall be deposited into the Lease Payment Fund. 70037800.3 20 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND SECTION 5.1 Security Provisions. (a) Assignment of Rights in Lease. The Lessor has, pursuant to the Assignment Agreement, assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Lessor's rights to receive and collect the Lease Payments, the Prepayments, the Assessment Revenues and all other amounts required to be deposited in the Lease Payment Fund or the Assessment Revenue Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other amounts to which the Lessor may at any time be entitled shall be paid directly to the Trustee, and all of the Lease Payments, Prepayments, and Assessment Revenues collected or received by the Lessor shall be deemed to be held and to have been collected or received by the Lessor as the agent of the Trustee, and if received by the Lessor at any time shall be deposited by the Lessor with the Trustee within one Business Day after the receipt thereof, and all such Lease Payments, Prepayments; Assessment Revenues and such other amounts shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund. (b) Security Interest in Moneys and Funds. The Lessor and the Lessee, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners a lien on and a security interest in all moneys in the funds and accounts held by the Trustee under this Trust Agreement (except moneys held in the Excess Earnings Account), including, without limitation, the Lease Payment Fund, the Delivery Costs Fund, the Reserve Fund, the Earnings Holding Account, the Prepayment Fund and the Net Insurance Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. (c) Pledge of Lease Payments. The Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the Interest Component and the Principal Component, and the Lease Payments shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first and exclusive lien on the Lease Payments in accordance with the terms hereof. (d) Security Interest in the Leased Property and Assessment Revenue Fund. The Lessor and Lessee, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners a lien on and a security interest in the Leased Property and in the Assessment Revenue Fund established under the Lease. SECTION 5.2 Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Lease Payment Fund" (the "Lease Payment Fund"). All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the Lessee nor the Lessor shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in this Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. SECTION 5.3 Establishment of the Excess Earnings Account. Within the Lease Payment Fund, there is hereby established the Excess Earnings Account, to be funded as provided in Section 8.7. SECTION 5.4 Deposits and Notification. There shall be deposited into the Lease Payment Fund all Lease Payments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 4.3 (regarding Lease Payments) of the Lease and any other moneys required to be deposited therein pursuant to the Lease or pursuant to this Trust Agreement. Prior to each March 15 70037800.3 21 and September 15 the Trustee shall notify the Lessee of the amounts on deposit in the Lease Payment Fund to be credited (together with the interest earnings thereon between the date of such notification and the Lease Payment Date) toward the Lease Payments due on the next succeeding Lease Payment Date. SECTION 5.5 Application of Moneys. Except as provided in Section 5.6 or Section 13.3,.all amounts in the.Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Principal Component and the Interest Component as the same shall become due and payable, in accordance with the provisions of Article II and Article IV. The Trustee shall.apply moneys on deposit in the Lease Payment Fund in the following order of priority: (a) On or before each Payment Date, an amount sufficient to pay the Interest Component due and payable on such date shall be set aside by the Trustee and mailed (or sent by wire transfer, as appropriate) to the Owners of the Certificates; (b) On or before each Principal Payment Date, an amount sufficient to pay the Principal Component coming due and payable on the Certificates on such date shall be set aside; and (c) To the extent that Prepayments are made on each date set for prepayment of Certificates pursuant to Section 4.3, the amount prepaid shall be deposited into the Prepayment Fund to be applied for the prepayment of Certificates in accordance with Section 4.3. SECTION 5.6 Investment Earnings. In accordance with the requirements set forth in Section 8.3 hereof, but subject to Section 6.3 hereof, the Trustee shall deposit all earnings resulting from the investment of moneys deposited in any fund or account held under this Trust Agreement (other than [the Project Fund,] the Lease Payment Fund and the Excess Earnings Account which earnings shall remain in such fund or account) into an account to be established by the Trustee within the Lease Payment Fund to be designated the Earnings Holding Account and to be applied in accordance with Section 8.3 hereof; provided, however, that if at any time there shall be a withdrawal from the Reserve Fund hereunder, investment earnings received on the Reserve Fund and all other funds and accounts (except the Excess Earnings Account) following the date of such withdrawal shall be transferred to or remain in the Reserve Fund as a replenishment of the balance therein (or as a reimbursement to any provider of a surety bond or similar instrument therein) until such balance again reaches the Reserve Requirement. SECTION 5.7 Surplus. Any funds remaining in the Lease Payment Fund or the Prepayment Fund after prepayment and payment of all Certificates Outstanding, or provision having been made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the Lessee. ARTICLE VI RESERVE FUND SECTION 6.1 Establishment of Reserve Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Reserve Fund" (the "Reserve.Fund"). All moneys or other security instrument at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates, and applied solely as provided herein. SECTION 6.2 Deposits. On the Closing Date, there shall be deposited the Surety into the Reserve Fund as the initial Reserve Requirement, in accordance with Section 2.7. If at any time the Lessee shall determine it to be within its best interests to do so, it may provide to the Trustee, and the 70037800.3 22 Trustee shall accept into the Reserve Fund in full satisfaction of the Reserve Requirement, a Qualified Reserve Fund Credit Instrument in lieu of or in partial substitution for cash or securities otherwise required to comprise all or a portion of the Reserve Requirement; provided, however, that the claims - paying ability or long-term debt rating of the entity providing such a Qualified Reserve Fund Credit Instrument shall be continuously rated in one of the two highest classifications by Moody's and S&P (without regard to distinctions within rating categories). The Qualified Reserve Fund Credit Instrument shall be acceptable to the Insurer. If the Lessee shall make the election to replace cash or securities on deposit in the Reserve Fund under the provisions of this Section, the Trustee shall, immediately following the delivery of the Qualified Reserve Fund Credit Instrument meeting the requirements hereof, withdraw an amount equal to the stated amount of said instrument from the Reserve Fund and deposit it into the Lease Payment Fund. Such moneys or instruments shall be held in trust as a reserve for the payment when due of all the Lease Payments and Prepayments to be paid pursuant to the Lease and of all payments with respect to the Certificates. SECTION 6.3 Transfers of Excess. So long as the Certificates are Outstanding, the Trustee shall transfer any moneys on hand in the Reserve Fund in excess of the Reserve Requirement to the Earnings Holding Account to be applied in accordance with Section 8.3. SECTION 6.4 Replenishment of Reserve Fund. In the event that the Trustee shall have withdrawn any amounts from the Reserve Fund to remedy a shortfall in the Lease Payment Fund, and the, Reserve Fund has not theretofore been replenished to the full Reserve Requirement, the Trustee shall apply any delinquent Lease Payments received by the Trustee first to replenish the Reserve Fund so that it contains an amount equal to the Reserve Requirement within 12 months of the date of the related deficiency, and then to make deposits into the Lease Payment Fund. Following any partial prepayment or defeasance of Certificates hereunder, the Reserve Requirement shall be reduced as provided in the definition thereof, and the requirement under this Section to effect replenishment of the Reserve Fund shall extend only to the amount of such reduced Reserve Requirement. SECTION 6.5 Application of Reserve Fund in Event of Deficiency in Lease Payment Fund. If five (5) Business Days immediately preceding any Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the Principal Component and the Interest Component then coming due and payable, the Trustee first shall apply the moneys available in the Reserve Fund, or shall draw on any instrument comprising the Reserve Requirement, to make delinquent Lease Payments on behalf of the Lessee by transferring the amount necessary for this purpose to the Lease Payment Fund. In the event the Reserve Fund contains a Qualified Reserve Fund Credit Instrument and there is insufficient cash in the Reserve Fund to cover the delinquent Lease Payment, the Trustee shall, no later than three (3) days prior to said Interest Payment Date, make a demand upon the Insurer pursuant to the Financial Guaranty Agreement for an amount necessary to make the delinquent Lease Payment on behalf of the Lessee, less any cash available in the Reserve Fund. In the event that the Reserve Fund contains more than one Qualified Reserve Fund Credit Instrument from different bond insurers, the Trustee shall make a demand upon each bond insurer for the amount necessary to make the delinquent Lease Payment less cash available in the Reserve Fund, on a pro rata basis among the bond insurers. Upon the receipt of the delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund either with cash or by a draw on the Qualified Reserve Fund Credit Instrument, such Lease Payment shall first be used to reimburse the Qualified Reserve Fund Credit Instrument insurer for any amount drawn, plus accrued interest at the rates set forth in the Financial Guaranty Agreement, and then deposited in the Reserve Fund to the extent of the moneys advanced from the Reserve Fund. The Trustee shall maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any time under the Qualified Reserve Fund Credit Instrument, and as to the amount paid and owing to the Insurer under the terms of the Qualified Reserve Fund Credit Instrument. 70037800.3 23 SECTION 6.6 Transfer to Make All Lease Payments. If on any Payment Date, the moneys on deposit in the Reserve Fund and in the Lease Payment Fund (excluding amounts required for payment of past due Principal Component or Interest Component with respect to Certificates not yet presented for payment) are sufficient to pay all Outstanding Certificates, including all of the Principal Component and the Interest Component, and premium, if any, the Trustee shall, upon the written direction of the Authorized Representative transfer all amounts then on hand in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments or Prepayments and such moneys shall be distributed to the Owners of Certificates in accordance with Article II, provided, however, that if no written instruction is received by the Trustee, no such transfer shall be made. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates, or upon provision for such payments as provided in Section 14.1, including payment of the Trustee's fees and expenses, shall be withdrawn by the Trustee and paid to the Lessee. ARTICLE VII NET INSURANCE PROCEEDS FUND SECTION 7.1 Establishment of Net Insurance Proceeds Fund; Application of Net Insurance Proceeds. (a) Any Net Insurance Proceeds collected by the Lessee and not applied to the restoration or repair of the Leased Property shall be transferred to the Trustee pursuant to Section 6.2(a) of the Lease and deposited by the Trustee into a special fund designated as the "City of Santa Clarita 2007 Certificates Net Insurance Proceeds Fund" (the "Net Insurance Proceeds Fund") to be held in trust and applied and disbursed by the Trustee as provided in Section 6.2 of the Lease. Net Insurance Proceeds of rental interruption insurance shall be paid to the Trustee and applied as provided in Section 5.5 of the Lease. (b) If the Leased Property are taken, or a portion of the Leased Property is taken, by condemnation proceedings, the Net Insurance Proceeds therefrom shall be deposited in the Net Insurance Proceeds Fund promptly upon receipt thereof and the Lessee shall certify to the Trustee (i) as to whether the Leased Property have been taken in whole or in part pursuant to such proceedings, (ii) as to whether the remaining portion of the Leased Property is still useful for the purposes originally intended and (iii) as to whether it desires that any available Net Insurance Proceeds from such condemnation proceedings be applied for replacement of the Leased Property and, if so, that sufficient funds, together with such Net Insurance Proceeds, have been appropriated to pay the total cost of such replacement. If such certification is to the effect that the Leased Property have been taken in whole pursuant to such condemnation proceedings or has been taken in part to such extent that the remaining portion of Leased Property is no longer useful for the purposes originally intended, the Trustee shall transfer all of such Net Insurance Proceeds to the Prepayment Fund to be applied to the prepayment of the Certificates. If such certification is to the effect that the Leased Property has been taken in part pursuant to such condemnation proceedings and that the remaining portion of the Leased Property is still useful for the purposes originally intended, the Trustee shall transfer such Net Insurance Proceeds to the Prepayment Fund to be applied to the prepayment of Certificates pursuant to Section 4.2 hereof, provided that, if such certification is also to the effect that the Lessee desires that any available Net Insurance Proceeds be applied for replacement of the Leased Property and if the Lessee further certifies that sufficient funds, together with such Net Insurance Proceeds, have been appropriated or are otherwise available to pay the total cost of such replacement, the Trustee will disburse such Net Insurance Proceeds to the Lessee upon receipt of its requisitions therefor in order for the Lessee to cause the Leased. Property to be replaced or improved to at least the same good order, repair and condition as it.was in prior to the condemnation proceedings, insofar as the same may be accomplished with said funds, and the Trustee shall transfer any excess Net Insurance Proceeds to the Lease Payment Fund to be credited against the next Lease Payment. 70037800.3 24 SECTION 7.2 Excess Net Insurance Proceeds. After all of the Certificates have been retired and the entire amount of the Principal Component and Interest Component have been paid in full, or provision having been made therefor (except by means of payment under the Bond Insurance Policy satisfactory to the Trustee), including payment of the Trustee's fees and expenses, the Trustee shall then pay any remaining moneys in the Net Insurance Proceeds Fund to the Lessee. SECTION 7.3 Cooperation. The Lessor and the Trustee shall cooperate fully with the Lessee, at the expense of the Lessee, in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to any part of the Leased Property. ARTICLE VIII MONEYS IN FUNDS; INVESTMENT SECTION 8.1 Held in Trust. The moneys and investments held by the Trustee under this Trust Agreement are irrevocably held in trust for the benefit of the Owners of the Certificates, with the exception of moneys held in the Excess Earnings Account, which are held in trust for rebate to the United States Government, and for the purposes herein specified, and such moneys, and any income or interest earned thereon, shall be expended only as provided in this Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Lessor, the Trustee or the Lessee or any Owner of Certificates, or any of them other than the lien in favor of Trustee permitted pursuant to Section 9.5 hereof. SECTION 8.2 Investments Authorized. Moneys held by the Trustee hereunder, upon written order of an Authorized Representative of the Lessee, which written order shall comply with Section 8.7 and 11.8, shall be invested and reinvested by the Trustee in Permitted Investments. The Treasurer shall by written order filed with the Trustee direct such investment in specific Permitted Investments identified in such written order. Investment of moneys in the Reserve Fund shall be directed in accordance with Section 8.5 hereof. Such investments, if registerable, shall be registered in the name of the Trustee or its nominee for the benefit of the Owners and held by the Trustee. Such investment direction shall be made giving full consideration for the time at which funds are required to be available. The Trustee and its affiliates may act as sponsor, advisor, purchaser or agent in the making or disposing of any investment. The Trustee covenants that in the absence of a written order of the Treasurer directing investments hereunder, it shall invest such proceeds in instruments described in clause (4) of the definition of "Permitted Investments" contained herein. SECTION 8.3 Disposition of Investments. Any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the fund or account from which the investment was made, except as otherwise provided herein. Investment earnings accruing to all funds and accounts established hereunder (except the Lease Payment Fund and the Excess Earnings Account) shall be transferred promptly upon receipt into the Earnings Holding Account; provided that, following a withdrawal from the Reserve Fund, the provisions of Section 5.6 hereof shall control. Earnings, if any, on amounts on deposit in the Net Insurance Proceeds Fund shall remain therein until applied for the purpose of restoring or repairing the Leased Property or until applied towards the prepayment price of Certificates hereunder. On each Computation Date, the Lessee will calculate the amount, if any, of rebatable arbitrage with respect to such investment earnings which amount shall be deposited into the Excess Earnings Account and applied in accordance with Section 8.7 of this Trust Agreement and Section 5.10(h) of the Lease. The balance, if any, remaining in the Earnings Holding Account after such deposit in the Excess Earnings Account shall be transferred, first to the Lease Payment Fund in an amount necessary to be applied as a credit to the next Lease Payment due from the Lessee, and second any remaining amount shall be remitted to the Lessee to be applied for authorized purposes. Investment 70037800.3 25 earnings accruing to the Reserve Fund shall be transferred to the Earnings Holding Account only to the extent that retention of such earnings would result in a balance within the Reserve Fund in excess of the Reserve Requirement. SECTION 8.4 Accounting. The Trustee shall furnish to the Lessee each month an accounting statement of all investments made by the Trustee. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with this Article. The Lessee acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Lessee the right to receive brokerage confirmations of security transactions as they occur, the Lessee specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Lessee periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. SECTION 8.5 Valuation of Investments. With respect to all funds and accounts, the Trustee shall, at the expense of the Lessee, determine the value thereof as frequently as deemed necessary by the Insurer, but not less often than quarterly, at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date from the first available moneys. If amounts on deposit in the Reserve Fund shall, at any time, have a market value less than the Reserve Requirement, such deficiency shall be made up from first available moneys after required deposits to the Lease Payment Fund. Amounts on deposit in the Reserve Fund at any time shall be invested in Permitted Investments with maturities of not to exceed five (5) years; provided, further, that an investment in a guaranteed investment agreement approved by the Insurer shall be deemed to have a maturity of less than five (5) years if its terms provide for withdrawal of the Reserve Fund balance, at par, at any time. In the event that the Reserve Fund shall include a surety bond or other instrument intended to provide for the Reserve Requirement, it shall be valued at cost. The Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required.payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. SECTION 8.6 Deposit and Investment of Moneys in Funds. All moneys held by the Trustee in any of the funds established pursuant to this Trust Agreement shall be invested in Permitted Investments as described in Section 8.2 above. The Trustee shall have no duty or obligation to verify the legality of such investments. The Trustee may commingle any of the moneys in funds held by it pursuant to this Trust Agreement and place them into a separate fund or funds for investment purposes only, provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee. The Trustee may act as principal or agent in the acquisition or disposition of investments. SECTION 8.7 Rebate of Excess Investment Earnings to Federal Government. (a) The Lessee, if required pursuant to the Code and the pertinent Regulations, shall calculate or cause to be calculated Excess Investment Earnings in accordance with Section 5.10(h) of the Lease, and the Trustee, at the direction of the Lessee, shall transfer such monies to the Excess Earnings Account in accordance with Section 5.10(h) of the Lease. (b) The Trustee shall pay amounts in the Excess Earnings Account as directed in Section 5.10(h) of the Lease and transfer amounts in accordance with Section 5.10(h) of the Lease to the Lessee. 70037800.3 26 (c) The Trustee shall invest payments by the Lessee of Excess Investment Earnings at Lessee's written instruction until rebated in accordance with the Regulations pertaining thereto as may from time to time be in effect. (d) The Lessee shall keep or cause to be kept, and retain for a period of six years following the retirement of the last Certificates Outstanding, records delivered to the Trustee of the calculations and certificates required pursuant to this Section. (e) The Trustee shall provide the Lessee or the Lessor with all information relative to any moneys held by or investments of Gross Proceeds made by the Trustee as may be required in order to assist the Lessee in making the calculations required by this Section. The Trustee shall not be responsible for calculating Excess Investment Earnings or for the adequacy or correctness or any Excess Investment Earnings calculations. The Trustee shall be deemed conclusively to have complied with the provisions of this Trust Agreement regarding calculation and payment of Excess Investment Earnings if it follows the directions of Lessee and it shall have no independent duty to review such calculations or enforce the Lessee's compliance with such requirements. ARTICLE IX THE TRUSTEE SECTION 9.1 Appointment of Trustee. The Bank of New York Trust Company, N.A., a national banking association organized and existing under and by virtue of the laws of the United States, is hereby appointed Trustee by the Lessor and the Lessee for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Trust Agreement. The Lessor and the Lessee agree that they will maintain either The Bank of New York Trust Company, N.A., or a substitute Trustee which substitute Trustee is a commercial bank, national banking association, or trust company having an office in New York, New York, Los Angeles, or San Francisco, California, which, together with the corporate parent of such Trustee, has a combined capital (exclusive of borrowed capital) and surplus of not less than Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by Federal or state authority, so long as any Certificates are Outstanding, and acceptable to the Insurer. If such bank, national banking association or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority referred to above, then for the purpose of this Section, the combined capital and surplus of such bank, national banking association or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the Certificates when duly presented for payment at maturity, or on prepayment, or on purchase by the Trustee of Certificates prior to maturity and to cancel all Certificates upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. The Trustee shall be compensated for its services rendered pursuant to the provisions of this Trust Agreement. So long as no Event of Default shall have happened and be continuing, the Lessee may remove the Trustee initially appointed for good cause, and any successor thereto, and may appoint a successor or successors thereto; provided, that any such successor shall be a bank, national banking association or trust company meeting the requirements set forth in this Section. The Trustee may resign by giving written notice to the Lessee, the Lessor and the Insurer. Upon receiving such notice of resignation, the Lessor shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon 70037800.3 27 acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Certificate Owners at their respective addresses set forth on the Certificate registration books maintained pursuant to Section 2.12. In the event the Lessor does not name a successor Trustee within 30 days of receipt of notice of the Trustee's resignation, then the Trustee may petition a court of proper jurisdiction to seek the immediate appointment of a successor Trustee. SECTION 9.2 Liability of Trustee. The recitals of facts herein, in the Assignment Agreement and in the Certificates contained shall be taken as statements of the Lessee, and the Trustee assumes no responsibility for the correctness of the same, and makes no representations as to the validity or sufficiency of this Trust Agreement or the Certificates as to the value or condition of the trust estate or any part thereof, as to the title of the Lessee thereto, as to the security afforded thereby or by this Trust Agreement, as to the tax status of the Interest Component, or as to the technical or financial viability of the Lessee, and shall incur no responsibility in respect thereof. The Trustee shall not be accountable for the use or application by the Lessee of the Certificates or the proceeds thereof or of any moneys paid to the Lessee pursuant to the terms of this Trust Agreement. The Trustee shall, however, be responsible for its representations in relation to the execution of the Certificates. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct. The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent (other than an employee) or attorney appointed with due care. The Lessee shall not be deemed an agent of the Trustee for any purpose, and the Trustee shall not be responsible for the compliance of the Lessee in its duties hereunder in connection with the transactions contemplated herein. The Trustee may become the Owner of the Certificates with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Certificate -Owners, whether or not such committee shall represent the Certificate Owners or a majority thereof. No provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder or thereunder, or in the exercise of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to its satisfaction. In accepting the trusts hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners, Lessor and Lessee having any claim against the Trustee arising from the Trust Agreement shall -look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the Lessor and the Lessee of the Leased Property. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease Agreement or this Trust Agreement for the existence, furnishing or use of the Leased Property. The Trustee shall not be responsible for the sufficiency or enforceability of the Lease Agreement or the assignment under the Assignment Agreement of its rights to receive Lease Payments. The Trustee shall not be accountable for the use or application by the Lessee or any other party of any funds which the Trustee has released in accordance with the provisions of this Trust Agreement. 70037800.3 28 The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Certificates. The Trustee is authorized and directed to execute the Assignment Agreement in its capacity as Trustee. The immunities extended to the Trustee also extend to its directors, officers, employees and agents. The Trustee shall not be liable for any action taken or not taken by it in accordance with the direction of a majority (or other percentage provided for herein) in aggregate principal amount of Certificates outstanding or of the Insurer relating to the exercise of any right, power or remedy available to the Trustee. ' The permissive right of the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty. The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. SECTION 9.3 Merger or Consolidation. Any company or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any company or national banking association resulting from any merger, conversion or consolidation to which it shall be a party or any company or national banking association to which the Trustee may sell of transfer all or substantially all of its corporate trust business, provided that such company or national banking association shall meet the requirements set forth in Section 9.1, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. Notice of such merger or consolidation shall be given to the Lessee and the Lessor. SECTION 9.4 Protection and Rights of the Trustee. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, telegram, facsimile transmission, electronic mail, voucher, waiver or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and famished pursuant to any of the provisions of this Trust Agreement, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, including, but not limited to, the legality of any investment in which Trustee is instructed to invest, but may, in the absence of bad faith on its part, accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee may consult with counsel, who may be counsel to the Lessee, with regard to legal questions and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee hereunder in good faith in accordance therewith. 70037800.3 29 Whenever in the administration of its duties under this Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the Authorized Representative of the Lessee or Lessor and such certificate shall be full warranty to the Trustee, in the absence of bad faith on its part, for any action taken or suffered under the provisions of this Trust Agreement upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable to the Trustee. The Trustee may be or become the Owner of the Certificates with the same rights it would have if it were not Trustee; may acquire and dispose of any bonds or other evidence of indebtedness of the Lessee with the same rights it would have if it were not the Trustee and may act as a depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of the Owners whether or not such committee shall represent the Owners of the majority in principal amount of the Certificates then Outstanding. The Trustee shall not be answerable for the exercise of any discretion or power under this Agreement or for anything whatever in connection with the fmds-and accounts established hereunder, except only for its own negligence or willful misconduct hereunder. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until a Responsible Officer shall have actual knowledge thereof, or, shall have received written notice thereof, at its Principal Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Certificates, or as to the existence of an Event of Default thereunder. The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to this Trust Agreement provided, however, that: (a) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (b) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (c) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request, order or direction of any of the Owners or Insurer pursuant to the provisions of this Trust Agreement unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Trust Agreement. In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. SECTION 9.5 Compensation of the Trustee. The Lessee or the Lessor shall from time to time on demand, pay to the Trustee reasonable compensation for its services and shall reimburse the Trustee for all its advances (with interest on such advances at the maximum rate allowed by law) and expenditures, 700379003 30 including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents and attorneys or other experts employed by it in the exercise and performance of its powers and duties hereunder and the Trustee shall have a lien therefor on any and all funds at any time held by it under this Trust Agreement, which lien shall not be prior and superior to the lien of the Certificate Owners unless there has occurred an Event of Default in which event the lien of the Trustee shall be prior and superior to the lien of the Owners. The Lessee's and Lessor's obligations hereunder shall remain valid and binding, notwithstanding the maturity and payment of the Certificates or the resignation or removal of the Trustee. The compensation of the Trustee hereunder shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust. SECTION 9.6 Indemnification of Trustee. To the extent permitted by law, the Lessee shall indemnify and save the Trustee its officers, employees, agents, successors or assigns harmless from and against all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Property by the Lessee, (ii) any breach or default on the part of the Lessee in the performance of any of its obligations under this Trust Agreement and any other agreement made and entered into for purposes of the Leased Property, (iii) any act of negligence of the Lessee or of its agents, contractors, servants, employees or licensees with respect to the Leased Property, (iv) any act of negligence of any assignee of, or purchaser from, the Lessee or its agents, contractors, servants, employees or licensees with respect to the Leased Property, (v) the actions of any other party, including but not limited to the ownership, operation or use of the Leased Property by the Lessee, or (vi) the Trustee's exercise and performance of its powers and duties hereunder or under the Lease. No indemnification will be made under this Section 9.6 or elsewhere in this Trust Agreement for negligence or willful misconduct under this Trust Agreement by the Trustee, its officers, agents or employees. The Lessee's obligations hereunder shall remain valid and binding notwithstanding defeasance, maturity and payment of the Certificates or the resignation or removal of the Trustee. SECTION 9.7 Removal of Trustee. The Trustee may be removed at any time, upon written notice to the Insurer. The Insurer shall receive prior written notice of any Trustee resignation, removal and the appointment of any successor thereto. Notwithstanding any other provision of this Trust Agreement, with the exception of the right of the Trustee to petition a court to seek the appointment of a successor trustee, set forth in Section 9.1 hereof, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to the Insurer, shall be appointed. ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS SECTION 10.1 Amendments Permitted. This Trust Agreement and the rights and obligations of the Owners and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement which shall become effective when the written consent of the Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in Section 10.3, shall have been filed with the Trustee; provided, that the Trustee shall enter into a Supplemental Trust Agreement with the Lessor and the Lessee upon the Lessee's entering into a Supplemental Lease Agreement with the Lessor. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of the Interest Component, or reducing the amount of Principal Component thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written 70037800.3 31 consent to an amendment or modification of this Trust Agreement or the Lease, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement shall become effective as provided in Section 10.2. This Trust Agreement (and the rights and obligations of the Owners hereunder), and the Lease and the Base Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement, without notice to or the consent of any such Owners, but only to the extent permitted by law and only (1) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (2) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable and which shall not adversely affect the interest of the Owners, (3) to satisfy the requirements of the Rating Agencies, or (4) with respect to the Lease and the Base Lease, as permitted therein in order to permit the substitution or release of all or a portion of the Leased Property in accordance with Section 3.3 of the Lease. Any such supplemental agreement with. respect to this Trust Agreement and the Lease shall require the unanimous consent of all parties hereto and thereto, as the case may be. Any such supplemental agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. Any amendment or supplement to this Trust Agreement, the Lease Agreement or any other Principal financing documents shall be subject to the prior written consent of the Insurer. Any rating agency rating the Certificates must receive notice of each amendment and a copy thereof at least 15 days in advance of its execution or adoption. The Insurer shall be provided by the Lessee with a full transcript of all proceedings relating to the execution of any such amendment or supplement. SECTION 10.2 Procedure for Amendment with Written Consent of Owners. Subject to the consent of the Insurer, this Trust Agreement or the Lease may be amended by supplemental agreement as provided in this Section in the event the consent of the Owners is required pursuant to Section 10.1. A copy of such supplemental agreement, together with a request to the Owners for their consent thereto, shall be mailed, by first class mail by the Trustee, at the expense of the Lessee, to each Owner at his address as set forth in the Certificate registration books maintained pursuant to Section 2.12, but failure to receive copies of such supplemental agreement and request so mailed shall not affect the validity of the supplemental agreement when assented to as in this Section provided. Such supplemental agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in Section 10.3) and notices shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Certificates for which such consent is given, which proof shall be such as is permitted by Section 2.12. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a Subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consents to such supplemental agreement, the Trustee shall mail a notice to the Certificate Owners in the manner. hereinabove provided in this Section for the mailing of such supplemental agreement, stating in substance that such supplemental agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this Section 10.2 (but failure to mail copies of said notice shall not affect the validity of such supplemental agreement or the consents thereto). A record, consisting of the papers required by this Section 10.2 to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. Such supplemental agreement shall become effective upon the 70037800.3 32 mailing of the notice hereinabove in this Section 10.2 provided, and such supplemental agreement shall be deemed conclusively binding upon the parties hereto and the Owners of all Certificates at the expiration of 60 days after such mailing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such 60 -day period. SECTION 10.3 Disqualified Certificates. Certificates known by the Trustee to be owned or held by or for the account of the Lessee or the Lessor or by any person directly or indirectly controlled by, or under direct or indirect common control of, the Lessee or the Lessor (except any Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action provided for in this Trusi Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Trust Agreement. Upon request of the Trustee, the Lessee and the Lessor shall specify to the Trustee those Certificates disqualified pursuant to this Section and the Trustee may conclusively rely on such certificate. SECTION 10.4 Effect of Supplemental Agreement. From and after the time any supplemental agreement becomes effective pursuant to this. Article, the Trust Agreement or the Lease, as the case may be, shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the parties hereto or thereto and all Owners of Certificates Outstanding, as the case may be, shall thereafter be determined, exercised and enforced hereunder and thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any supplemental agreement shall be deemed to be part of the terms and conditions of this Trust Agreement or the Lease, as the case may be, for any and all purposes. SECTION 10.5 Endorsement or Replacement of Certificates Delivered After Amendments. The Trustee may determine that Certificates delivered after the effective date of any action taken as provided in this Article X shall bear a notation, by endorsement, in form approved by the Trustee, as to such action. In that case, upon demand of the Owner of any Certificate Outstanding at such effective date and presentation of his Certificate for that purpose at the office of the Trustee, a suitable notation shall be made on such Certificate. The Trustee may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Certificate Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office of the Trustee without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. SECTION 10.6 Amendatory Endorsement of Certificates. Subject to Section '10.1, the provisions of this Article shall not prevent any Owner from accepting any amendment as to the particular Certificates held by such Owner, provided that due notation thereof is made on such Certificates. ARTICLE XI COVENANTS; NOTICES SECTION 11.1 Compliance with and Enforcement of the Lease. The Lessee covenants and agrees with the Owners to perform all obligations and duties imposed on it hereunder and under the Lease. The Lessor covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Lessee will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Lessor thereunder. The Lessor and the Lessee, immediately upon receiving or giving any notice, communication or other 70037800.3 33 document in any way relating to or affecting their respective estates,. or any of them, in the Leased Property, which may or can in any manner affect such estate of the Lessee, will deliver the same, or a copy thereof, to the Trustee. SECTION 11.2 Payment of Taxes.The Lessee shall pay all taxes that may be charged with respect to the Leased Property as provided in Section 5.1 of the Lease. SECTION 11.3 Observance of Laws and Regulations. The Lessee will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States, or of the State or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the Lessee, including its right to exist and carry on its business to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. SECTION 11.4 Prosecution and Defense of Suits. The Lessee shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Property, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee and every Owner harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. SECTION 11.5 Lessee Budgets. The Lessee shall supply to the Trustee, within thirty days following the beginning of each Fiscal Year, a certification that the Lessee has made adequate provision in its proposed annual budget for the payment of Lease Payments due under the Lease in the Fiscal Year covered by such budget. The certification given by the Lessee to the Trustee shall be to the effect that the amounts so proposed to be budgeted are fully adequate for the payment of all Lease Payments due in the ensuing Fiscal Year. If the amounts so proposed to be budgeted are not stated to be adequate for the payment of Lease Payments due under the Lease, the Trustee will notify the Lessee to take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the Lessee in the ensuing Fiscal Year for the payment of Lease Payments due under the Lease and the Lessee will notify the Trustee of the proceedings then taken or proposed to be taken by the Lessee. The Trustee shall be protected in relying upon any certification or such notice from the Lessee, and the Trustee shall have no further responsibility for the evaluation of such budget data. SECTION 11.6 Pledge of Assessment Revenues. Legally available funds of the Lessee to make Lease Payments include Assesssment Revenues. Pursuant to the the Lease, the Lessee pledges the Assessment Revenues to the payment of Lease Payments. The Certificates are secured by a pledge of the Assessment Revenues received by the Lessee from the operation of the Assessment District. Pursuant to the Lease, the Lessee covenants to contribute all or a portion of annual Assessment Revenues collected to pay Lease Payments. As the County pays the annual Assessment Revenues to the Lessee, the Lessee covenants to hold such amounts in a separate fund established by the Lease and held by the Deputy City Manager/Director of Administrative Services known as the "Assessment Revenue Fund," until the amount on deposit therein equals the Lease Payments due for such Certificate Year. Thereafter, Assessment Revenues in excess of such required deposit are released to the Lessee for any lawful use. The Lessee hereby covenants to continue to annually impose, levy, and collect the Assessments Revenues as long as there exists Outstanding Certificates. 70037800.3 - 34 SECTION 11.7 Further Assurances. The Lessor and the Lessee will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to cavy out the intention or to facilitate the performance of this Trust Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided herein. SECTION 11.8 Tax Covenants. The Lessee will not make any use of the proceeds of the obligations provided herein or any other funds or take or omit to take any other action which will cause such obligations to be a "private activity bond" within the meaning of Section 141(a) of the Code, or "federally guaranteed" within the meaning of Section 149(b) of the Code. To that end, so long as any Lease Payments are unpaid, the Lessee, with respect to such proceeds and such other funds, will comply with all requirements of such Sections 141(a) and 149(b) and all related Regulations to the extent that such requirements are, at the time, applicable and in effect. SECTION 11.9 Arbitrage Covenant. The Lessor and the Lessee hereby covenant with the Owners of the Certificates that, notwithstanding any other provision of this Trust Agreement, neither of them shall make any use of the proceeds of the Certificates that will cause the obligations of the Lessee under the Lease to be "arbitrage bonds" pursuant to Section 148 of the Code resulting in the inclusion of the Interest Component in gross income for purposes of federal income taxation. ARTICLE XII LIMITATION OF LIABILITY SECTION 12.1 Limited Liability of the Lessee. Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the Lessee contained herein and in the Lease, the Lessee shall have no obligation or liability to any of the other parties or to the Certificate Owners with respect to this Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee. SECTION 12.2 No Liability of the Lessee or Lessor for Trustee Performance. Except as expressly provided herein, neither the Lessee nor the Lessor shall have any obligation or liability to any of the other parties or to the Certificate Owners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. SECTION 12.3 Limited Liability of Trustee. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates, for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in this Trust Agreement) or for the actions or representations of any other party to this Trust Agreement. The Trustee shall have no obligation or liability to any of the other parties or the Certificate Owners with respect to this Trust Agreement or the failure or refusal of any other party to perform any covenant or agreement made by any of them under this Trust Agreement or the Lease, but shall be responsible solely for the performance of the duties and obligations expressly imposed upon it hereunder. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the Lessee or the Lessor (as the case may be), and the Trustee assumes no responsibility for the correctness of the same, makes no representations as to the validity or sufficiency of this Trust Agreement or of the Certificates, shall incur no responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. 70037800.3 35 SECTION 12.4 Opinion of Counsel. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the proposed action. If it does so in good faith, the Trustee shall be absolutely protected in relying thereon. The Trustee shall not be responsible for the sufficiency of the Lease, its right to receive moneys pursuant to the Lease or the value of or title to the Leased Property. The Trustee shall not be responsible or liable for any losses suffered in connection with any investment of funds made by it under the terms of and in accordance with this Trust Agreement. SECTION 12.5 Limitation of Rights to Parties and Owners. Nothing in this Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the Lessee, the Lessor, the Trustee, the Insurer and the Owners, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or any covenant, condition or provision hereof; and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the Lessee, the Lessor, the Trustee and the Owners. ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS SECTION 13.1 Assignment of Rights. Pursuant to the Assignment Agreement, the Lessor has transferred, assigned and set over to the Trustee for the benefit of the Owners (a) all of the Lessor's rights to receive Lease Payments and Prepayments without recourse to be paid by the Lessee under and pursuant to the Lease and (b) effective immediately upon the occurrence of an Event of Default under the Lease and without further action on the part of the Lessor, such rights and remedies of the Lessor under the Lease as may be necessary or convenient (1) to enforce payment of the Lease Payments, Prepayments and any other amounts required to be deposited in the Lease Payment Fund, the Net Insurance Proceeds Fund and Prepayment Fund, or (2) otherwise to protect the interests of the Owners or the Trustee upon the occurrence of an Event of Default. SECTION 13.2 Remedies. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payments not then in default to be immediately due and payable. SECTION 13.3 Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article or of Article LX of the Lease and any other funds held by the Trustee (except the Rebate Fund), shall be deposited into the Lease Payment Fund and be applied by the Trustee in the following order upon presentation of the several Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: (i) Fid to the payment of the fees, costs and expenses of the Trustee and then of the Owners in declaring such Event of Default and incurred in and about the performance of its powers and duties under this Trust Agreement, including reasonable compensation to its or their agents, attorneys and counsel, and then the payment of the fees, costs, and expenses of the Owners in declaring such Event of Default including reasonable compensation to its agents, attorneys and counsel; 70037800.3 36 (ii) Second to the payment to the persons entitled thereto of all amounts representing the Interest Component then due in the order of the maturity of such installment, and, if the amount available shall not be sufficient to pay in full any Interest Component maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and (iii) Third to the payment to the persons entitled thereto of the unpaid Principal Component respecting any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue Principal Component and Interest Component at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amount of the Principal Component due on such date to the persons entitled thereto, without any discrimination or preference. SECTION 13.4 Institution of Legal Proceedings. If one or more Events of Default shall occur and be continuing, the Trustee in its discretion may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding received by the Trustee at its Principal Office, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder. SECTION 13.5 Non -waiver. Nothing in this Article or in any other provision of this Trust Agreement or in the Certificates shall affect or impair the obligations of the Lessee, which obligations are absolute and unconditional, to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by this Article to the Trustee or to the Owners may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners. SECTION 13.6 Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. SECTION 13.7 Power of Trustee to Control Proceedings. In the event that the Trustee, upon the occurrence of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Certificate Owners with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of at least a majority in principal amount of the Outstanding Certificates hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. 70037800.3 37 SECTION 13.8 Limitation on Owners' Right to Sue. No Owner of any Certificate issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Certificates of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this Section 13.8 or any other provision of this Trust Agreement. I SECTION 13.9 Agreement to Pay Attorneys' Fees and Expenses. In the event the Lessee or Lessor should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party the reasonable fees of such allomeys and such other expenses so incurred by the nondefaulting party; provided, however, that the Trustee shall not be required to expend its own funds for any payment described in this Section. SECTION 13.10 Insurer's Default -Related Provisions. (i) In determining whether a payment default has occurred or whether a payment on the Certificates has been made under the this Trust Agreement or the Lease Agreement, no effect shall be given to payments made under the Bond Insurance Policy. (ii) The Insurer shall receive immediate notice of any payment default and notice of any other default known to the Trustee within 30 days of the Trustee's knowledge thereof. (iii) For all purposes of this Trust Agreement or the Lease Agreement provisions governing events of default and remedies, except the giving of notice of default to Owners, the Insurer shall be deemed to be the sole Owner of the Certificates it has insured for so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy. (iv) The Insurer shall be included as a party in interest and as a party entitled to (i) notify the City, the Trustee, or any applicable receiver of the occurrence of an event of default and (ii) request the Trustee or receiver to. intervene in judicial proceedings that affect the Certificates or the security therefor. The Trustee or receiver shall be required to accept notice of default from the Insurer. 70037800.3 38 ARTICLE XIV MISCELLANEOUS SECTION 14.1 Defeasance. Defeasance shall be deemed to occur if all Outstanding Certificates are paid and discharged in any one or more of the following ways: (i) by well and truly paying or causing to be paid the Principal Component and Interest Component and prepayment premiums, if any, with respect to all Certificates Outstanding, as and when the same become due and payable; (ii) if prior to maturity and having given notice of prepayment by irrevocably depositing with the Trustee, in trust, at or before maturity, an amount of cash which, together with amounts then on deposit in the Lease Payment Fund and the Reserve Fund, is sufficient to pay all Certificates Outstanding, including all Principal Components and Interest Components and prepayment premium, if any; (iii) by irrevocably depositing with the Trustee, in trust, noncallable, nonprepayable Federal Securities in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all Certificates (including all Principal Component and Interest Component represented thereby and prepayment premium, if any) at or before their maturity date and the fees and expenses of the Trustee have been paid in full; or (iv) by irrevocably depositing with the Trustee, under an escrow deposit and trust agreement, security for the payment of the Lease Payments as more particularly described in Section 10.1 of the Lease, said security to be held by the Trustee as agent for the Lessee to be applied by the Trustee to pay the Lease Payments as the same become due and payable and make a Prepayment in full on any Lease Payment Date, pursuant to Section 10.1 of the Lease. Notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Lessor, the Trustee and the Lessee with respect to all Outstanding Certificates shall cease and terminate, except only the obligation of the Trustee pursuant to Section 2.8 hereof and its obligations to pay or cause to be paid, from Lease Payments paid by or on behalf of the Lessee from funds deposited pursuant to paragraphs (ii) through (iv) of this Section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to such paragraphs, the Certificates shall continue to evidence and represent direct and proportionate interests of the Owners thereof in Lease Payments. Any funds held by the Trustee, at the time of one of the events described in paragraphs (i) through (iv) of this Section, which are not required for the payment to be made to Owners, as verified by a certified public accountant shall be paid over to the Lessee pursuant to Lessee's written request therefor; provided that the fees and expenses of the Trustee have been fully paid. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Insurer pursuant to the Bond Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid, and the assignment and pledge of the trust created under this Trust Agreement and all covenants, agreements and other obligations of the Lessee to the Certificate Owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such Certificate Owners. 70037800.3 39 SECTION 14.2 Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under this Trust Agreement, which shall be available for inspection by the Lessee, the Lessor and any Owner, or the agent of any of them, at any time during regular business hours with reasonable prior notice. SECTION 14.3 Notices. All written notices to be given under this Trust Agreement shall be given by mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice to the Trustee shall be effective upon receipt, and notice to the other parties shall be deemed effective upon receipt and shall be deemed to have been received upon the earlier of actual receipt or five Business Days after deposit in the United States mail, in certified form, postage prepaid or, in the case of personal delivery, upon delivery to the address set forth below: If to the Lessee: City of Santa Clarita 23920 Valencia Boulevard Santa Clarita, California 91355 Attention: Deputy City Manager/Director of Administrative Services If to the Trustee: The Bank of New York Trust Company, N.A. 700 South Flower, 5th Floor Los Angeles, California 90017-4104 Attention: Corporate Trust Department Reference: City of Santa Clarita 2007 Series COPS If to the Lessor: Santa Clarita Public Financing Authority c/o City of Santa Clarita 23920 Valencia Boulevard Santa Clarita, California 91355 Attention: Deputy City Manager/Director of Administrative Services If to the Insurer: [Insurer] Attention: The Trustee shall give notice to Moody's at 99 Church St., New York 10007, and S&P at 55 Water Street, New York, New York 10041 of the following: (i) a change in the Trustee; (ii) any amendment to this Trust Agreement or the Lease Agreement; (iii) the occurrence of Events of Default hereunder; and. (iv) prepayment of all Outstanding Certificates or defeasance of all Outstanding Certificates. SECTION 14.4 Notices to be Given to the Insurer. While the Bond Insurance Policy is in effect: (a) Notice of any drawing upon or deficiency due to market fluctuation in the amount, if any, on deposit, in the Reserve Fund; (b) Notice of any material events pursuant to Rule 15c2-12 of the Securities Exchange Act of 1934; 70037800.3 40 (c) Notice of the prepayment, other than mandatory sinking fund prepayment, of any of the Certificates, or of any advance refunding of the Certificates, including the principal amount, maturities and CUSIP numbers thereof; and (d) Such additional information as the Insurer may reasonably request from time to time. SECTION 14.5 Governing Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State applicable to contracts made and performed therein; in the event that any legal proceedings shall be commenced to enforce the provisions hereof or of the Lease or the Base Lease, such proceedings shall be filed in the Superior Court in and for the County of Los Angeles, California. SECTION 14.6 [Consent of the Insurer. (a) Any provision of this Trust Agreement expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (b) Unless otherwise provided in this Section 14.6, the Insurer's consent shall be required in addition to Owner consent, when required, for the following purposes: (i) execution and delivery of any amendment, supplement or change to or modification of this Trust Agreement or the Lease Agreement, (ii) removal of the Trustee and selection and appointment of any successor trustee or paying agent; (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent; and (iv) the execution and delivery of any additional Certificates or other debt and variable rate issues. Notwithstanding anything in this Trust Agreement to the contrary, if the Insurer has failed to make any payments under the Bond Insurance Policy, and such failure remains unremedied, all rights accruing to the Insurer hereunder with respect to the giving of instructions, approvals or consents shall cease to be in force and effect until such time as such failure to make such payments has been remedied. SECTION 14.7 Insurer Deemed Sole Holder. The Insurer shall be deemed to be the sole holder of the Certificates insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Certificate insured by it are entitled to take pursuant to Article X and Article XIII herein. The Trustee shall take no such action except with the consent, or at the direction, of the Insurer. SECTION 14.8 Provisions Relating to Surety. As long as the Surety is in full force and effect and the Insurer has not defaulted thereunder: (a) No Certificates may be optionally prepaid while a draw on the Surety remains unreimbursed. (b) This Trust Agreement shall not be deemed discharged while a draw on any Surety remains unreimbursed. (c) Any refunding of the Certificates with the proceeds of tax-exempt obligations shall be effected through the issuance of Additional Certificates hereunder.] SECTION 14.9 Third Party Beneficiaries. To the extent that this Trust Agreement confers upon or gives or grants to the Insurer any right, remedy or claim under or by reason of this Trust Agreement, 70037800.3 41 the Insurer is hereby explicitly recognized as being a third -party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. SECTION 14.10 Interested Parties. Nothing in this Trust Agreement, expressed or implied, is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Lessor, the Lessee, the Trustee, the Insurer and the registered owners of the Certificates, any right, remedy or claim under or by reason of this Trust Agreement or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Trust Agreement contained by and on behalf of the Lessee shall be for the sole and exclusive benefit of the Lessor, the Lessee, the Trustee, the Insurer and the registered owners of the Certificates. SECTION 14.11 Binding Effect; Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Whenever in this Trust Agreement either the Lessor, the Lessee or the Trustee are named or referred to, such reference shall be deemed to include the successors or assigns thereof and all the covenants and agreements in this Trust Agreement contained by or on behalf of the Lessor, the Lessee or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. SECTION 14.12 Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but.one and the same agreement. SECTION 14.13 Destruction of Cancelled Certificates. Whenever in this Trust Agreement provision is made for the surrender or cancellation by the Trustee and the delivery to the Lessor of any Certificates, the Trustee shall subject to the record -retention requirements of the Securities Exchange Act of 1934, in lieu of such cancellation and delivery, destroy such Certificates and upon request of the Authorized Representative deliver a certificate of such destruction to the Lessee. SECTION 14.14 Headings. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Trust Agreement. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or other subdivisions of this Trust Agreement; and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision hereof. SECTION 14.15 Waiver of Notice. Whenever in this Trust Agreement the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any case the diving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 14.16 Separability of Invalid Provisions. In case any one or more of the provisions contained in this Trust Agreement or in the Certificates shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision of this Trust Agreement, and this Trust Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The parties hereto hereby declare that they would have entered into this Trust Agreement and each and every other section, paragraph, sentence, clause or phrase hereof and authorized the delivery of the Certificates pursuant to this Trust Agreement, irrespective of the fact that any one or more sections, paragraphs, sentences, clauses or phrases of this Trust Agreement may be held illegal, invalid or unenforceable. 70037800.3 42 IN WITNESS WHEREOF, the parties have executed this Trust Agreement as of the date and year first above written. THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee By: Authorized Officer SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessor M Kenneth R. Pulskamp, Executive Director CITY OF SANTA CLARITA, as Lessee M Marsha McLean, Mayor Number EXHIBIT A [FORM OF CERTIFICATE OF PARTICIPATION] CITY OF SANTA CLARITA CERTIFICATE OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES Evidencing the Proportionate Interest of the Owner Hereof in Lease Payments to Be Made by CITY OF SANTA CLARITA As Rental for Certain Real Property Pursuant to a Lease Agreement with SANTA CLARITA PUBLIC FINANCING AUTHORITY Interest Rate Maturity Date Dated Date CUSIP NO. October 1, _ December . 2007 REGISTERED OWNER: PRINCIPAL AMOUNT: THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns (the "Registered Owner"), of this Certificate of Participation (the "Certificate") is the owner of a proportionate and undivided interest in the right to receive certain Lease Payments and Prepayments (the "Lease Payments") to be made by the CITY OF SANTA CLARITA, a general law municipal corporation duly organized and existing under the laws of the State of California (the "Lessee"), pursuant to the Lease Agreement (the "Lease"), dated as of December 1, 2007, by and between the SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity duly organized and existing under the laws of the State of California (the "Lessor"), and the Lessee, which Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Trust Company, N.A. as trustee (the "Trustee"), having a corporate trust office in Los Angeles, California or such other place as designated by the Trustee (said office being herein referenced as the "Principal Office"), provided, however, for transfer, registration, exchange, payment and surrender of Certificates, such term shall mean the corporate trust office of the Trustee in Los Angeles, California or such other office designated by the Trustee from time to time. The Certificates are being executed and delivered in order to obtain funds to finance a portion of the costs of the acquisition of open space lands, parks, and Parklandland within the Lessee's.open space, park, and Parklandland program, to establish a Reserve Fund and to pay the costs of issuance of the Certificates. Unless this Certificate is presented by an authorized representative of The Depository Trust Company to the Trustee or any Certificate issued is registered in the name of Cede & Co. or such other 70037800.3 A-1 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 OTHER PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the Lease Payments designated as principal (the "Principal Component') coming due on October 1 of each year (each, a "Principal Payment Date"), for the preceding twelve months, and to receive on October 1, 2008, and semiannually thereafter on April 1 and October 1 of each year (each, an "Interest Payment Date") until payment in full of said Principal Component, the Registered Owner's portion of the Lease Payments designated as interest (the "Interest Component") coming due during the six months immediately preceding each Payment Dates (collectively, each Principal Payment Date and Interest Payment Date is hereinafter referred to as a "Payment Date"); provided, that such Interest Component shall be payable from the Interest Payment Date next preceding the date of execution of this Certificate (unless (i) this Certificate is executed as of an Interest Payment Date in which event interest should be payable from the date thereof, or (ii) it is executed after a Record Date and before the following Interest Payment Date, in which event the Interest Component shall be payable from such following Interest Payment Date, or (iii) this Certificate is executed on or before September 15, 2008, in which event interest shall be payable from the original dated date of the Certificates). The "Record Date" is the close of business on the first day of the month in which a Payment Date occurs, whether or not such day is a business day. There shall be no execution or registration of transfer of Certificates during the period established by the Trustee for selection of Certificates for prepayment or any Certificate selected for prepayment. The Interest Component is the result of the multiplication of the Principal Component by the rate per annum identified above. Interest with respect to the Certificates shall be calculated on the basis of a 360 -day year, comprised of twelve months of 30 days each. Said amounts are payable by check in lawful money of the United States of America. The amount representing Principal Component payable at maturity or upon prepayment in whole is payable to the Registered Owner by check of the Trustee upon presentation and surrender of this Certificate at the Principal Office. The amounts representing Interest Component are payable by check mailed on the applicable Interest Payment Date by first class mail by the Trustee to the Registered Owner hereof at his address as it appears on the registration books of the Trustee or by wire transfer to a bank account in the United States in the case of Registered Owners owning $1,000,000 or more in aggregate principal amount of Certificates who have furnished instructions in writing to the Trustee at least 15 days prior to the Payment Date. The total amount of each payment of Principal Component or Interest Component made to the Registered Owner of this Certificate is comprised of interests in the Principal Component of Lease Payments made by the Lessee with respect to Certificates maturing on the maturity date stated above, and with an Interest Component at the rate indicated above. This Certificate is one of a series of certificates of participation executed and delivered by the Trustee pursuant to the terms of that certain Trust Agreement (the "Trust Agreement"), dated as of December 1, 2007, by and among the Lessee, the Lessor and the Trustee, and additionally designated as "2007 Series," in the aggregate principal amount of $ . The Lessee is authorized to enter into the Lease and the Trust Agreement under the Constitution and the laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are executed and delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the Lessee under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The Trust Agreement authorizes the Lessee to cause the execution and delivery of Additional 70037800.3 A-2 Certificates on a parity with the Certificates, upon the execution and delivery of a Supplemental Trust Agreement and following the satisfaction of certain other conditions precedent. The Lessee is obligated to pay Lease Payments from any source of legally available funds, and the Lessee has covenanted in the Lease to make the necessary aminal appropriations therefor. The obligations of the Lessee to pay the Lease Payments do not constitute obligations of the Lessee for which the Lessee is obligated to levy or pledge any form of taxation or for which the Lessee has levied or pledged any form of taxation. The obligations of the Lessee to pay Lease Payments do not constitute debts of the Lessee, the State of California or any of its political subdivisions, and do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Under certain circumstances, the Lessee shall not be obligated to make its payments of Lease Payments due to the loss or destruction of all or a portion of the Leased Property. To the extent that the Lessee receives net proceeds of rental interruption insurance, such net proceeds will be applied to offset abated Lease Payments. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding, and may be amended without such consent under certain circumstances but in no event such that the interests of the Registered Owners of the Certificates are adversely affected. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of Interest Component, or reducing the amount of Principal Component thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer, a new Certificate or Certificates, of authorized denomination or denominations, for the same aggregate Principal Component, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate Principal Component of Certificates of other authorized denominations as prescribed in the Trust Agreement. The Lessee, the Lessor and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the Lessee, the Lessor and the Trustee shall not be affected by any notice to the contrary. The Certificates are subject to prepayment on any date, in whole, or in part from certain net insurance or condemnation proceeds credited toward the prepayment of the Lease Payments at least 30 days prior to the proposed prepayment date by the Lessee pursuant to the Lease at a prepayment price equal to the Principal Component thereof, together with accrued Interest Component to the date fixed for prepayment, without premium. The Certificates maturing on or after October 1, [2018], are subject to prepayment in whole or in part (in integral multiples of $5,000), on any date on or after October 1, [2017], from moneys deposited in the Lease Payment Fund as a result of the exercise by the Lessee of its option to prepay its Lease Payments, exercised by depositing sufficient funds with the Trustee prior to the scheduled prepayment date, as provided in the Lease Agreement, at the prepayment price of principal amount, plus accrued interest to the date fixed for prepayment, without premium. 70037800.3 A-3 As provided in the Trust Agreement, notice of prepayment shall be mailed by first class mail, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owners of affected Certificates, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, the Interest Component shall cease to accrue with respect hereto from and after the date fixed for prepayment. THIS IS TO FURTHER CERTIFY that all acts, conditions and things required by the Trust Agreement to exist, to have happened and to have been performed by or in relation to the Trustee precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. THE LESSEE HAS CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by the Constitution and statutes of the State of California and the provisions of the Trust Agreement to exist, to have happened and to have been performed precedent to and in the execution and delivery of this Certificate, do exist, have happened and have been performed in due time, form and manner as required by law. THE TRUSTEE HAS NO OBLIGATION OR LIABILITY TO THE REGISTERED OWNERS TO MAKE PAYMENTS OF PRINCIPAL OR INTEREST COMPONENTS OR LEASE PAYMENTS PERTAINING TO THE CERTIFICATES EXCEPT FROM LEASE PAYMENTS PAID TO THE TRUSTEE AND FROM THE VARIOUS FUNDS AND ACCOUNTS ESTABLISHED UNDER THE TRUST AGREEMENT. THE TRUST AGREEMENT PROVIDES THAT THE RECITALS OF FACTS, COVENANTS AND AGREEMENTS IN THE CERTIFICATES SHALL BE TAKEN AS STATEMENTS, COVENANTS AND AGREEMENTS OF THE LESSEE, AND THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF THE SAME. IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement, dated as of December 1, 2007, by and among the Trustee, the Lessee and the Lessor. The Bank of New York Trust Company, N.A., as Trustee im Authorized Signatory Date of Execution: 70037800.3 A-4 STATEMENT OF INSURANCE 70037800.3 A-5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: (please print or typewrite name, address and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints: attorney to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed By: NOTICE: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. 700378003 A-6 The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. EXHIBIT B SCHEDULE OF PRINCIPAL AND INTEREST COMPONENTS Lease Payment* Principal Interest Date Component Component 3/15/2008 9/15/2008 3/15/2009 9/15/2009 3/15/2010 9/15/2010 3/15/2011 9/15/2011 3/15/2012 9/15/2012 3/15/2013 9/15/2013 3/15/2014 9/15/2014 3/15/2015 9/15/2015 3/15/2016 9/15/2016 3/15/2017 9/15/2017 3/15/2018 9/15/2018 3/15/2019 9/15/2019 3/15/2020 9/15/2020 3/15/2021 9/15/2021 3/15/2022 9/15/2022 3/15/2023 9/15/2023 3/15/2024 9/15/2024 3/15/2025 9/15/2025 3/15/2026 9/15/2026 3/15/2027 9/15/2027 3/15/2028 9/15/2028 3/15/2029 9/15/2029 3/15/2030 9/15/2030 3/15/2031 9/15/2031 70037800.3 B -I Total Total Annual Payments 3/15/2032 9/15/2032 3/15/2033 9/15/2033 3/15/2034 9/15/2034 3/15/2035 9/15/2035 3/15/2036 9/15/2036 3/15/2037 9/15/2037 *Lease Payments are due March 15 and September 15 of the respective year. 70037800.3 B-2 EXHIBIT C -I FORM OF WRITTEN REQUISITION (DELIVERY COSTS FUND) The Bank of New York Trust Company, N.A., as Trustee 700 South Flower Street, Suite 500 Los Angeles, California 90017 RE: Disbursement from the Delivery Costs Fund pursuant to the Trust Agreement, dated as of December 1, 2007 (the "Agreement'), by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY (the "Lessor"), and CITY OF SANTA CLARITA (the "Lessee") REQUISITION NO. The undersigned hereby states and certifies: 1. That he/she is the duly appointed, qualified and acting of the City of Santa Clarita, a validly existing municpal corporation and the Lessee referenced above, and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; 2. That he/she is an "Authorized Representative" as that tern is defined in Section 1.1 of the Trust Agreement referenced above; 3. That, pursuant to Section 3.2 of the Trust Agreement, the Trustee is hereby requested to disburse from the Delivery Costs Fund established under the Trust agreement to the payees designated on Exhibit A attached hereto and by this reference incorporated herein, at the addresses set forth below each such payee name, the amounts set forth opposite such designations; 4. That each obligation set forth herein is a proper charge against the Delivery Costs Fund and has not been the basis of any prior disbursement; 5. Thatthe amount of each disbursement requested herein is for payment of Delivery Costs, as defined in the Trust Agreement; 6. That no event of default has occurred and is continuing under the Lease; 7. That set forth opposite each obligation on Exhibit A attached hereto is a description of the nature of such obligation; and 70037800.3 C-1 8. That accompanying this Requisition is a bill or statement of account for each obligation included on Exhibit A. Dated: RECEIPT ACKNOWLEDGED: as Trustee M Authorized Signatory CITY OF SANTA CLARITA Authorized Representative 70037800.3 C-2 EXHIBIT C -II FORM OF WRITTEN REQUISITION (PROJECT FUND) REQUISITION NO. RE: Disbursement from the Project Fund pursuant to the Trust Agreement, dated as of December I, 2007 (the "Agreement'), by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY (the "Lessor"), and CITY OF SANTA CLARITA (the "Lessee") The undersigned hereby states and certifies: 1. That he/she is the duly appointed, qualified and acting of the City of Santa Clarita, a validly existing municipal corporation and the Lessee referenced above, and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; 2. That he/she is an "Authorized Representative" as that term is defined in Section 1.1 of the Trust Agreement referenced above; 3. That, pursuant to Section 3.4 of the Trust Agreement, the Deputy City Manager/Director of Administrative Services is hereby requested to disburse from the Project Fund established under the Trust agreement to the payees designated on Exhibit A attached hereto and by this reference incorporated herein, at the addresses set forth below each such payee name, the amounts set forth opposite such designations; 4. That each obligation set forth herein is a proper charge against the Project Fund and has not been the basis of any prior disbursement; 5. That the amount of each disbursement requested herein is for payment of Project Costs, as defined in the Trust Agreement; 6. That no event of default has occurred and is continuing under the Lease; 7. That there has not been filed with or served upon the City a stop notice or any other notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the money payable to the person named in such requisition which has not been released or will not be released simultaneously with the payment of such obligation, other than liens accruing by mere operation of law; 8. That set forth opposite each obligation on Exhibit A attached hereto is a description of the nature of such obligation; and 70037800.3 C-3 9. [That accompanying this Requisition is a bill or statement of account for each obligation included on Exhibit A.] Dated: CITY OF SANTA CLARITA Authorized Representative RECEIPT ACKNOWLEDGED: Deputy City Manager/Director of Administrative Services 70037800.3 C-4 10/31/07 TRUST AGREEMENT by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee and SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessor and CITY OF SANTA CLARITA, as Lessee Dated as of December 1, 2007 Entered into in Connection with the Sale and Delivery of $ City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series TABLE OF CONTENTS Page ARTICLEI DEFINITIONS...................................................................................................................2 Establishment of Delivery Costs Fund.........................................................17 SECTION 1.1 Definitions and Rules of Construction...........................................................2 Delivery Costs Fund.....................................................................................17 SECTION 1.2 Authorization................................................................................................10 Establishment of Project Fund.....................................................................17 ARTICLE II T14E CERTIFICATES OF PARTICIPATION................................................................10 SECTION3.4 SECTION 2.1 Authorization................................................................................................10 ARTICLE IV PREPAYMENT OF CERTIFICATES............................................................................18 SECTION 2.2 Dating; Payment of Interest..........................................................................10 Establishment of Prepayment Fund..............................................................18 SECTION 2.3 Maturity; Interest Rates................................................................................10 Prepayment From Net Insurance Proceeds..................................................18 SECTION 2.4 Registration; Interest.................................................................................... I 1 SECTION 2.5 Form of Certificates; Temporary Certificates..............................................12 Selection of Certificates for Prepayment......................................................19 SECTION2.6 Execution......................................................................................................12 Notice of Prepayment...................................................................................19 SECTION 2.7 Application of Proceeds............................................................................... 12 SECTION 2.8 Transfer and Exchange.................................................................................13 Effect of Notice of Prepayment....................................................................20 SECTION 2.9 Mutilated, Lost, Destroyed or Stolen Certificates........................................13 Purchase of Certificates................................................................................20 SECTION 2.10 Use of Depository Trust Company..............................!................................14 SECTION 2.11 Certificate Register.......................................................................................15 SECTION 2.12 Execution and Delivery of Additional Certificates......................................15 SECTION 2.13 Proceedings for Execution and Delivery of Additional Certificates ............ 16 ARTICLE III DELIVERY COSTS FUND AND PROJECT FUND.....................................................17 SECTION 3.1 Establishment of Delivery Costs Fund.........................................................17 SECTION 3.2 Delivery Costs Fund.....................................................................................17 SECTION 3.3 Establishment of Project Fund.....................................................................17 SECTION3.4 Project Fund.................................................................................................17 ARTICLE IV PREPAYMENT OF CERTIFICATES............................................................................18 Application of Moneys.................................................................................22 SECTION 4.1 Establishment of Prepayment Fund..............................................................18 Investment Earnings.....................................................................................22 SECTION 4.2 Prepayment From Net Insurance Proceeds..................................................18 Surplus......................................:...................................................................22 SECTION 4.3 Optional Prepayment....................................................................................18 SECTION 4.4 Selection of Certificates for Prepayment......................................................19 SECTION 4.5 Notice of Prepayment...................................................................................19 SECTION 4.6 Partial Prepayment of Certificates ................................................................20 SECTION 4.7 Effect of Notice of Prepayment....................................................................20 SECTION 4.8 Purchase of Certificates................................................................................20 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND........................................................21 SECTION 5.1 Security Provisions.......................................................................................21 SECTION 5.2 Establishment of Lease Payment Fund........................................................21 SECTION 5.3 Establishment of the Excess Earnings Account...........................................21 SECTION 5.4 Deposits and Notification.............................................................................21 SECTION 5.5 Application of Moneys.................................................................................22 SECTION 5.6 Investment Earnings.....................................................................................22 SECTION5.7 Surplus......................................:...................................................................22 ARTICLEVI RESERVE FUND............................................................................................................22 SECTION 6.1 Establishment of Reserve Fund....................................................................22 SECTION6.2 Deposits........................................................................................................22 SECTION 6.3 Transfers of Excess......................................................................................23 SECTION 6.4 Replenishment of Reserve Fund...................................................................23 70037800.3 TABLE OF CONTENTS (continued) Page SECTION 6.5 Application of Reserve Fund in Event of Deficiency in Lease PaymentFund...............................................................................................23 SECTION 6.6 Transfer to Make All Lease Payments.........................................................24 ARTICLE VII NET INSURANCE PROCEEDS FUND.........................................................................24 SECTION 7.1 Establishment of Net Insurance Proceeds Fund; Application of Net ARTICLE IX T14E TRUSTEE...............................................................................................................27 SECTION 9.1 Insurance Proceeds.......................................................................................24 SECTION 7.2 Excess Net Insurance Proceeds....................................................................25 SECTION7.3 Cooperation..................................................................................................25 ARTICLE VIII MONEYS IN FUNDS; INVESTMENT..........................................................................25 SECTION 8.1 Held in Trust.................................................................................................25 SECTION 8.2 Investments Authorized................................................................................25 33 SECTION 8.3 Disposition of Investments...........................................................................25 SECTION8.4 Accounting...................................................................................................26 SECTION 11.1 SECTION 8.5 Valuation of Investments...........................................................:.................26 SECTION 11.2 SECTION 8.6 Deposit and Investment of Moneys in Funds...............................................26 SECTION 11.3 SECTION 8.7 Rebate of Excess Investment Earnings to Federal Government...................26 SECTION 11.4 ARTICLE IX T14E TRUSTEE...............................................................................................................27 SECTION 9.1 Appointment of Trustee...............................................................................27 SECTION 9.2 Liability of Trustee.......................................................................................28 SECTION 9.3 Merger or Consolidation..............................................................................29 SECTION 9.4 Protection and Rights of the Trustee............................................................29 SECTION 9.5 Compensation of the Trustee........................................................................30 SECTION 9.6 Indemnification of Trustee...........................................................................31 33 SECTION 9.7 Removal of Trustee......................................................................................31 ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS.........................................31 SECTION 10.1 Amendments Permitted................................................................................31 SECTION 10.2 Procedure for Amendment with Written Consent of Owners ......................32 SECTION 10.3 Disqualified Certificates...............................................................................33 SECTION 10.4 Effect of Supplemental Agreement..............................................................33 SECTION 10.5 Endorsement or Replacement of Certificates Delivered After Amendments................................................................................................. 33 SECTION 10.6 Amendatory Endorsement of Certificates....................................................33 ARTICLE XI COVENANTS; NOTICES..............................................................................................33 SECTION 11.1 Compliance with and Enforcement of the Lease..........................................33 SECTION 11.2 Payment of Taxes.........................................................................................34 SECTION 11.3 Observance of Laws and Regulations..........................................................34 SECTION 11.4 Prosecution and Defense of Suits.................................................................34 SECTION 11.5 Lessee Budgets.............................................................................................34 SECTION 11.6 Pledge of Assessment Revenues..................................................................34 SECTION 11.7 Further Assurances.......................................................................................35 SECTION 11.8 Tax Covenants..............................................................................................35 SECTION 11.9 Arbitrage Covenant......................................................................................35 ARTICLE XII LIMITATION OF LIABILITY.......................................................................................35 70037800.3 ii TABLE OF CONTENTS (continued) PaRe SECTION 12.1 Limited Liability of the Lessee....................................................................35 SECTION 12.2 No Liability of the Lessee or Lessor for Trustee Performance ....................35 SECTION 12.3 Limited Liability of Trustee.........................................................................35 SECTION 12.4 Opinion of Counsel......................................................................................36 SECTION 12.5 Limitation of Rights to Parties and Owners.................................................36 ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS..........................................36 SECTION 13.1 Assignment of Rights...................................................................................36 SECTION13.2 Remedies......................................................................................................36 SECTION 13.3 Application of Funds....................................................................................36 SECTION 13.4 Institution of Legal Proceedings...................................................................37 SECTION13.5 Non-waiver...................................................................................................37 SECTION 13.6 Remedies Not Exclusive..............................................................................37 SECTION 13.7 Power of Trustee to Control Proceedings.....................................................37 SECTION 13.8 Limitation on Owners' Right to Sue.............................................................38 SECTION 13.9 Agreement to Pay Attorneys' Fees and Expenses........................................38 SECTION 13.10 Insurer's Default -Related Provisions...........................................................38 ARTICLE XIV MISCELLANEOUS..........................................................:.............................................39 SECTION14.1 Defeasance...................................................................................................39 SECTION14.2 Records.........................................................................................................40 SECTION14.3 Notices..........................................................................................................40 SECTION 14.4 Notices to be Given to the Insurer................................................................40 SECTION 14.5 Governing Law.............................................................................................41 SECTION 14.6 Consent of the Insurer..................................................................................41 SECTION 14.7 Insurer Deemed Sole Holder........................................................................41 SECTION 14.8 Provisions Relating to Surety .......................................................................41 SECTION 14.9 Third Party Beneficiaries.............................................................................41 SECTION 14.10 Interested Parties..........................................................................................42 SECTION 14.11 Binding Effect; Successors...........................................................................42 SECTION 14.12 Execution in Counterparts............................................................................42 SECTION 14.13 Destruction of Cancelled Certificates...........................................................42 SECTION14.14 Headings.......................................................................................................42 SECTION 14.15 Waiver of Notice..........................................................................................42 SECTION 14.16 Separability of Invalid Provisions................................................................42 EXHIBIT A - FORM OF CERTIFICATE OF PARTICIPATION EXHIBIT B - SCHEDULE OF PRINCIPAL AND INTEREST COMPONENTS EXHIBIT C - FORM OF WRITTEN REQUISITION 70037800.3 in i TRUST AGREEMENT THIS TRUST AGREEMENT, dated as of December I, 2007, by and among The Bank of New York Trust Company, N.A., a national banking association duly organized under the laws of the United States, as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California, as lessor under the Lease Agreement hereinafter described (the "Lessor"), and the CITY OF SANTA CLARITA, a municipal corporation duly organized and existing under the laws of the State of California, as lessee under said Lease Agreement (the "Lessee"); WITNESSETH: WHEREAS, the Lessee and the Lessor have entered into a Lease Agreement, dated as of the date hereof (the "Lease"), whereby the Lessee has agreed to lease certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita (the "Leased Property") from the Lessor; and WHEREAS, the Lessee and the Lessor wish to authorize hereunder the execution and delivery of certain certificates of participation (the "2007 Certificates"), each evidencing and representing an undivided and proportionate interest of the owner thereof in certain lease payments (the "Lease Payments") to be made by the Lessee under the Lease to finance certain capital improvements; and WHEREAS, the net proceeds obtained through the execution, sale and delivery of the 2007 Certificates will be deposited with the Trustee under this Trust Agreement and used in part by the Lessee to finance a portion of the costs of the acquisition of open space lands, parks, and Parklandland within the Lessee's open space, park, and Parklandland program (the "Program"); and WHEREAS, [Insurer] (the "Insurer") has agreed to deliver, simultaneously with the delivery of the 2007 Certificates, its municipal bond insurance policy (the `Bond Insurance Policy"), which will insure payment of principal and interest with respect to the 2007 Certificates, when due for payment; and WHEREAS, the Lessee will pay Lease Payments under the Lease representing the fair rental value of the Leased Property in amounts sufficient to pay the components of principal, premium, if any, and interest evidenced and represented by the 2007 Certificates; and WHEREAS, pursuant to an Assignment Agreement, by and between the Lessor and the Trustee, dated as of the date hereof (the "Assignment Agreement"), the Lessor will assign to the Trustee its rights to receive all Lease Payments due under the Lease and pursuant to this Trust Agreement, the Lessor and Lessee will grant a security interest in all moneys held by the Trustee hereunder, and the Lessor will grant a security interest in the Leased Property, all to the Trustee for the benefit of the owners of the Certificates and as security therefor; and WHEREAS, in consideration of such assignment and the execution of this Trust Agreement, the Trustee has agreed to execute and deliver the 2007 Certificates, each evidencing and representing undivided and proportionate interests of the owners thereof in the Lease Payments and Prepayments (as defined herein) made by the Lessee under the Lease, which will provide the moneys required to be deposited hereunder; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 70037500.3 ARTICLE I DEFINITIONS SECTION 1.1 Definitions and Rules of Construction. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Trust Agreement, have the meanings specified herein or in the Lease. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms as used in this Trust Agreement, refer to this Trust Agreement as a whole. "Additional Payments" means those payments due as provided in Section 4.6 of the Lease. "Additional Certificates" means those certificates of participation authorized and delivered hereunder, on a parity with the 2007 Certificates, subsequent to the Closing Date, in accordance with Section 2.13 hereof. "Assessment District" means the City of Santa Clarita Open Space Preservation District. "Assessment Revenues" means annual assessments levied and collected by the Lessee from the operation of the Assessment District. "Assignment Agreement" means the Assignment Agreement, dated as of the date hereof, by and between the Trustee and the Lessor, and any duly authorized and executed amendments or supplements thereto. "Authorized Representative" means, depending upon the context, the authorized representative of the Lessee or the Lessor for purposes of this Trust Agreement, the Lease Agreement, the Base Lease, or the Assignment Agreement, and shall particularly mean, in the case of the Lessee, the City Manager or Deputy City Manager/Director of Administrative Services of the Lessee, or such other officer as may be designated for such purpose in a resolution of the City Council of the Lessee, and in the case of the Lessor, the President or Chairman of the Board of the Lessor, or such other officer as may be designated for such purpose in a resolution of the Board of the Lessor. "Base Lease" means the Base Lease, dated as of the date hereof, by and between the Lessor, as lessee thereunder, and the Lessee, as lessor thereunder, and any duly authorized and executed amendments or supplements thereto. "Bond Insurance Policy" means, the municipal bond new issue insurance policy issued by the Insurer that guarantees payment of principal of and interest with respect to the 2007 Certificates. "Business Day" means any day (other than a Saturday or Sunday) on which banks in San Francisco or Los Angeles, California, or New York, New York, are not authorized or obligated by law or executive order to remain closed and the New York Stock Exchange is not closed. "Certificate Year" means any October 2 to October 1, except that the first Certificate Year shall be the Closing Date until October 1, 2008. "Certificates" means all of the certificates of participation executed and delivered hereunder and under any Supplemental Trust Agreement; the term "2007 Certificates" means the S aggregate principal amount of City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series, to be executed and delivered pursuant to this Trust Agreement. 70037800.3 2 "City Council" means the City Council of the Lessee. "Closing Date" means the day upon which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended. "Computation Date" has the meaning set forth in Section 5.10 of the Lease. "Defeasance Obligations" means the Permitted Investments described in subparagraphs (1) or (2) of the definition thereof. "Delivery Costs" means all items of expense directly or indirectly payable by or reimbursable to the Lessee or the Lessor relating to the execution and delivery of the 2007 Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, financing discounts, initial fees and charges of the Trustee (including its first annual fee), legal fees and charges, financing and other professional consultant fees, rating agencies fees for credit ratings, the premium for the Bond Insurance Policy, fees for the Trustee's execution, transportation and safekeeping of Certificates and other charges and fees in connection with the foregoing. "Depository Trust Company" or "DTC" means The Depository Trust Company, New York, New York, as initial securities depository for the Certificates, unless the Lessee shall designate some other securities depository for the Certificates, in which case references to DTC shall be construed as references to such successor securities depository. "Earnings Holding Account" means the Earnings Holding Account established within the Lease Payment Fund pursuant to Section 5.6 hereof. "Event of Default" means an event of default under the Lease, as defined in Section 9.1 thereof, provided, however, that it shall not be an Event of Default hereunder for the Lessee to fail to make Lease Payments when due but it shall instead be an Event of Default hereunder for the Owners of the Certificates to fail to receive their proportionate shares of Interest Component and Principal Component as and when due. "Excess Earnings Account" means the Excess Earnings Account established within the Lease Payment Fund pursuant to Section 5.3 hereof. "Excess Investment Eamines" means those investment earnings more particularly described in Section 8.7 hereof. "Federal Securities" means any of the following (which solely for purposes of Section 14.1(in) hereof are noncallable and nonprepayable) and which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein: cash, direct non - callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated AAA by S&P or Moody's (or any combination of the foregoing) shall be used to effect defeasance of the Certificates unless the Insurer otherwise approves. 70037800.3 ["Financial Guaranty Agreement" means the Financial Guaranty Agreement, dated as of as amended, by and between the Lessee and the Insurer relating to the Surety.] "Fiscal Year" means the fiscal year of the Lessee, presently commencing July 1 of each calendar year and ending June 30 of the following calendar year. "Gross Proceeds" shall have the meaning ascribed to such term in Section 5.10 of the Lease. "Independent Counsel" means an attorney duly admitted to practice law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Lessor, the Trustee or the Lessee. "Information Services" means Financial Information, Inc.'s "Daily Called Special Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent/FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the City may designate in a request of the City delivered to the Trustee. "Insurer" means [Insurer], or any successor thereto or assignee thereof, as provider of the Insurance Policy securing payments with respect to the 2007 Certificates, when due for payment. "Interest Component" means the portion of the Lease Payments designated as interest with respect to the Certificates, which shall be determined by the rate of interest applicable to the respective Certificates. "Interest Payment Date" means April 1 and October 1 of each year, commencing April 1, 2008. "Lease" or "Lease Agreement" means the Lease Agreement, dated as of the date hereof, by and between the Lessee and the Lessor, and any duly authorized and executed amendments or supplements thereto. "Lease Payment" means any payment required to be paid by the Lessee to the Lessor pursuant to Section 4.3 of the Lease. "Lease Payment Date" has the meaning set forth in Section 4.3(a) of the Lease. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.2 hereof. "Leased Property" means the property that is the subject matter of the Lease, as more particularly described on Exhibit B thereto. "Lessee" or "City" means the City of Santa Clarita. "Lessor" means Santa Clarita Public Financing Authority, a joint exercise of powers agency duly organized and existing under the laws of the State of California, its successors and assigns. "Moody's' means Moody's Investor Service, a corporation organized and existing under the laws of the State of New York, its successors and assigns. 70037800.3 4 "Municipal Obligations" shall mean those obligations, rated "A" or its equivalent or higher or "VMIG-1" or "MIG -I" or "SP -1+" or its equivalent or higher by the Rating Agencies, on which the interest payable is excludable from federal gross income pursuant to Section 103(a) of the Code (other than a "specified private activity -bond" as defined in Section 57(a) (5) (C) of the Code) or the rated stock of a qualified regulated investment company that during any quarter of its taxable year (i) is a regulated investment company as defined in Section 851(a) of the Code that meets the requirements of Section 852(a) of the Code; (ii) has only one class of stock authorized and outstanding; and (iii) invests all its assets in tax-exempt bonds which are rated "A" or its equivalent or higher by the Rating Agencies or VMIG-1 or MIG -I or SP -1+ or the equivalent or higher by the Rating Agencies and at least 98% of its gross income is derived from interest on or gains from the dispositions of such bonds or at least 98% of the weighted average value of its assets is represented by investments in tax-exempt bonds. "Net Insurance Proceeds" means any net proceeds of insurance or condemnation proceeds paid with respect to the affected portion of the Leased Property remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Insurance Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Section 7.1 hereof. "Nonpumose Investments" has the meaning ascribed to such term in Section 5.10 of the Lease. "Original Purchaser" means as the original purchasers of the 2007 Certificates. . "Outstanding," when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 10.3 and 14.1) all Certificates theretofore executed and delivered by the Trustee under this Trust Agreement except: (i) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (ii) Certificates for the payment or prepayment of which funds or Federal Securities in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates) in accordance with Section 14.1 hereof, provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in Section 4.5 hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (iii) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to Sections 2.8 and 2.9 hereof. "Owner" or "Certificate Owner" or "Owner of a Certificate " or any similar term, when used with respect to a Certificate, means the person in whose name such Certificate is registered on the registration books of the Trustee. "Payment Date" means any Interest Payment Date or Principal Payment Date. "Permitted Encumbrances" means, with respect to the Leased Property, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the Lessee may, pursuant to the provisions of Article V of the Lease, permit to remain unpaid; (ii) the Base Lease; (iii) the Assignment Agreement; and (iv) the Lease. 70037800.3 "Permitted Investments" means any of the following which are legal investments under the laws of the State of California for the moneys proposed to be invested therein at the direction of the Authorized Representative of the Lessee to the extent determined by the Lessee as not prohibited by the Code or resulting in a material adverse effect on the tax status of the Interest Component: I. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America ("U.S. Government Securities"). 2. Bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they are stripped by the agency itself): (a) Farmers Home Administration (Fn-d4A) — Certificates of beneficial ownership (b) Federal Housing Administration Debentures (FHA) (c) General Services Administration— Participation certificates (d) Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage-backed bonds GNMA - guaranteed pass-through obligations (participation certificates) (not acceptable for certain cash-flow sensitive issues) (e) U.S. Maritime Administration — Guaranteed Title XI financings (f) U.S. Department of Housing & Urban Development (HUD) — Project Notes, Local Authority Bonds 3. Bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they are stripped by the agency itself): (a) Federal Home Loan Bank System — Senior debt obligations (Consolidated debt obligations) (b) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") — Participation Certificates (mortgage-backed securities) and Senior debt obligations (c) Federal National Mortgage Association (FNMA of "Fannie Mae") — Mortgage-backed securities and senior debt obligations (excluded are stripped mortgage securities which are valued greater than par on the portion of unpaid principal) (d) Student Loan Marketing Association (SLMA or "Sallie Mae") — Senior debt obligations 70037800.3 (e) Resolution Funding Corporation (REFCORP) — Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable (f) Farm Credit System – Consolidated systemwide bonds and notes 4. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, having a rating by S&P of AAAm-G; AAAm; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2, including funds for which the Trustee or its affiliates provides investment advisory or other management services. 5. Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. CD's must have a one year or less maturity. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks which may include the Trustee and its affiliates whose short term obligations are rated "A-1+" or better by S&P and "Prime -1" by Moody's., The collateral must be held by a third party and the Certificate Owners must have a perfected security interest in the collateral. 6. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by the FDIC, including BIF and SAIF. Investment agreements, including guaranteed investment contracts, acceptable to the Insurer. 8. Commercial paper rated at the time of purchase "Prime -1" by Moody's and "A- W' or better by S&P. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. 10. Federal funds or bankers acceptances with a maximum term of one year of any bank which may conclude the Trustee and its affiliates and which has an unsecured, uninsured and unguaranteed obligation rating of "Prime -I" or "A3" or better by Moody's and "A-1+" by S&P. 11. Repurchase agreements acceptable to the Insurer. 12. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. 13. The Local Agency Investment Fund (LAIF) created pursuant to Section 16429.1 et seq. of the California Government Code. 14. Any other investment approved in writing by the Insurer. F111014,11D11q "Prepayment" means any payment made by the Lessee pursuant to Article X of the Lease as a prepayment of the Lease Payments. "Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.1 hereof. "Principal Component" means the portion of the Lease Payments designated as principal represented by the Certificates. "Principal Office" means the principal corporate trust office of the Trustee in Los Angeles, California, or the principal corporate trust office of any successor Trustee, provided, however, for transfer, registration, exchange, payment and surrender of Certificates means the office or agency of the Trustee where, at any particular time, its corporate trust agency business shall be conducted, or such other office designated by the Trustee from time to time. "Principal Payment Date" means October 1 of each year, commencing October 1, 2008. "Project Fund" means the fund by that name established and held by the Deputy City Manager/Director of Administrative Services pursuant to Section 3.3 hereof. "Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct -pay letter of credit or surety bond issued by a commercial bank, insurance company or other financial institution and deposited with the Trustee pursuant to Section 6.2, provided that all of the following requirements are met: (i) at all times during the term of such letter of credit or surety bond, the long-term credit rating of such bank is within the highest rating category of Moody's and S&P, or the claims paying ability of such insurance company is rated within the highest rating category of A.M. Best & Company and S&P; (ii) such letter of credit or surety bond has a term which ends no earlier than the last Interest Payment Date of the Series of Certificates to which the Reserve Requirement applies; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 6.2; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder amounts necessary to carry out the purposes specified in Article VI, including the replenishment of the Interest Account or the Principal Account. "Rating Agencies" means Moody's and S&P and any successors thereto, or if either such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by Lessee with the consent of the Insurer. "Rebate Amount" has the meaning set forth in Section 5.10 of the Lease. "Record Date" means the fifteenth day of the calendar month prior to each Interest Payment Date, whether or not such first day is a Business Day. With respect to any payment of defaulted interest, a special record date shall be established in accordance with the provisions of this Trust Agreement. "Registrar" means the Trustee. "Regulations" means the applicable regulations of the United States Department of the Treasury proposed or promulgated under Section 103 or Sections 141 through 148 of the Code or of the Internal Revenue Code of 1954, as amended. 70037800.3 "Requisition" means any of the requisitions executed by the Authorized Representative and filed with the Trustee or Deputy City Manager/Director of Administrative Services, as applicable, requesting disbursement of amounts from the Delivery Costs Fund or the Project Fund, substantially in the form attached hereto as Exhibit C. "Reserve Fund" means the fund by that name established and held by the Trustee pursuant to Section 6.1 hereof. Moneys or instruments in the Reserve Fund shall at all times be or be in a coverage amount equal to the Reserve Requirement. "Reserve Requirement" means that amount, or an instrument reflecting an amount, to be deposited into the Reserve Fund in accordance with Section 6.2 hereof. The Reserve Requirement shall initially equal $ and shall thereafter be calculated as the lesser of. (i) ten percent (10%) of the net proceeds of the Certificates; (ii) the maximum aggregate amount of Lease Payments to be paid in a Certificate Year; or (iii) 125% of the average Lease Payments to be paid in the then -current or any future Certificate Year. Notwithstanding the foregoing, at any time following a payment, partial prepayment or defeasance of Certificates hereunder, the Reserve Requirement shall be recalculated by the Lessee, and established at the lesser of (1) the maximum aggregate amount of Lease Payments to be paid in any single remaining Certificate Year, or (2) 125% of the average remaining Lease Payments to be paid in the then -current or any future Certificate Year. "Responsible Officer" means any Vice President, Assistant Vice President or Administrator of the Trustee having regular responsibility for the obligations of the Trustee under this Agreement. "W" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, or, if such corporation shall for any reason no longer perform the function of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized rating agency designated by the City with the approval of the City and the Insurer. "Special Counsel" means an attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax status of interest on obligations issued by states and their political subdivisions. "State" means the State of California "Supplemental Lease Agreement" means any lease agreement hereafter duly authorized and entered into by and between the Lessee and the Lessor, supplementing, modifying or amending the Lease; but only if and to the extent that such Supplemental Lease Agreement is specifically authorized hereunder. "Supplemental Trust Agreement" means any trust agreement hereafter duly authorized and entered into among the Lessor, the Lessee and the Trustee, supplementing, modifying or amending this Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized hereunder. "Sure ' means the Qualified Reserve Fund Credit Instrument provided by the Insurer to satisfy the Reserve Requirement for the Certificates. "Tax Certificate" means that certain Tax Exemption Certificate delivered by the Lessee on the Closing Date. 70037800.3 Lease. "Term" means the time during which the Lease is in effect, as provided in Section 4.2 of the "Treasurer" means the Deputy City Manager/Director of Administrative Services of the City. "Trustee" means The Bank of New York Trust Company, N.A., and its successors or assigns hereunder, if any. "Trust Agreemen " means this Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. "Yield" shall have the meaning ascribed to such term in Section 5.10 of the Lease. SECTION 1.2 Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Trust Agreement, and has taken all actions necessary to authorize the execution of this Trust Agreement by the officers and persons signing it. ARTICLE II THE CERTIFICATES OF PARTICIPATION SECTION 2.1 Authorization. The Trustee is hereby authorized and directed, upon written request of the Authorized Representative of the Lessee, to execute and deliver, to the Original Purchaser, the 2007 Certificates in an aggregate principal amount of $ in denominations of $5,000 or any integral multiple thereof, evidencing and representing proportionate and undivided ownership interests of the Owners of the Certificates in the Lease Payments and the Prepayments to be made by the Lessee under the Lease. SECTION 2.2 Dative: Payment of Interest. Each Certificate shall be dated as of the date of its execution, and the Interest Component shall be payable from the Interest Payment Date immediately preceding the date of execution thereof, unless (i) it is executed as of an Interest Payment Date, in which event the Interest Component shall be payable from the date of execution thereof, (ii) it is executed after a Record Date and before the following Interest Payment Date, in which event the Interest Component shall be payable from such following Interest Payment Date; or (iii) it is executed on or before the first Interest Payment Date following the date of delivery of such Certificates, in which event the Interest Component shall be payable from said date of delivery; provided, however, that if, as of the original date of execution of any Certificate, the Interest Component has not been paid when due for any Outstanding Certificates, such Interest Component for such Certificate shall be payable from the Payment Date to which the Interest Component has previously been paid or made available for payment with respect to the Outstanding Certificates. There shall be no execution or registration of transfer of Certificates during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. SECTION 2.3 Maturity; Interest Rates. (a) Maturities and Interest Rates for the 2007 Certificates. The 2007 Certificates shall mature on October I of the following years and shall represent interest at the following rates: 70037800.3 10 Maturity Date Principal Interest (October 1) Component Rate (b) Payment with Respect to Certificates Equal to Total Lease Payments. The total Principal Component and Interest Component due on all Certificates shall not exceed the total Lease Payments due under the Lease. (c) Payment of the Principal Component and the Interest Component of the Certificates. The principal, if any, and interest payable with respect to the Certificates shall be payable in lawful money of the United States of America by check, being any coin or currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts. Interest shall be paid by the Trustee on the Interest Payment Date with regard to such Certificate to the Owner thereof at the close of business on the Record Date with respect to such interest payment and shall be paid by check mailed on the applicable Interest Payment Date by first class mail to such Owner at his address as it appears on the Certificate registration books or, upon the written request of an Owner of at least $1,000,000 in principal amount of Certificates received at least fifteen (15) days prior to a Record Date, by wire transfer in immediately available funds to an account in the United States designated by such Owner, irrespective of the cancellation of such Certificate upon any transfer or exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, unless the Lessee shall default in the payment of interest due with respect to such Interest Payment Date. Payment of principal or premium due shall be paid only upon surrender of such Certificate at the Principal Office of the Trustee. In the event of any default in the payment of interest, such defaulted interest shall be payable to the Owner of such Certificate on a special record date for the payment of such defaulted interest, which date shall be established by the Trustee by notice mailed first class mail by or on behalf of the Lessee to the Owners of Certificates not less than fifteen (15) days preceding such special record date. SECTION 2.4 Registration; Interest. The Certificates shall be delivered in the form of fully registered Certificates without coupons, bearing CUSIP Service Bureau numbers, and in denominations of $5,000 each or any integral multiple thereof. The Certificates shall be individually numbered as determined by the Trustee. The Certificates shall be registered initially in the name of "Cede & Co.," as nominee of Depository Trust Company and shall be evidenced by one Certificate for each Principal Payment Date in the total aggregate principal amount of the Certificates of such Principal Payment Date. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except as set forth in Section 2.8 hereof. 70037800.3 11 In the event the Lessee determines that the continuation of the system of book -entry -only transfers through DTC (or a successor securities depository) is not in the best interests of the DTC participants, beneficial owners of the Certificate Owners, or the Lessee, the Lessee will notify the Trustee, whereupon the Trustee will notify DTC of the availability through DTC of certificates for the Certificates. In such event, the Trustee shall execute and deliver and shall transfer and exchange Certificates as requested by DTC of like principal amount, class, series, priority and maturity, in authorized denominations to the identifiable beneficial owners in replacement of the beneficial interests of such beneficial owners with respect to the Certificates. The Interest Component shall be payable on each Interest Payment Date to the date of maturity or prepayment of the Certificates, whichever is earlier. Said Interest Component shall represent the portion of Lease Payments designated as interest and coming due during the six-month period immediately preceding each Interest Payment Date with respect to the Certificates computed on the basis of a 360 -day year, comprised of 12 months of 30 days each. The proportion of the Lease Payments designated as the Interest Component shall be determined by the rate of interest applicable to the respective Certificates. SECTION 2.5 Form of Certificates; Temporary Certificates. The Certificates and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and incorporated herein, with appropriate changes to indicate series, terms and maturities. Pending the preparation of definitive Certificates, at the request of the Original Purchaser, the Trustee may, at the request of the Lessee, deliver the Certificates in temporary form, in lieu of definitive Certificates and subject to the same limitations and conditions, exchangeable for definitive Certificates when ready for delivery. The temporary Certificates may be printed, lithographed or typewritten, shall be of such denominations as may be requested by the Original Purchaser, shall be without coupons and may contain such reference to any of the provisions of this Trust Agreement as may be appropriate. Every temporary Certificate shall be executed by the Trustee upon the same conditions and in substantially the same manner as the definitive Certificates. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, and bearing the same rate or rates of interest and date or dates of maturity as that of the temporary Certificates, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office, and the Trustee shall cancel the same. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under this Trust Agreement as definitive Certificates. SECTION 2.6 Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. SECTION 2.7 Application of Proceeds. The proceeds received by the Trustee from the sale of the 2007 Certificates shall forthwith be set aside by the Trustee in the following respective funds and in the following order of priority: (a) The Trustee shall deposit in the Delivery Costs Fund the amount of $ [less $ which will be paid directly to the Insurer to pay the Bond Insurance Policy gross premium]; (b). The Trustee shall deposit in the Reserve Fund the amount of $ equal to the initial Reserve Requirement; and 70037800.3 12 (c) The Trustee shall transfer to the Deputy City Manager/Director of Administrative Services the balance of the net proceeds of the 2007 Certificates in an amount equal to $ for deposit in the Project Fund. The proceeds received by the Trustee from the sale of any Series of Additional Certificates shall be set aside by the Trustee as set forth in the Supplemental Trust Agreement pursuant to which such Additional Certificates are issued. The Trustee may, in its discretion, establish one or more temporary funds or accounts to facilitate or properly account for the foregoing deposits and transfers. SECTION 2.8 Transfer and Exchange. (a) Transfer of Certificates. Any Certificate may, in accordance with its terms, and subject to Section 2. 10, be transferred upon the books required to be kept pursuant to the provisions of Section 2.11 by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office of the Trustee, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed; provided, however, that the Trustee shall not effect the transfer of any Certificate during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. The Trustee may require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Lessee. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same maturity and interest rate, and for a like aggregate principal amount in authorized denominations. (b) Exchange of Certificates. Certificates may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Certificates of other authorized denominations of the same series, maturity and interest rate; provided, however, there shall be no exchange of Certificates during the period established by the Trustee for selection of Certificates for prepayment or of any Certificate selected for prepayment. The Trustee may require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the Lessee. All Certificates surrendered pursuant to the provisions of this Section shall be cancelled by the Trustee and shall not be redelivered. SECTION 2.9 Mutilated, Lost, Destroyed or Stolen Certificates. If any Certificate shall become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor and maturity in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity satisfactory to the Trustee shall be given, the Trustee, shall execute and deliver a new Certificate of like tenor and maturity and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee from the Owner of such lost, stolen or destroyed Certificates for each new Certificate delivered under this Section. Any Certificate executed and delivered under the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this Trust Agreement with all other Certificates secured by this Trust Agreement. The Trustee shall not be required to treat both the original Certificate and any replacement Certificate as being Outstanding for the purpose of 70037800.3 13 determining the principal amount of Certificates which may be executed and delivered hereunder or for the purpose of determining any percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate which has been mutilated, lost, destroyed or stolen, and which has matured, or which has been called for prepayment, the Trustee may make payment with respect to such Certificate upon receipt of indemnity satisfactory to the Trustee. (a) Payment Procedure Pursuant to Bond Insurance Policy. To follow SECTION 2.10 Use of Depository Trust Company. Notwithstanding any provision of this Trust Agreement to the contrary: (a) The Certificates shall be initially delivered and registered as provided in Section 2.4. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except: (i) To any successor of the DTC or its nominee, or to any substitute depository designated pursuant to clause (ii) of this subsection (a) ("substitute depository"); provided that any successor of DTC or a substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; (ii) To any substitute depository designated by the Lessee and not objected to by the Trustee or the Insurer, upon (1) the resignation of DTC or its successor (or any substitute depository or its successor) or (2) a determination by the Lessee that DTC or its successor (or any substitute depository or its successor) is no longer able to carry out its functions as the Lessee's security depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) To any person as provided below, upon (1) the resignation of DTC or its successor (or substitute depository or its successor) from its functions as depository; provided that no substitute depository which is not objected to by the Trustee or the Insurer can be obtained or (2) a determination by the Lessee that it is in the best interests of the Lessee to remove DTC or its successor (or any substitute depository or its successor) from its functions as securities depository hereunder. (b) In the case of any transfer pursuant to clause (i) or clause (ii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee, together with a request from the Lessee to the Trustee, a single new Certificate shall be executed and delivered in the aggregate principal amount of the Certificates then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such request from the Lessee. In the case of any transfer pursuant to clause (iii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee, new Certificates shall be executed and delivered in such denominations numbered in consecutive order from R-1 up and registered in the names of such persons as are requested in such a request from the Lessee, subject to the limitations of Section 2.4 hereof, provided that the Trustee shall not be required to deliver such new Certificates within a period less than sixty (60) days from the date of receipt of such a request from the Lessee. (c) In the case of partial prepayment or an advance refunding of the Certificates evidencing all or a portion of the principal amount thereof Outstanding, DTC shall make an appropriate notation on the Certificates indicating the date and amounts of such reduction in principal. The Trustee shall not be liable for any error or omission by DTC in making such notation and the records of the Trustee as to the outstanding principal amount of the Certificates shall be controlling. 70037800.3 14 (d) The Lessee, the Insurer and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Owner thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee , the Insurer or the Lessee; and the Lessee, the Insurer and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying or otherwise dealing with any beneficial owners of the Certificates. None of the Lessee, the Insurer or the Trustee will have any responsibility or obligations, legal or otherwise, to the beneficial owners or to any other party including DTC or its successors, except for the Owner of any Certificate. (e) So long as the Outstanding Certificates are registered in the name of Depository Trust Company or its registered assigns, the Lessee and the Trustee shall cooperate with Depository Trust Company, as sole registered Owner, and its registered assigns, in effecting payment of the principal of and prepayment premium, if any, and interest on the Certificates by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. SECTION 2.11 Certificate Register. The Trustee will keep or cause to be kept, at its Principal Office, sufficient books for the registration and transfer of the Certificates which shall at all times be open to inspection by the Insurer, the Lessee and the Lessor during regular business hours with reasonable prior notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred on said books, Certificates as hereinbefore provided. The Lessee, the Lessor, the Insurer and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue, and the Lessee, the Lessor, the Insurer and the Trustee shall not be affected by any notice to the contrary. Such books of record and account shall be available for inspection by the Authority, the Insurer and the City during regular business hours with reasonable prior notice. It shall be the responsibility of the Trustee to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety and to the amounts paid and owing to the Insurer under the terms of the Surety. SECTION 2.12 Execution and Delivery of Additional Certificates. In addition to the 2007 Certificates, the Trustee shall, upon written request of the Authorized Representative of the Lessee, with the written consent of the Insurer, by Supplemental Trust Agreement establish one or more other series of Certificates, representing undivided interests in Lease Payments and secured by the pledge made under this Trust Agreement equally and ratably with any Certificates previously executed and delivered, in such principal amount as shall be determined by the Lessee, but only upon compliance with the provisions hereof and any additional requirements set forth in the applicable Supplemental Trust Agreement, which are hereby made conditions precedent to the execution and delivery of Additional Certificates: (a) No Event of Default shall have occurred and be then continuing; (b) The Supplemental Trust Agreement providing for the execution and delivery of such Additional Certificates shall specify the purposes for which such Additional Certificates are then proposed to be'delivered, which shall be one or more of the following: (i) to acquire additional open space or parkland pursuant to the Program, including reimbursements to the Lessee for any sums advanced for such purposes, by establishing and depositing into a project fund the proceeds of such Additional Certificates to be so applied; (it) to provide for the payment or prepayment of Lease Payments with respect to Certificates theretofore Outstanding hereunder, by depositing with the Trustee moneys and/or investments required for such purpose under the provisions of Section 14.1 hereof; or (iii) to provide moneys needed to refund or refinance all or part of any other current or future obligations of the Lessee with respect to capital improvements. Such Supplemental Trust Agreement may, but shall not be 70037800.3 15 required to, provide for the payment of expenses incidental to such purposes, including the Costs of Delivery of such Additional Certificates, interest components on the Lease Payments for any period authorized under the Code and, in the case of any Additional Certificates intended to provide for the payment or prepayment of existing Certificates, or other obligations of the Lessee, expenses incident to calling, prepaying, paying or otherwise discharging the amounts to be paid off with the proceeds of the Additional Certificates; (c) The Lessee and the Lessor, with the prior written consent of the Insurer, shall have entered into an amendment or supplement to the Lease Agreement and the Base Lease, which requires an increase in the amount of Lease Payments sufficient to provide for the payment of principal and interest with respect to all Certificates to be. then Outstanding, and 'verification, based upon an independent appraisal of the Leased Property subject to the Base Lease and Lease Agreement, that the fair market value of the Leased Property, as supplemented, is equal to or exceeds the aggregate principal amount of the then -outstanding Certificates plus the Additional Certificates; (d) The Lessee shall deliver or cause to be delivered to the Trustee, from the proceeds of such Additional Certificates or from any other lawfully available source of moneys, an amount sufficient to increase the balance in the Reserve Fund to the Reserve Requirement for all Certificates to be then Outstanding hereunder; (e) The Additional Certificates shall be payable as to principal on October 1 and as to interest on April 1 and October 1 of each year during their term, except that the first installment of interest due with respect thereto may be payable on either April 1 or October 1 and shall be for a period of not longer than twelve (12) months; (f) Fixed serial maturities or mandatory sinking account payments, or any combination thereof, shall be established in amounts sufficient to provide for the retirement of all of the Additional Certificates of such series on or before their respective maturity dates. (g) The aggregate principal amount of Certificates executed and delivered hereunder shall not exceed any limitation imposed by law or by any Supplemental Trust Agreement; (h) The Insurer shall have consented to the execution and delivery of such Additional Certificates in writing; and (i) The Trustee shall be the Trustee for the Additional Certificates Nothing in this Section or in this Trust Agreement contained shall prevent or be construed to prevent the Supplemental Trust Agreement's providing for the execution and delivery of Additional Certificates that are to be secured by additional real property or revenues of the Lessee or that have other or additional credit enhancement of any type, nor shall this Trust Agreement limit in any way the power and authority of the Lessee to incur other obligations payable from its General Fund which do not represent an interest in Lease Payments due with respect to the Leased Property. SECTION 2.13 Proceedings for Execution and Delivery of Additional Certificates. Whenever the Lessee shall determine to file its written request with the Trustee for the execution and delivery of Additional Certificates, the Lessee shall authorize the execution and delivery of a Supplemental Trust Agreement, specifying the aggregate principal amount and describing the forms of Certificates of such additional series and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining same), Lease Payments and Lease Payment Dates, prepayment provisions and place or places of payment of principal or prepayment 700378003 16 price, if any, and interest represented by such Additional Certificates not inconsistent with the terms of this Trust Agreement. Before any series of Additional Certificates may be executed and delivered by the Trustee, the Lessee shall file the following documents with the Trustee: (a) An executed copy of the applicable Supplemental Trust Agreement; (b) A statement of the Lessee to the effect that the requirement of Section 2.13(a) is met; (c) Executed counterparts of the amendments or supplements to the Lease Agreement, the Base Lease and the Assignment Agreement, as applicable; (d) In the case of a series of Additional Certificates delivered for the purpose described in Section 2.13(b)(ij), irrevocable instructions to the Trustee to give notice as provided in Article IV hereof of prepayment of all Certificates to be prepaid in connection therewith; (e) An opinion or opinions of Special Counsel, to the effect that the execution and delivery of the Additional Certificates, the Supplemental Trust Agreement and related supplements or amendments have been duly authorized by the Lessor and the Lessee and meet the requirements of Section 2.13 and this Section; and that the execution and delivery of such Additional Certificates will not, in and of themselves, cause the interest component of the Lease Payments to become included within gross income for purposes of Federal income taxation; and (f) The written consent of the Insurer. ARTICLE III DELIVERY COSTS AND PROJECT FUND SECTION 3.1 Establishment of Delivery Costs Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Delivery Costs Fund" (the "Delivery Costs Fund"), which shall be maintained by the Trustee as a separate trust account and shall be administered in accordance with the provisions of this Article. SECTION 3.2 Delivery Costs Fund. Amounts on deposit in the Delivery Costs Fund shall be applied by the Trustee to the payment of Delivery Costs upon receipt of a Requisition from the Lessee, stating the amount of each such payment, the payee and the purpose for which such payment will be applied. Each such Requisition of the Lessee shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. On the date which is 180 days following the Closing Date, any amounts remaining on deposit in the Delivery Costs Fund shall be transferred to the Lease Payment Fund for application to Lease Payments. SECTION 3.3 Establishment of Project Fund. There is hereby established a special fund designated as the "City of Santa Clarita 2007 Certificates Project Fund" (the "Project Fund"), which shall be held and maintained by the Deputy City Manager/Director of Administrative Services as a separate trust account and shall be administered in accordance with the provisions of this Article. SECTION 3.4 Project Fund. There is hereby established a separate fund to be held and maintained by the Deputy City Manager/Director of Administrative Services to be known as the "City of Santa Clarita 2007 Certificates Project Fund" (the "Project Fund"). The Deputy City Manager/Director of Administrative Services shall disburse or transfer all amounts in the Project Fund, as stated in a 70037800.3 17 Requisition of the Lessee (as described below) for the payment of the cost of the Project (including reimbursement to the Lessee for any such costs paid by it). Before any payment of money is made from the Project Fund, the Lessee shall file a Requisition in substantially the form set forth as Exhibit C hereto. Upon receipt of each such Requisition, the Deputy City Manager/Director of Administrative Services shall pay the amount set forth in such requisition as directed by the terms thereof. When the Project has been completed, a Certificate of the Lessee shall be delivered to the Deputy City Manager/Director of Administrative Services, stating the fact and date of such completion and stating that all the Project Costs have been determined and paid (or that all such costs have been paid less specified claims which are subject to dispute and for which a retention in the Project Fund is to be maintained in the full amount of such claim until such dispute is resolved). Following the delivery of such certificate, the Deputy City Manager/Director of Administrative Services shall transfer amounts then on deposit in the Project Fund (but less the amount of any such retention) to the Trustee for deposit in the Lease Payment Fund for application to Lease Payments. ARTICLE IV PREPAYMENT OF CERTIFICATES SECTION 4.1 Establishment of Prepayment Fund. (a) The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Prepayment Fund" (the "Prepayment Fund"); shall keep such fund separate and apart from all'other funds and moneys held by it; and shall administer such fund as herein provided. Prior to any prepayment, sufficient moneys and/or Permitted Investments to be used for prepayment of the Certificates shall be deposited by the Lessee into the Prepayment Fund and be used solely for the purpose of prepaying the Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates. The Lessee shall provide notice to the Trustee of a Prepayment at least 45 days prior to the prepayment date. SECTION 4.2 Prepayment From Net Insurance Proceeds. The Certificates are subject to prepayment, in whole or in part on any date, from Net Insurance Proceeds deposited in the Prepayment Fund at least 30 days prior to the proposed prepayment date and credited towards the prepayment made by the Lessee pursuant to Section 10.2 of the Lease, at a prepayment price equal to the Principal Component thereof, together with accrued interest to the date fixed for prepayment, without premium. The Trustee shall notify the Insurer of such prepayment. To the extent that Net Insurance Proceeds are in excess of the principal and interest with respect to Certificates then to be prepaid, any excess amount shall, immediately following the prepayment date in question, be transferred by the Trustee to the Lease Payment Fund as a credit against the next Lease Payment due from the Lessee. Whenever Net Insurance Proceeds are set aside for prepayment of Certificates under this Section, they shall, promptly upon receipt and upon the Trustee's receipt of written instructions from the Lessee, be invested in securities in the State and Local Government Series of the United States Department of Treasury or in Municipal Obligations, in each case, maturing in time and amount to provide payment in full of the Interest Component and Principal Component of the affected Certificates. SECTION 4.3 Optional Prepayment. The Certificates maturing on or after October 1, [2018], are subject to prepayment in whole or in part (in integral multiples of $5,000), on any date on or after October 1, 20171, from moneys deposited in the Lease Payment Fund as a result of the exercise by the Lessee of its option to prepay its Lease Payments, exercised by depositing sufficient funds with the Trustee prior to the scheduled prepayment date, as provided in the Lease Agreement, at a prepayment price of principal amount plus accrued interest to the date fixed for prepayment, without premium. 70037800.3 18 In the event that the Lessee gives written notice to the Trustee of its election to prepay Lease Payments in accordance with the Lease and makes a deposit with the Trustee which is either insufficient for the payment of the full prepayment price of affected Certificates or is untimely for the giving of notice of prepayment to the Owners, the Trustee shall not then give such notice, but, at the written direction of the Lessee, shall either return such prepayment to the Lessee or credit it against the next Lease Payments due from the Lessee, as the Lessee may elect, and the Lessee shall subsequently continue to make its Lease Payments as if no such notice of election to prepay had been given hereunder or under the Lease. The Trustee shall give contingent notice to Owners of optional prepayment hereunder. SECTION 4.4 Selection of Certificates for Prepayment. All or a portion of any Certificate may be prepaid, but only in a Principal Component equal to $5,000. Except as otherwise provided herein, whenever provision is made in this Trust Agreement for the prepayment of Certificates and fewer than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment in such order as the Lessee shall direct, and, in the absence of such direction, in inverse order of maturity, and by lot within any maturity, in any manner which the Trustee shall deem appropriate and fair. The Trustee shall promptly notify the Lessee and the Lessor in writing of the Certificates so selected for prepayment. SECTION 4.5 Notice of Prepayment. Notice of any such prepayment shall be given by the Trustee on behalf and at the expense of the City by mailing a copy of a prepayment notice by fust class mail at least thirty (30) days and not more than sixty (60) days prior to the date fixed for prepayment to such Owner of the Certificate or Certificates to be prepaid at the address shown on the Certificate registration books maintained by the Trustee; provided, however, that neither the failure to receive such notice nor any defect in any notice shall affect the sufficiency of the proceedings for the prepayment of the Certificates. All notices of prepayment shall be dated and shall state: (i) the prepayment date, (ii) the prepayment price, (iii) if less than all Outstanding Certificates of a Series are to be prepaid, the identification (and, in the case of partial prepayment, the respective principal amounts) of the Certificates to be prepaid, (iv) that on the prepayment date the prepayment price will become due and payable with respect to each such Certificate or portion thereof called for prepayment, and that interest with respect thereto shall cease to accrue from and after said date, (v) the place where such Certificates are to be surrendered for payment of the prepayment price, and (vi) whether the City has deposited, or caused the deposit of, an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on such date and, if not, that such notice of prepayment is revocable. Prior to the mailing of any notice of prepayment (other than a prepayment in accordance with Section 4.3), the City shall deposit, or cause to be deposited, with the Trustee an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on that date. Notice of prepayment having been given as aforesaid, the Certificates or portions of Certificates so to be prepaid shall, on the prepayment date, become due and payable at the prepayment price therein specified, and from and after such date (unless the City shall default in the payment of the prepayment price) interest with respect to such Certificates or portions of Certificates shall cease to be payable. Upon surrender of such Certificates for prepayment in accordance with said notice, such Certificates shall be paid by the Trustee at the prepayment price. Installments of interest due on or prior to the prepayment date shall be payable as herein provided for payment of interest. Upon surrender for any partial prepayment of any Certificate, there shall be prepared for the Owner a new Certificate or Certificates of the same Series and maturity in the amount of the unpaid principal. All Certificates which have been 70037800.3 19 prepaid shall be canceled by the Trustee, shall not be redelivered and shall be destroyed pursuant to Section 14.14. In addition to the foregoing notice to the Owners, notice shall also be given by the Trustee at least thirty (30) days before the prepayment date, by telecopy, registered, certified or overnight mail, or by such other method acceptable to such institutions, to the Insurer, to the Depository Trust Company and to an Information Service which shall state the information set forth above, but no defect in said notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for prepayment if notice thereof is given as prescribed above. The Trustee shall have no responsibility for a defect in the CUSIP number that appears on any Certificate or in the prepayment notice. The prepayment notice may provide that the CUSIP numbers have been assigned by an independent service and are included in the notice solely for the convenience of Certificate Owners and that the Trustee, the Lessee and the Lessor shall not be liable in any way for inaccuracies in said numbers. SECTION 4.6 Partial Prepayment of Certificates. Upon surrender by the Owner of a Certificate for partial prepayment, payment of such partial prepayment of the Principal Component will be made by check mailed by first class mail to the Owner at his address as it appears on the registration books of the Trustee. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the Lessee, a new Certificate or Certificates which shall be of authorized denominations equal in aggregate principal amount to the unprepaid Principal Component of the Certificate surrendered and of the same interest rate, series and maturity. Such partial prepayment shall be valid upon payment of the amount thereby required to be paid to such Owner, and the Lessee, the Lessor and the Trustee shall be released and discharged from all liability to the extent of such payment. SECTION 4.7 Effect of Notice of Prepayment. Notice having been given as aforesaid, and the moneys for the prepayment (including the Interest Component accruing through the applicable date of prepayment) having been set aside in the Prepayment Fund, the Certificates so called shall become due and payable on said date of prepayment, and upon presentation and surrender thereof at the office or offices specified in said notice, said Certificates shall be paid in the amount of the unpaid Principal Component, plus the Interest Component accrued and unpaid to said date of prepayment. If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, and premium, if any, together with interest accrued to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as aforesaid, then, from and after said date of prepayment, the interest with respect to such Certificates shall cease to accrue and become payable. All moneys held by or on.behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of this Article shall be cancelled upon surrender thereof. SECTION 4.8 Purchase of Certificates. In lieu of prepayment of Certificates as provided in this Article N, amounts held by the Trustee for such prepayment may also be used on any date, upon receipt by the Trustee at least seventy-five (75) days prior to the purchase date of the written request of an Authorized Representative of the Lessee, for the purchase of the Certificates at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the Lessee may in its discretion direct, but not to exceed the prepayment price which would be payable if such Certificates were prepaid. Remaining moneys if any shall be deposited into the Lease Payment Fund. 70037800.3 20 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND SECTION 5.1 Security Provisions. (a) Assignment of Rights in Lease. The Lessor has, pursuant to the Assignment Agreement, assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Lessor's rights to receive and collect the Lease Payments, the Prepayments, the Assessment Revenues and all other amounts required to be deposited in the Lease Payment Fund or the Assessment Revenue Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other amounts to which the Lessor may at any time be entitled shall be paid directly to the Trustee, and all of the Lease Payments, Prepayments, and Assessment Revenues collected or received by the Lessor shall be deemed to be held and to have been collected or received by the Lessor as the agent of the Trustee, and if received by the Lessor at any time shall be deposited by the Lessor with the Trustee within one Business Day after the receipt thereof, and all such Lease Payments, Prepayments, Assessment Revenues and such other amounts shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund. (b) Security Interest in Moneys and Funds. The Lessor and the Lessee, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners a lien on and a security interest in all moneys in the funds and accounts held by the Trustee under this Trust Agreement (except moneys held in the Excess Earnings Account), including, without limitation, the Lease Payment Fund, the Delivery Costs Fund, the Reserve Fund, the Earnings Holding Account, the Prepayment Fund and the Net Insurance Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. (c) Pledge of Lease Payments. The Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the Interest Component and the Principal Component, and the Lease Payments shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first and exclusive lien on the Lease Payments in accordance with the terms hereof. (d) Security Interest in the Leased Property and Assessment Revenue Fund. The Lessor and Lessee, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners a lien on and a security interest in the Leased Property and in the Assessment Revenue Fund established under the Lease. SECTION 5.2 Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Lease Payment Fund" (the "Lease Payment Fund"). All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the Lessee nor the Lessor shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in this Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. SECTION 5.3 Establishment of the Excess Earnings Account. Within the Lease Payment Fund, there is hereby established the Excess Earnings Account, to be funded as provided in Section 8.7. SECTION 5.4 Deposits and Notification. There shall be deposited into the Lease Payment Fund all Lease Payments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 4.3 (regarding Lease Payments) of the Lease and any other moneys required to be deposited therein pursuant to the Lease or pursuant to this Trust Agreement. Prior to each March 15 70037800.3 21 and September 15 the Trustee shall notify the Lessee of the amounts on deposit in the Lease Payment Fund to be credited (together with the interest earnings thereon between the date of such notification and the Lease Payment Date) toward the Lease Payments due on the next succeeding Lease Payment Date. SECTION 5.5 Application of Moneys. Except as provided in Section 5.6 or Section 13.3, all amounts in the Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Principal Component and the Interest Component as the same shall become due and payable, in accordance with the provisions of Article II and Article IV. The Trustee shall apply moneys on deposit in the Lease Payment Fund in the following order of priority: (a) On or before each Payment Date, an amount sufficient to pay the Interest Component due and payable on such date shall be set aside by the Trustee and mailed (or sent by wire transfer, as appropriate) to the Owners of the Certificates; (b) On or before each Principal Payment Date, an amount sufficient to pay the Principal Component coming due and payable on the Certificates on such date shall be set aside; and (c) To the extent that Prepayments are made on each date set for prepayment of Certificates pursuant to Section 4.3, the amount prepaid shall be deposited into the Prepayment Fund to be applied for the prepayment of Certificates in accordance with Section 4.3. ' SECTION 5.6 Investment Earnings. In accordance with the requirements set forth in Section 8.3 hereof, but subject to Section 6.3 hereof, the Trustee shall deposit all earnings resulting from the investment of moneys deposited in any fund or account held under this Trust Agreement (other than [the Project Fund,] the Lease Payment Fund and the Excess Earnings Account which earnings shall remain in such fund or account) into an account to be established by the Trustee within the Lease Payment Fund to be designated the Earnings Holding Account and to be applied in accordance with Section 8.3 hereof; provided, however, that if at any time there shall be a withdrawal from the Reserve Fund hereunder, investment earnings received on the Reserve Fund and all other funds and accounts (except the Excess Earnings Account) following the date of such withdrawal shall be transferred to or remain in the Reserve Fund as a replenishment of the balance therein (or as a reimbursement to any provider of a surety bond or similar instrument therein) until such balance again reaches the Reserve Requirement. SECTION 5.7 Surplus. Any funds remaining in the Lease Payment Fund or the Prepayment Fund after prepayment and payment of all Certificates Outstanding, or provision having been made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the Lessee. ARTICLE VI RESERVE FUND SECTION 6.1 Establishment of Reserve Fund. The Trustee shall establish a special fund designated as the "City of Santa Clarita 2007 Certificates Reserve Fund" (the "Reserve, Fund"). All moneys or other security instrument at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates, and applied solely as provided herein. SECTION 6.2 Deposits. On the Closing Date, there shall be deposited the Surety into the Reserve Fund as the initial Reserve Requirement, in accordance with Section 2.7. If at any time the Lessee shall determine it to be within its best interests to do so, it may provide to the Trustee, and the 70037800.3 22 Trustee shall accept into the Reserve Fund in full satisfaction of the Reserve Requirement, a Qualified Reserve Fund Credit Instrument in lieu of or in partial substitution for cash or securities otherwise required to comprise all or a portion of the Reserve Requirement; provided, however, that the claims - paying ability or long-term debt rating of the entity providing such a Qualified Reserve Fund Credit Instrument shall be continuously rated in one of the two highest classifications by Moody's and S&P (without regard to distinctions within rating categories). The Qualified Reserve Fund Credit Instrument shall be acceptable to the Insurer. If the Lessee shall make the election to replace cash or securities on deposit in the Reserve Fund under the provisions of this Section, the Trustee shall, immediately following the delivery of the Qualified Reserve Fund Credit Instrument meeting the requirements hereof, withdraw an amount equal to the stated amount of said instrument from the Reserve Fund and deposit it into the Lease Payment Fund. Such moneys or instruments shall be held in trust as a reserve for the payment when due of all the Lease Payments and Prepayments to be paid pursuant to the Lease and of all payments with respect to the Certificates. SECTION 6.3 Transfers of Excess. So long as the Certificates are Outstanding, the Trustee shall transfer any moneys on hand in the Reserve Fund in excess of the Reserve Requirement to the Earnings Holding Account to be applied in accordance with Section 8.3. . SECTION 6.4 Replenishment of Reserve Fund. In the event that the Trustee shall have withdrawn any amounts. from the Reserve Fund to remedy a shortfall in the Lease Payment Fund, and the Reserve Fund has not theretofore been replenished to the full Reserve Requirement, the Trustee shall apply any delinquent Lease Payments received by the Trustee first to replenish the Reserve Fund so that it contains an amount equal to the Reserve Requirement within 12 months of the date of the related deficiency, and then to make deposits into the Lease Payment Fund. Following any partial prepayment or defeasance of Certificates hereunder, the Reserve Requirement shall be reduced as provided in the definition thereof, and the requirement under this Section to effect replenishment of the Reserve Fund shall extend only to the amount of such reduced Reserve Requirement. SECTION 6.5 Application of Reserve Fund in Event of Deficiency in Lease Payment Fund. If five (5) Business Days immediately preceding any Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the Principal Component and the Interest Component then coming due and payable, the Trustee first shall apply the moneys available in the Reserve Fund, or shall draw on any instrument comprising the Reserve Requirement, to make delinquent Lease Payments on behalf of the Lessee by transferring the amount necessary for this purpose to the Lease Payment Fund. In the event the Reserve Fund contains a Qualified Reserve Fund Credit Instrument and there is insufficient cash in the Reserve Fund to cover the delinquent Lease Payment, the Trustee shall, no later than three (3) days prior to said Interest Payment Date, make a demand upon the Insurer pursuant to the Financial Guaranty Agreement for an amount necessary to make the delinquent Lease Payment on behalf of the Lessee, less any cash available in the Reserve Fund. In the event that the Reserve Fund contains more than one Qualified Reserve Fund Credit Instrument from different bond insurers, the Trustee shall make a demand upon each bond insurer for the amount necessary to make the delinquent Lease Payment less cash available in the Reserve Fund, on a pro rata basis among the bond insurers. Upon the receipt of the delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund either with cash or by a draw on the Qualified Reserve Fund Credit Instrument, such Lease Payment shall first be used to reimburse the Qualified Reserve Fund Credit Instrument insurer for any amount drawn, plus accrued interest at the rates set forth in the Financial Guaranty Agreement, and then deposited in the Reserve Fund to the extent of the moneys advanced from the Reserve Fund. The Trustee shall maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any time under the Qualified Reserve Fund Credit Instrument, and as to the amount paid and owing to the Insurer under the terms of the Qualified Reserve Fund Credit Instrument. 70037800.3 23 SECTION 6.6 Transfer to Make All Lease Payments. If on any Payment Date, the moneys on deposit in the Reserve Fund and in the Lease Payment Fund (excluding amounts required for payment of past due Principal Component or Interest Component with respect to Certificates not yet presented for payment) are sufficient to pay all Outstanding Certificates, including all of the Principal Component and the Interest Component, and premium, if any, the Trustee shall, upon the written direction of the Authorized Representative transfer all amounts then on hand in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments or Prepayments and such moneys shall be distributed to the Owners of Certificates in accordance with Article II, provided, however, that if no written instruction is received by the Trustee, no such transfer shall be made. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates, or upon provision for such payments as provided in Section 14.1, including payment of the Trustee's fees and expenses, shall be withdrawn by the Trustee and paid to the Lessee. ARTICLE VII NET INSURANCE PROCEEDS FUND SECTION 7.1 Establishment of Net Insurance Proceeds Fund; Application of Net Insurance Proceeds. (a) Any Net Insurance Proceeds collected by the Lessee and not applied to the restoration or repair of the Leased Property shall be transferred to the Trustee pursuant to Section 6.2(a) of the Lease and deposited by the Trustee into a special fund designated as the "City of Santa Clarita 2007 Certificates Net Insurance Proceeds Fund" (the "Net Insurance Proceeds Fund") to be held in trust and applied and disbursed by the Trustee as provided in Section 6.2 of the Lease. Net Insurance Proceeds of rental interruption insurance shall be paid to the Trustee and applied as provided in Section 5.5 of the Lease. (b) If the Leased Property are taken, or a portion of the Leased Property is taken, by condemnation proceedings, the Net Insurance Proceeds therefrom shall be deposited in the Net Insurance Proceeds Fund promptly upon receipt thereof and the Lessee shall certify to the Trustee (i) as to whether the Leased Property have been taken in whole or in part pursuant to such proceedings, (ii) as to whether the remaining portion of the Leased Property is still useful for the purposes originally intended and (iii) as to whether it desires that any available Net Insurance Proceeds from such condemnation proceedings be applied for replacement of the Leased Property and, if so, that sufficient funds, together with such Net Insurance Proceeds, have been appropriated to pay the total cost of such replacement. If such certification is to the effect that the Leased Property have been taken in whole pursuant to such condemnation proceedings or has been taken in part to such extent that the remaining portion of Leased Property is no longer useful for the purposes originally intended, the Trustee shall transfer all of such Net Insurance Proceeds to the Prepayment Fund to be applied to the prepayment of the Certificates. If such certification is to the effect that the Leased Property has been taken in part pursuant to such condemnation proceedings and that the remaining portion of the Leased Property is still useful for the purposes originally intended, the Trustee shall transfer such Net Insurance Proceeds to the Prepayment Fund to be applied to the prepayment of Certificates pursuant to Section 4.2 hereof; provided that, if such certification is also to the effect that the Lessee desires that any available Net Insurance Proceeds be applied for replacement of the Leased Property and if the Lessee further certifies that sufficient funds, together with such Net Insurance Proceeds, have been appropriated or are otherwise available to pay the total cost of such replacement, the Trustee will disburse such Net Insurance Proceeds to the Lessee upon receipt of its requisitions therefor in order for the Lessee to cause the Leased Property to be replaced or improved to at least the same good order, repair and condition as it was in prior to the condemnation proceedings, insofar as the same may be accomplished with said funds, and the Trustee shall transfer any excess Net Insurance Proceeds to the Lease Payment Fund to be credited against the next Lease Payment. 70037800.3 24 SECTION 7 2 Excess Net Insurance Proceeds. After all of the Certificates have been retired and the entire amount of the Principal Component and Interest Component have been paid in full, or provision having been made therefor (except by means of payment under the Bond Insurance Policy satisfactory to the Trustee), including payment of the Trustee's fees and expenses, the Trustee shall then pay any remaining moneys in the Net Insurance Proceeds Fund to the Lessee. SECTION 7.3 Cooperation. The Lessor and the Trustee shall cooperate fully with the Lessee, at the expense of the Lessee, in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to any part of the Leased Property. ARTICLE VIII MONEYS IN FUNDS; INVESTMENT SECTION 8.1 Held in Trust. The moneys and investments held by the Trustee under this Trust Agreement are irrevocably held in trust for the benefit of the Owners of the Certificates, with the exception of moneys held in the Excess Earnings Account, which are held in trust for rebate to the United States Government, and for the purposes herein specified, and such moneys, and any income or interest earned thereon, shall be expended only as provided in this Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Lessor, the Trustee or the Lessee or any Owner of Certificates, or any of them other than the lien in favor of Trustee permitted pursuant to Section 9.5 hereof. SECTION 8.2 Investments Authorized. Moneys held by the Trustee hereunder, upon written order of an Authorized Representative of the Lessee, which written order shall comply with Section 8.7 and 11.8, shall be invested and reinvested by the Trustee in Permitted Investments. The Treasurer shall by written order filed with the Trustee direct such investment in specific Permitted Investments identified in such written order. Investment of moneys in the Reserve Fund shall be directed in accordance with Section 8.5 hereof. Such investments, if registerable, shall be registered in the name of the Trustee or its nominee for the benefit of the Owners and held by the Trustee. Such investment direction shall be made giving full consideration for the time at which funds are required to be available. The Trustee and its affiliates may act as sponsor, advisor, purchaser or agent in the making or disposing of any investment. The Trustee covenants that in the absence of a written order of the Treasurer directing investments hereunder, it shall invest such proceeds in instruments described in clause (4) of the definition of "Permitted Investments" contained herein. SECTION 8.3 Disposition of Investments. Any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the fund or account from which the investment was made, except as otherwise provided herein. Investment earnings accruing to all funds and accounts established hereunder (except the Lease Payment Fund and the Excess Earnings Account) shall be transferred promptly upon receipt into the Earnings Holding Account; provided that, following a withdrawal from the Reserve Fund, the provisions of Section 5.6 hereof shall control. Earnings, if any, on amounts on deposit in the Net Insurance Proceeds Fund shall remain therein until applied for the purpose of restoring or repairing the Leased Property or until applied towards the prepayment price of Certificates hereunder. On each Computation Date, the Lessee will calculate the amount, if any, of rebatable arbitrage with respect to such investment earnings which amount shall be deposited into the Excess Earnings Account and applied in accordance with Section 8.7 of this Trust Agreement and Section 5.10(h) of the Lease. The balance, if any, remaining in the Earnings Holding Account after such deposit in the Excess Earnings Account shall be transferred, fist to the Lease Payment Fund in an amount necessary to be applied as a credit to the next Lease Payment due from the Lessee, and second any remaining amount shall be remitted to the Lessee to be applied for authorized purposes. Investment 700378003 25 earnings accruing to the Reserve Fund shall be transferred to the Earnings Holding Account only to the extent that retention of such eamings.would result in a balance.within the Reserve Fund in excess of the Reserve Requirement. SECTION 8.4 Accounting. The Trustee shall furnish to the Lessee each month an accounting statement of all investments made by the Trustee. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with this Article. The Lessee acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Lessee the right to receive brokerage confirmations of security transactions as they occur, the Lessee specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Lessee periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. SECTION 8.5 Valuation of Investments. With respect to all funds and accounts, the Trustee shall, at the expense of the Lessee, determine the value thereof as frequently as deemed necessary by the Insurer, but not less often than quarterly, at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date from the first available moneys. If amounts on deposit in the Reserve Fund shall, at any time, have a market value less than the Reserve Requirement, such deficiency shall be made up from first available moneys after required deposits to the Lease Payment Fund. Amounts on deposit in the Reserve Fund at any time shall be invested in Permitted Investments with maturities of not to exceed five (5) years; provided, further, that an investment in a guaranteed investment agreement approved by the Insurer shall be deemed to have a maturity of less than five (5) years if its terms provide for withdrawal of the Reserve Fund balance, at par, at any time. In the event that the Reserve Fund shall include a surety bond or other instrument intended to provide for the Reserve Requirement, it shall be valued at cost. The Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted hivestment is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. SECTION 8.6 Deposit and Investment of Moneys in Funds. All moneys held by the Trustee in any of the funds established pursuant to this Trust Agreement shall be invested in Permitted Investments as described in Section 8.2 above. The Trustee shall have no duty or obligation to verify the legality of such investments. The Trustee may commingle any of the moneys in funds held by it pursuant to this Trust Agreement and place them into a separate fund or funds for investment purposes only, provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee_ The Trustee may act as principal or agent in the acquisition or disposition of investments. SECTION 8.7 Rebate of Excess Investment Earnings to Federal Government. (a) The Lessee, if required pursuant to the Code and the pertinent Regulations, shall calculate or cause to be calculated Excess Investment Earnings in accordance with Section 5.10(h) of the Lease, and the Trustee, at the direction of the Lessee, shall transfer such monies to the Excess Earnings Account in accordance with Section 5.10(h) of the Lease. (b) The Trustee shall pay amounts in the Excess Earnings Account as directed in Section 5.10(h) of the Lease and transfer amounts in accordance with Section 5.10(h) of the Lease to the Lessee. 70037800.3 26 (c) The Trustee shall invest payments by the Lessee of Excess Investment Earnings at Lessee's written instruction until rebated in accordance with the Regulations pertaining thereto as may from time to time be in effect. (d) The Lessee shall keep or cause to be kept, and retain for a period of six years following the retirement of the last Certificates Outstanding, records delivered to the Trustee of the calculations and certificates required pursuant to this Section. (e) The Trustee shall provide the Lessee or the Lessor with all information relative to any moneys held by or investments of Gross Proceeds made by the Trustee as may be required in order to assist the Lessee in making the calculations required by this Section. The Trustee shall not be responsible for calculating Excess Investment Earnings or for the adequacy or correctness or any Excess Investment Earnings calculations. The Trustee shall be deemed conclusively to have complied with the provisions of this Trust Agreement regarding calculation and payment of Excess Investment Earnings if it follows the directions of Lessee and it shall have no independent duty to review such calculations or enforce the Lessee's compliance with such requirements. ARTICLE IX THE TRUSTEE SECTION 9.1 Appointment of Trustee. The Bank of New York Trust Company, N.A., a national banking association organized and existing under and by virtue of the laws of the United States, is hereby appointed Trustee by the Lessor and the Lessee for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Trust Agreement. The Lessor and the Lessee agree that they will maintain either The Bank of New York Trust Company, N.A., or a substitute Trustee which substitute Trustee is a commercial bank, national banking association, or trust company having an office in New York, New York, Los Angeles, or San Francisco, California, which, together with the corporate parent of such Trustee, has a combined capital (exclusive of borrowed capital) and surplus of not less than Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by Federal or state authority, so long as any Certificates are Outstanding, and acceptable to the Insurer. If such bank, national banking association or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority referred to above, then for the purpose of this Section, the combined capital and surplus of such bank, national banking association or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the Certificates when duly presented for payment at maturity, or on prepayment, or on purchase by the Trustee of Certificates prior to maturity and to cancel all Certificates upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. The Trustee shall be compensated for its services rendered pursuant to the provisions of this Trust Agreement. So long as no Event of Default shall have happened and be continuing, the Lessee may remove the Trustee initially appointed for good cause, and any successor thereto, and may appoint a successor or successors thereto; provided, that any such successor shall be a bank, national banking association or trust company meeting the requirements set forth in this Section. The Trustee may resign by giving written notice to the Lessee, the Lessor and the Insurer. Upon receiving such notice of resignation, the Lessor shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon 700378003 27 acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Certificate Owners at their respective addresses set forth on the Certificate registration books maintained pursuant to Section 2.12. In the event the Lessor does not name a successor Trustee within 30 days of receipt of notice of the Trustee's resignation, then the Trustee may petition a court of proper jurisdiction to seek the immediate appointment of a successor Trustee. SECTION 9.2 Liability of Trustee. The recitals of facts herein, in the Assignment Agreement and in the Certificates contained shall be taken as statements of the Lessee, and the Trustee assumes no responsibility for the correctness of the same, and makes no representations as to the validity or sufficiency of this Trust Agreement or the Certificates as to the value or condition of the trust estate or any part thereof, as to the title of the Lessee thereto, as to the security afforded thereby or by this Trust Agreement, as to the tax status of the Interest Component, or as to the technical or financial viability of the Lessee, and shall incur no responsibility in respect thereof. The Trustee shall not be accountable for the use or application by the Lessee of the Certificates or the proceeds thereof or of any moneys paid to the Lessee pursuant to the terms of this Trust Agreement. The Trustee shall, however, be responsible for its representations in relation to the execution of the Certificates. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct. The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents or allomeys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent (other than an employee) or attorney appointed with due care. The Lessee shall not be deemed an agent of the Trustee for any purpose, and the Trustee shall not be responsible for the compliance of the Lessee in its duties hereunder in connection with the transactions contemplated herein. The Trustee may become the Owner of the Certificates with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Certificate Owners, whether or not such committee shall represent the Certificate Owners or a majority thereof. No provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder or thereunder, or in the exercise of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to its satisfaction. In accepting the trusts hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners, Lessor and Lessee having any claim against the Trustee arising from the Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the Lessor and the Lessee of the Leased Property. In no event shall the Trustee be liable for incidental,, indirect, special or consequential damages in connection with or arising from the Lease Agreement or this Trust Agreement for the existence, furnishing or use of the Leased Property. The Trustee shall not be responsible for the sufficiency or enforceability of the Lease Agreement or the assignment under the Assignment Agreement of its rights to receive Lease Payments. The Trustee shall not be accountable for the use or application by the Lessee or any other party of any funds which the Trustee has released in accordance with the provisions of this Trust Agreement. 70037800.3 28 The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Certificates. The Trustee is authorized and directed to execute the Assignment Agreement in its capacity as Trustee. The immunities extended to the Trustee also extend to its directors, officers, employees and agents. The Trustee shall not be liable for any action taken or not taken by it in accordance with the direction of a majority (or other percentage provided for herein) in aggregate principal amount of Certificates outstanding or of the Insurer relating to the exercise of any right, power or remedy available to the Trustee. The permissive right of the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty. The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. SECTION 9.3 Merger or Consolidation. Any company. or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any company or national banking association resulting from any merger, conversion or consolidation to which it shall be a party or any company or national banking association to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such company or national banking association shall meet the requirements set forth in Section 9.1, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. Notice of such merger or consolidation shall be given to the Lessee and the Lessor. SECTION 9.4 Protection and Riehts of the Trustee. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, telegram, facsimile transmission, electronic mail, voucher, waiver or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of this Trust Agreement, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, including, but not limited to, the legality of any investment in which Trustee is instructed to invest, but may, in the absence of bad faith on its part, accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee may consult with counsel, who may be counsel to the Lessee, with regard to legal questions and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee hereunder in good faith in accordance therewith. 70037800.3 29 Whenever in the administration of its duties under this Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the Authorized Representative of the Lessee or Lessor and such certificate shall be full warranty to the Trustee, in the absence of bad faith on its part, for any action taken or suffered under the provisions of this Trust Agreement upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable to the Trustee. The Trustee may be or become the Owner of the Certificates with the same rights it would have if it were not Trustee; may acquire and dispose of any bonds or other evidence of indebtedness of the Lessee with the same rights it would have if it were not the Trustee and may act as a depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of the Owners whether or not such committee shall represent the Owners of the majority in principal amount of the Certificates then Outstanding. The Trustee shall not be answerable for the exercise of any discretion or power under this Agreement or for anything whatever in connection with the funds and accounts established hereunder, except only for its own negligence or willful misconduct hereunder. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until a Responsible Officer shall have actual knowledge thereof, or, shall have received written notice thereof, at its Principal Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Certificates, or as to the existence of an Event of Default thereunder. The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to this Trust Agreement provided, however, that: (a) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (b) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (c) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request, order or direction of any of the Owners or Insurer pursuant to the provisions of this Trust Agreement unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Trust Agreement. In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. SECTION 9.5 Compensation of the Trustee. The Lessee or the Lessor shall from time to time on demand, pay to the Trustee reasonable compensation for its services and shall reimburse the Trustee for all its advances (with interest on such advances at the maximum rate allowed by law) and expenditures, 700378003 30 including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents and attorneys or other experts employed by it in the exercise and performance of its powers and duties hereunder and the Trustee shall have a lien therefor on any and all funds at any time held by it under this Trust Agreement, which lien shall not be prior and superior to the lien of the Certificate Owners unless there has occurred an Event of Default in which event the lien of the Trustee shall be prior and superior to the lien of the Owners. The Lessee's and Lessor's obligations hereunder shall remain valid and binding, notwithstanding the maturity and payment of the Certificates or the resignation or removal of the Trustee. The compensation of the Trustee hereunder shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust. SECTION 9.6 Indemnification of Trustee. To the extent permitted by law, the Lessee shall indemnify and save the Trustee its officers, employees, agents, successors or assigns harmless from and against all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Property by the Lessee, (ii) any breach or default on the part of the Lessee in the performance of any of its obligations under this Trust Agreement and any other agreement made and entered into for purposes of the Leased Property, (iii) any act of negligence of the Lessee or of its agents, contractors, servants, employees or licensees with respect to the Leased Property, (iv) any act of negligence of any assignee of, or purchaser from, the Lessee or its agents, contractors, servants, employees or licensees with respect to the Leased Property, (v) the actions of any other party, including but not limited to the ownership, operation or use of the Leased Property by the Lessee, or (vi) the Trustee's exercise and performance of its powers and duties hereunder or under the Lease. No indemnification will be made under this Section 9.6 or elsewhere in this Trust Agreement for negligence or willful misconduct under this Trust Agreement by the Trustee, its officers, agents or employees. The Lessee's obligations hereunder shall remain valid and binding notwithstanding defeasance, maturity and payment of the Certificates or the resignation or removal of the Trustee. SECTION 9.7 Removal of Trustee. The Trustee may be removed at any time, upon written notice to the Insurer. The Insurer shall receive prior written notice of any Trustee resignation, removal and the appointment of any successor thereto. Notwithstanding any other provision of this Trust Agreement, with the exception of the right of the Trustee to petition a court to seek the appointment of a successor trustee, set forth in Section 9.1 hereof, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to the Insurer, shall be appointed. ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS SECTION 10.1 Amendments Permitted. This Trust Agreement and the rights and obligations of the Owners and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement which shall become effective when the written consent of the Owners of at least 51% in aggregate principal amount of the. Certificates then Outstanding, exclusive of Certificates disqualified as provided in Section 10.3, shall have been filed with the Trustee; provided, that the Trustee shall enter into a Supplemental Trust Agreement with the Lessor and the Lessee upon the Lessee's entering into a Supplemental Lease Agreement with the Lessor. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of the Interest Component, or reducing the amount of Principal Component thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written 70037800.3 31 consent to an'amendment or modification of this Trust Agreement or the Lease, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement shall become effective as provided in Section 10.2. This Trust Agreement (and the rights and obligations of the Owners hereunder), and the Lease and the Base Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement, without notice to or the consent of any such Owners, but only to the extent permitted by law and only (1) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (2) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable and which shall not adversely affect the interest of the Owners, (3) to satisfy the requirements of the Rating Agencies, or (4) with respect to the Lease and the Base Lease, as pernutted therein in order to permit the substitution or release of all or a portion of the Leased Property in accordance with Section 3.3 of the Lease. Any such supplemental agreement with. respect to this Trust Agreement and the Lease shall require the unanimous consent of all parties hereto and thereto, as the case may be. Any such supplemental agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. Any amendment or supplement to this Trust Agreement, the Lease Agreement or any other principal financing documents shall be subject to the prior written consent of the Insurer. Any rating agency rating the Certificates must receive notice of each amendment and a copy thereof at least 15 days in advance of its execution or adoption. The Insurer shall be provided by the Lessee with a full transcript of all proceedings relating to the execution of any such amendment or supplement. SECTION 10.2 Procedure for Amendment with Written Consent of Owners. Subject to the consent of the Insurer, this Trust Agreement or the Lease may be amended by supplemental agreement as provided in this Section in the event the consent of the Owners is required pursuant to Section 10.1. A copy of such supplemental agreement, together with a request to the Owners for their consent thereto, shall be mailed, by first class mail by the Trustee, at the expense of the Lessee, to each Owner at his address as set forth in the Certificate registration books maintained pursuant to Section 2.12, but failure to receive copies of such supplemental agreement and request so mailed shall not affect the validity of the supplemental agreement when assented to as in this Section provided. Such supplemental agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in Section 10.3) and notices shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Certificates for which such consent is given, which proof shall be such as is permitted by Section 2.12. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a Subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consents to such supplemental agreement, the Trustee shall mail a notice to the Certificate Owners in the manner hereinabove provided in this Section for the mailing of such supplemental agreement, stating in substance that such supplemental agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this Section 10.2 (but failure to mail copies of said notice shall not affect the validity of such supplemental agreement or the consents thereto). A record, consisting of the papers required by this Section 10.2 to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. Such supplemental agreement shall become effective upon the 70037800.3 32 mailing of the notice hereinabove in this Section 10.2 provided, and such supplemental agreement shall be deemed conclusively binding upon the parties hereto and the Owners of all Certificates at the expiration of 60 days after such mailing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such 60 -day period. SECTION 10.3 Disqualified Certificates. Certificates known by the Trustee to be owned or held by or for the account of the Lessee or the Lessor or by any person directly or indirectly controlled by, or under direct or indirect common control of, the Lessee or the Lessor (except any Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action provided for in this Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Trust Agreement. Upon request of the Trustee, the Lessee and the Lessor shall specify to the Trustee those Certificates disqualified pursuant to this Section and the Trustee may conclusively rely on such certificate. SECTION 10.4 Effect of Supplemental Agreement. From and after the time any supplemental agreement becomes effective pursuant to this. Article, the Trust Agreement or the Lease, as the case may be, shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the parties hereto or thereto and all Owners of Certificates Outstanding, as the case may be, shall thereafter be determined, exercised and enforced hereunder and thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any supplemental agreement shall be deemed to be part of the terms and conditions of this Trust Agreement or the Lease, as the case may be, for any and all purposes. , SECTION 10.5 Endorsement or Replacement of Certificates Delivered After Amendments. The Trustee may determine that Certificates delivered after the effective date of any action taken as provided in this Article X shall bear a notation, by endorsement, in form approved by the Trustee, as to such action. In that case, upon demand of the Owner of any Certificate Outstanding at such effective date and presentation of his Certificate for that purpose at the office of the Trustee, a suitable notation shall be made on such Certificate. The Trustee may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Certificate Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office of the Trustee without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. SECTION 10.6 Amendatory Endorsement of Certificates. Subject to Section 10.1, the provisions of this Article shall not prevent any Owner from accepting any amendment as to the particular Certificates held by such Owner, provided that due notation thereof is made on such Certificates. ARTICLE XI COVENANTS; NOTICES SECTION 11.1 Compliance with and Enforcement of the Lease. The Lessee covenants and agrees with the Owners to perform all obligations and duties imposed on it hereunder and under the Lease. The Lessor covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Lessee will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Lessor thereunder. The Lessor and the Lessee, immediately upon receiving or giving any notice, communication or other 70037800.3 33 document in any way relating to or affecting their respective estates, or any of them, in the Leased Property, which may or can in any manner affect such estate of the Lessee, will deliver the same, or a copy thereof, to the Trustee. SECTION 11.2 Payment of Taxes. The Lessee shall pay all taxes that may be charged with respect to the Leased Property as provided in Section 5.1 of the Lease. . SECTION 11.3 Observance of Laws and Regulations. The Lessee will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States, or of the State or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the Lessee, including its right to exist and carry on its business to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. SECTION 11.4 Prosecution and Defense of Suits. The Lessee shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Property, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee and every Owner harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. SECTION 11.5 Lessee Budgets. The Lessee shall supply to the Trustee, within thirty days following the beginning of each Fiscal Year, a certification that the Lessee has made adequate provision in its proposed annual budget for the payment of Lease Payments due under the Lease in the Fiscal Year covered by such budget. The certification given by the Lessee to the Trustee shall be to the effect that the amounts so proposed to be budgeted are fully adequate for the payment of all Lease Payments due in the ensuing Fiscal Year. If the amounts so proposed to be budgeted are not stated to be adequate for the payment of Lease Payments due under the Lease, the Trustee will notify the Lessee to take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the Lessee in the ensuing Fiscal Year for the payment of Lease Payments due under the Lease and the Lessee will notify the Trustee of the proceedings then taken or proposed to be taken by the Lessee. The Trustee shall be protected in relying upon any certification or such notice from the Lessee, and the Trustee shall have no further responsibility for the evaluation of such budget data. r SECTION 11.6 Pledge of Assessment Revenues. Legally available funds of the Lessee to make Lease Payments include Assesssment Revenues. Pursuant to the the Lease, the Lessee pledges the Assessment Revenues to the payment of Lease Payments. The Certificates are secured by a pledge of the Assessment Revenues received by the Lessee from the operation of the Assessment District. Pursuant to the Lease, the Lessee covenants to contribute all or a portion of annual Assessment Revenues collected to pay Lease Payments. As the County pays the annual Assessment Revenues to the Lessee, the Lessee covenants to hold such amounts in a separate fund established by the Lease and held by the Deputy City Manager/Director of Administrative Services known as the "Assessment Revenue Fund," until the amount on deposit therein equals the Lease Payments due for such Certificate Year. Thereafter, Assessment Revenues in excess of such required deposit are released to the Lessee for any lawful use. The Lessee hereby covenants to continue to annually impose, levy, and collect the Assessments Revenues as long as there exists Outstanding Certificates. 70037800.3 34 SECTION 11.7 Further Assurances. The Lessor and the Lessee will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper, to carry out the intention or to facilitate the performance of this Trust Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided herein. SECTION 11.8 Tax Covenants. The Lessee will not make any use of the proceeds of the obligations provided herein or any other funds or take or omit to take any other action which will cause such obligations to be a "private activity bond" within the meaning of Section 141(a) of the Code, or "federally guaranteed" within the meaning of Section 149(b) of the Code. To that end, so long as any Lease Payments are unpaid, the Lessee, with respect to such proceeds and such other funds, will comply with all requirements of such Sections 141(a) and 149(b) and all related Regulations to the extent that such requirements are, at the time, applicable and in effect. SECTION 11.9 Arbitrage Covenant. The Lessor and the Lessee hereby covenant with the Owners of the Certificates that, notwithstanding any other provision of this Trust Agreement, neither of them shall make any use of the proceeds of the Certificates that will cause the obligations of the Lessee under the Lease to be "arbitrage bonds" pursuant to Section 148 of the Code resulting in the inclusion of the Interest Component in gross income for purposes of federal income taxation. ARTICLE XII LIMITATION OF LIABILITY SECTION 12.1 Limited Liability of the Lessee. Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the Lessee contained herein and in the Lease, the Lessee shall have no obligation or liability to any of the other parties or to the Certificate Owners with respect to this Trust Agreement or the terms; execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee. SECTION 12.2 No Liability of the Lessee or Lessor for Trustee Performance. Except as expressly provided herein, neither the Lessee nor the Lessor shall have any obligation or liability to any of the other parties or to the Certificate Owners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. SECTION 12.3 Limited Liability of Trustee. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates, for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in this Trust Agreement) or for the actions or representations of any other party to this Trust Agreement. The Trustee shall have no obligation or liability to any of the other parties or the Certificate Owners with respect to this Trust Agreement or the failure or refusal of any other party to perform any covenant or agreement made by any of them under this Trust Agreement or the Lease, but shall be responsible solely for the performance of the duties and obligations expressly imposed upon it hereunder. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the Lessee or the Lessor (as the case may be), and the Trustee assumes no responsibility for the correctness of the same, makes no representations as to the validity or sufficiency of this Trust Agreement or of the Certificates, shall incur no responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. 70037800.3 35 SECTION 12.4 Opinion of Counsel. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any parry hereto, or both, concerning the proposed action. If it does so in good faith, the Trustee shall be absolutely protected in relying thereon. The Trustee shall not be responsible for the sufficiency of the Lease, its right to receive moneys pursuant to the Lease or the value of or title to the Leased Property. The Trustee shall not be responsible or liable for any losses suffered in connection with any investment of funds made by it under the terms of and in accordance with this Trust Agreement. SECTION 12.5 Limitation of Rights to Parties and Owners. Nothing in this Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the Lessee, the Lessor, the Trustee, the Insurer and the Owners, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or any covenant, condition or provision hereof; and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the Lessee, the Lessor, the Trustee and the Owners. ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS SECTION 13.1 Assignment of Rights. Pursuant to the Assignment Agreement, the Lessor has transferred, assigned and set over to the Trustee for the benefit of the Owners (a) all of the Lessor's rights to receive Lease Payments and Prepayments without recourse to be paid by the Lessee under and pursuant to the Lease and (b) effective immediately upon the occurrence of an Event of Default under the Lease and without further action on the part of the Lessor, such rights and remedies of the Lessor under the Lease as may be necessary or convenient (1) to enforce payment of the Lease Payments, Prepayments and any other amounts iequired to be deposited in the Lease Payment Fund, the Net Insurance Proceeds Fund and Prepayment Fund, or (2) otherwise to protect the interests of the Owners or the Trustee upon the occurrence of an Event of Default. SECTION 13.2 Remedies. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payments not then in default to be immediately due and payable. SECTION 13.3 Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article or of Article IX of the Lease and any other funds held by the Trustee (except the Rebate Fund), shall be deposited into the Lease Payment Fund and be applied by the Trustee in the following order upon presentation of the several Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: (i) Fitt to the payment of the fees, costs and expenses of the Trustee and then of the Owners in declaring such Event of Default and incurred in and about the performance of its powers and duties under this Trust Agreement, including reasonable compensation to its or their agents, attorneys and counsel, and then the payment of the fees, costs, and expenses of the Owners in declaring such Event of Default including reasonable compensation to its agents, attorneys and counsel; 70037800.3 36 (ii) Second, to the payment to the persons entitled thereto of all amounts representing the Interest Component then due in the order of the maturity of such installment, and, if the amount available shall not be sufficient to pay in full any Interest Component maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and (iii) Third to the payment to the persons entitled thereto of the unpaid Principal Component respecting any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue Principal Component and Interest Component at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amount of the Principal Component due on such date to the persons entitled thereto, without any discrimination or preference. SECTION 13.4 Institution of Legal Proceedings. If one or more Events of Default shall occur and be continuing, the Trustee in its discretion may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding received by the Trustee at its Principal Office, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder. SECTION 13.5 Non -waiver. Nothing in this Article or in any other provision of this Trust Agreement or in the Certificates shall affect or impair the obligations of the Lessee, which obligations are absolute and unconditional, to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by this Article to the Trustee or to the Owners may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners. SECTION 13.6 Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. SECTION 13.7 Power of Trustee to Control Proceedings. In the event that the Trustee, upon the occurrence of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Certificate Owners with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of at least a majority in principal amount of the Outstanding Certificates hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. 70037800.3 37 SECTION 13.8 Limitation on Owners' Right to Sue. No Owner of any Certificate issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Certificates of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this Section 13.8 or any other provision of this Trust Agreement. SECTION 13.9 Agreement to Pay Attorneys' Fees and Expenses. In the event the Lessee or Lessor should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party; provided, however, that the Trustee shall not be required to expend its own funds for any payment described in this Section. SECTION 13.10 Insurer's Default -Related Provisions. (i) In determining whether a payment default has occurred or whether a payment on the Certificates has been made under the this Trust Agreement or the Lease Agreement, no effect shall be given to payments made under the Bond Insurance Policy. (ii) The Insurer shall receive immediate notice of any payment default and notice of any other default known to the Trustee within 30 days of the Trustee's knowledge thereof. (iii) For all purposes of this Trust Agreement or the Lease Agreement provisions governing events of default and remedies, except the giving of notice of default to Owners, the Insurer shall be deemed to be the sole Owner of the Certificates it has insured for so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy. (iv) The Insurer shall be included as a party in interest and as a party entitled to (i) notify the City, the Trustee, or any applicable receiver of the occurrence of an event of default and (ii) request the Trustee or receiver to intervene in judicial proceedings that affect the Certificates or the security therefor. The Trustee or receiver shall be required to accept notice of default from the Insurer. 70037800.3 38 ARTICLE XIV MISCELLANEOUS SECTION 14.1 Defeasance. Defeasance shall be deemed to occur if all Outstanding Certificates are paid and discharged in any one or more of the following ways: (i) by well and truly paying or causing to be paid the Principal Component and Interest Component and prepayment premiums, if any, with respect to all Certificates Outstanding, as and when the same become due and payable; (ii) if prior to maturity and having given notice of prepayment by irrevocably depositing with the Trustee, in trust, at or before maturity, an amount of cash which, together with amounts then on deposit in the Lease Payment Fund and the Reserve Fund, is sufficient to pay all Certificates Outstanding, including all Principal Components and Interest Components and prepayment premium, if any; (iii) by irrevocably depositing with the Trustee, in trust, noncallable, nonprepayable Federal Securities in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all Certificates (including all Principal Component and Interest Component represented thereby and prepayment premium, if any) at or before their maturity date and the fees and expenses of the Trustee have been paid in full; or (iv) by irrevocably depositing with the Trustee, under an escrow deposit and trust agreement, security for the payment of the Lease Payments as more particularly described in Section 10.1 of the Lease, said security to be held by the Trustee as agent for the Lessee to be applied by the Trustee to pay the Lease Payments as the same become due and payable and make a Prepayment in full on any Lease Payment Date, pursuant to Section 10.1 of the Lease. Notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Lessor, the Trustee and the Lessee with respect to all Outstanding Certificates shall cease and terminate, except only the obligation of the Trustee pursuant to Section 2.8 hereof and its obligations to pay or cause to be paid, from Lease Payments paid by or on behalf of the Lessee from funds deposited pursuant to paragraphs (ii) through (iv) of this Section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to such paragraphs, the Certificates shall continue to evidence and.represent direct and proportionate interests of the Owners thereof in Lease Payments. Any funds held by the Trustee, at the time of one of the events described in paragraphs (i) through (iv) of this Section, which are not required for the payment to be made to Owners, as verified by a certified public accountant shall be paid over to the Lessee pursuant to Lessee's written request therefor; provided that the fees and expenses of the Trustee have been fully paid. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Insurer pursuant to the Bond Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid, and the assignment and pledge of the trust created under this Trust Agreement and all covenants, agreements and other obligations of the Lessee to the Certificate Owners shall continue to exist and shall run to the benefit of the Insurer, and the hisurer shall be subrogated to the rights of such Certificate Owners. 70037800.3 39 SECTION 14.2 Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under this Trust Agreement, which shall be available for inspection by the Lessee, the Lessor and any Owner, or the agent of any of them, at any time during regular business hours with reasonable prior notice. SECTION 14.3 Notices. All written notices to be given under this Trust Agreement shall be given by mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice to the Trustee shall be effective upon receipt, and notice to the other parties shall be deemed effective upon receipt and shall be deemed to have been received upon the earlier of actual receipt or five Business Days after deposit in the United States mail, in certified form, postage prepaid or, in the case of personal delivery, upon delivery to the address set forth below: If to the Lessee: City of Santa Clarita 23920 Valencia Boulevard Santa Clarita, California 91355 Attention: Deputy City Manager/Director of Administrative Services If to the Trustee: The Bank of New York Trust Company, N.A. 700 South Flower, 5th Floor Los Angeles, California 900174104 Attention: Corporate Trust Department Reference: City of Santa Clarita 2007 Series COPS If to the Lessor: Santa Clarita Public Financing Authority c/o City of Santa Clarita 23920 Valencia Boulevard Santa Clarita, California 91355 Attention: Deputy City Manager/Director of Administrative Services If to the Insurer: [Insurer] Attention: The Trustee shall give notice to Moody's at 99 Church St., New York 10007, and S&P at 55 Water Street, New York, New York 10041 of the following: (i) a change in the Trustee; (ii) any amendment to this Trust Agreement or the Lease Agreement (iii) the occurrence of Events of Default hereunder; and. (iv) prepayment of all Outstanding Certificates or defeasance of all Outstanding Certificates. SECTION 14.4 Notices to be Given to the Insurer. While the Bond Insurance Policy is in effect: (a) Notice of any drawing upon or deficiency due to market fluctuation in the amount, if any, on deposit, in the Reserve Fund; (b) Notice of any material events pursuant to Rule 15c2-12 of the Securities Exchange Act of 1934; 70037800.3 40 (c) Notice of the prepayment, other than mandatory sinking fund prepayment, of any of the Certificates, or of any advance refunding of the Certificates, including the principal amount, maturities and CUSIP numbers thereof; and (d) Such additional information as the Insurer may reasonably request from time to time. SECTION 14.5 Governing Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State applicable to contracts made and performed therein; in the event that any legal proceedings shall be commenced to enforce the provisions hereof or of the Lease or the Base Lease, such proceedings shall be filed in the Superior Court in and for the County of Los Angeles, California. SECTION 14.6 [Consent of the Insurer. (a) Any provision of this Trust Agreement expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (b) Unless otherwise provided in this Section 14.6, the Insurer's consent shall be required in addition to Owner consent, when required, for the following purposes: (i) execution and delivery of any amendment, supplement or change to or modification of this Trust Agreement or the Lease Agreement, (ii) removal of the Trustee and selection and appointment of any successor trustee or paying agent; (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent; and (iv) the execution and delivery of any additional Certificates or other debt and variable rate issues. Notwithstanding anything in this Trust Agreement to the contrary, if the Insurer has failed to make any payments under the Bond Insurance Policy, and such failure remains unremedied, all rights accruing to the Insurer hereunder with respect to the giving of instructions, approvals or consents shall cease to be in force and effect until such time as such failure to make such payments has been remedied. SECTION 14.7 Insurer Deemed Sole Holder. The Insurer shall be deemed to be the sole holder of the Certificates insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Certificate insured by it are entitled to take pursuant to Article X and Article XIII herein. The Trustee shall take no such action except with the consent, or at the direction, of the Insurer. SECTION 14.8 Provisions Relating to Surety. As long as the Surety is in full force and effect and the Insurer has not defaulted thereunder: (a) No Certificates may be optionally prepaid while a draw on the Surety remains unreimbursed. (b) ' This Trust Agreement shall not be deemed discharged while a draw on any Surety remains umeimbursed. (c) Any refunding of the Certificates with the proceeds of tax-exempt obligations shall be effected through the issuance of Additional Certificates hereunder.] SECTION 14.9 Third Party Beneficiaries. To the extent that this Trust Agreement confers upon or gives or grants to the Insurer any right, remedy or claim under or by reason of this Trust Agreement, 70037900.3 41 the Insurer is hereby explicitly recognized as being a third -party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. SECTION 14.10 Interested Parties. Nothing in this Trust Agreement, expressed or implied, is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Lessor, the Lessee, the Trustee, the Insurer and the registered owners of the Certificates, any right, remedy or claim under or by reason of this Trust Agreement or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Trust Agreement contained by and on behalf of the Lessee shall be for the sole and exclusive benefit of the Lessor, the Lessee, the Trustee, the Insurer and the registered owners of the Certificates. r SECTION 14.11 Binding Effect; Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Whenever in this Trust Agreement either the Lessor, the Lessee or the Trustee are named or referred to, such reference shall be deemed to include the successors or assigns thereof and all the covenants and agreements in this Trust Agreement contained by or on behalf of the Lessor, the Lessee or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. SECTION 14.12 Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same agreement. SECTION 14.13 Destruction of Cancelled Certificates. Whenever in this Trust Agreement provision is made for the surrender or cancellation by the Trustee and the delivery to the Lessor of any Certificates, the Trustee shall subject to the record -retention requirements of the Securities Exchange Act of 1934, in lieu of such cancellation and delivery, destroy such Certificates and upon request of the Authorized Representative deliver a certificate of such destruction to the Lessee. . SECTION 14.14 Headings. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Trust Agreement. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or other subdivisions of this Trust Agreement; and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision hereof. SECTION 14.15 Waiver of Notice. Whenever in this Trust Agreement the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any case the diving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 14.16 Separability of Invalid Provisions. In case any one or more of the provisions contained in this Trust Agreement or in the Certificates shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision of this Trust Agreement, and this Trust Agreement shall be construed as if such invalid or illegal orunenforceable provision had never been contained herein. The parties hereto hereby declare that they would have entered into this Trust Agreement and each and every other section, paragraph, sentence, clause or phrase hereof and authorized the delivery of the Certificates pursuant to this Trust Agreement, irrespective of the fact that any one or more sections, paragraphs, sentences, clauses or phrases of this Trust Agreement may be held illegal, invalid or unenforceable. 70037800.3 42 IN WITNESS WHEREOF, the parties have executed this Trust Agreement as of the date and year first above written. THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee Authorized Officer SANTA CLARITA PUBLIC FINANCING AUTHORITY. as Lessor IM Kenneth R. Pulskamp, Executive Director CITY OF SANTA CLARITA, as Lessee am Marsha McLean, Mayor Number EXHIBIT A [FORM OF CERTIFICATE OF PARTICIPATION] CITY OF SANTA CLARITA CERTIFICATE OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES Evidencing the Proportionate Interest of the Owner Hereof in Lease Payments to Be Made by CITY OF SANTA CLARITA As Rental for Certain Real Property Pursuant to a Lease Agreement with SANTA CLARITA PUBLIC FINANCING AUTHORITY Interest Rate Maturity Date Dated Date CUSIP NO. October 1, December , 2007 REGISTERED OWNER: PRINCIPAL AMOUNT: THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns (the "Registered Owner"), of this Certificate of Participation (the "Certificate") is the owner of a proportionate and undivided interest in the right to receive certain Lease Payments and Prepayments (the "Lease Payments") to be made by the CITY OF SANTA CLARITA, a general law municipal corporation duly organized and existing under the laws of the State of California (the "Lessee"), pursuant to the Lease Agreement (the "Lease"), dated as of December 1, 2007, by and between the SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of 'powers entity duly organized and existing under the laws of the State of California (the "Lessor"), and the Lessee, which Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Trust Company, N.A. as trustee (the "Trustee"), having a corporate trust office in Los Angeles, California or such other place as designated by the Trustee (said office being herein referenced as the "Principal Office"), provided, however, for transfer, registration, exchange, payment and surrender of Certificates, such term shall mean the corporate trust office of the Trustee in Los Angeles, California or such other office designated by the Trustee from time to time. The Certificates are being executed and delivered in order to obtain funds to finance a portion of the costs of the acquisition of open space lands, parks, and Parklandland within the Lessee's open space, park, and Parklandland program, to establish a Reserve Fund and to pay the costs of issuance of the Certificates. Unless this Certificate is presented by an authorized representative of The Depository Trust Company to the Trustee or any Certificate issued is registered in the name of Cede & Co. or such other 70037800.3 A -I 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 OTHER PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the Lease Payments designated as principal (the "Principal Component") coming due on October 1 of each year (each, a "Principal Payment Date"), for the preceding twelve months, and to receive on October 1, 2008, and semiannually thereafter on April 1 and October I of each year (each, an "Interest Payment Date") until payment in full of said Principal Component, the Registered Owner's portion of the Lease Payments designated as interest (the "Interest Component") coming due during the six months immediately preceding each Payment Dates (collectively, each Principal Payment Date and Interest Payment Date is hereinafter referred to as a "Payment Date"); provided, that such Interest Component shall be payable from the Interest Payment Date next preceding the date of execution of this Certificate (unless (i) this Certificate is executed as of an Interest Payment Date in which event interest should be payable from the date thereof, or (ii) it is executed after a Record Date and before the following Interest Payment Date, in which event the Interest Component shall be payable from such following Interest Payment Date, or (iii) this Certificate is executed on or before September 15, 2008, in which event interest shall be payable from the original dated date of the Certificates). The "Record Date" is the close of business on the first day of the month in which a Payment Date occurs, whether or not such day is a business day. There shall be no execution or registration of transfer of Certificates during the period established by the Trustee for selection of Certificates for prepayment or any Certificate selected for prepayment. The Interest Component is the result of the multiplication of the Principal Component by the rate per annum identified above. Interest with respect to the Certificates shall be calculated on the basis of a 360 -day year, comprised of twelve months of 30 days each. Said amounts are payable by check in lawful money of the United States of America. The amount representing Principal Component payable at maturity or upon prepayment in whole is payable to the Registered Owner by check of the Trustee upon presentation and surrender of this Certificate at the Principal Office. The amounts representing Interest Component are payable by check mailed on the applicable Interest Payment Date by first class mail by the Trustee to the Registered Owner hereof at his address as it appears on the registration books of the Trustee or by wire transfer to a bank account in the United States in the case of Registered Owners owning $1,000,000 or more in aggregate principal amount of Certificates who have furnished instructions in writing to the Trustee at least 15 days prior to the Payment Date. The total amount of each payment of Principal Component or Interest Component made to the Registered Owner of this Certificate is comprised of interests in the Principal Component of Lease Payments made by the Lessee with respect to Certificates maturing on the maturity date stated above, and with an Interest Component at the rate indicated above. This Certificate is one of a series of certificates of participation executed and delivered by the Trustee pursuant to the terms of that certain Trust Agreement (the "Trust Agreement"), dated as of December 1, 2007, by and among the Lessee, the Lessor and the Trustee, and additionally designated as "2007 Series," in the aggregate principal amount of $ . The Lessee is authorized to enter into the Lease and the Trust Agreement under the Constitution and the laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are executed and delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the Lessee under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The Trust Agreement authorizes the Lessee to cause the execution and delivery of Additional 70037800.3 A-2 Certificates on a parity with the Certificates, upon the execution and delivery of a Supplemental Trust Agreement and following the satisfaction of certain other conditions precedent. The Lessee is obligated to pay Lease Payments from any source of legally available funds, and the Lessee has covenanted in the Lease to make the necessary annual appropriations therefor. The obligations of the Lessee to pay the Lease Payments do not constitute obligations of the Lessee for which the Lessee is obligated to levy or pledge any form of taxation or for,which the Lessee has levied or pledged any form of taxation. The obligations of the Lessee to pay Lease Payments do not constitute debts of the Lessee, the State of California or any of its political subdivisions, and do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Under certain circumstances, the Lessee shall not be obligated to make its payments of Lease Payments due to the loss or destruction of all or a portion of the Leased Property. To the extent that the Lessee receives net proceeds of rental interruption insurance, such net proceeds will be applied to offset abated Lease Payments. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding, and may amended without such consent under certain circumstances but in no event such that the interests of the Registered Owners of the Certificates are adversely affected. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of Interest Component, or reducing the amount of Principal Component thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. This Certificate is transferable by the Registered Owner hereof, in person, or by his duly authorized attorney, at the Principal Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer, a new Certificate or Certificates, of authorized denomination or denominations, for the same aggregate Principal Component, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate Principal Component of Certificates of other authorized denominations as prescribed in the Trust Agreement. The Lessee, the Lessor and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the Lessee, the Lessor and the Trustee shall not be affected by any notice to the contrary. The Certificates are subject to prepayment on any date, in whole, or in part from certain net insurance or condemnation proceeds credited toward the prepayment of the Lease Payments at least 30 days prior to the proposed prepayment date by the Lessee pursuant to the Lease at a prepayment price equal to the Principal Component thereof, together with accrued Interest Component to the date fixed for prepayment, without premium. The Certificates maturing on or after October 1, [2018], are subject to prepayment in whole or in part (in integral multiples of $5,000), on any date on or after October 1, [2017], from moneys deposited in the Lease Payment Fund as a result of the exercise by the Lessee of its option to prepay its Lease Payments, exercised by depositing sufficient funds with the Trustee prior to the scheduled prepayment date, as provided in the Lease Agreement, at the prepayment price of principal amount, plus accrued interest to the date fixed for prepayment, without premium. 70077800.3 A-3 As provided in the Trust Agreement, notice of prepayment shall be mailed by first class mail, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owners of affected Certificates, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, the Interest Component shall cease to accrue with respect hereto from and after the date fixed for prepayment. THIS IS TO FURTHER CERTIFY that all acts, conditions and things required by the Trust Agreement to exist, to have happened and to have been performed by or in relation to the Trustee precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. THE LESSEE HAS CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by the Constitution and statutes of the State of California and the provisions of the Trust Agreement to exist, to have happened and to have been performed precedent to and in the execution and delivery of this Certificate, do exist, have happened and have been performed in due time, form and manner as required by law. THE TRUSTEE HAS NO OBLIGATION OR LIABILITY TO THE REGISTERED OWNERS TO MAKE PAYMENTS OF PRINCIPAL OR INTEREST COMPONENTS OR LEASE PAYMENTS PERTAINING TO THE CERTIFICATES EXCEPT FROM LEASE PAYMENTS PAID TO THE TRUSTEE AND FROM THE VARIOUS FUNDS AND ACCOUNTS ESTABLISHED UNDER THE TRUST AGREEMENT. THE TRUST AGREEMENT PROVIDES THAT THE RECITALS OF FACTS, COVENANTS AND AGREEMENTS IN THE CERTIFICATES SHALL BE TAKEN AS STATEMENTS, COVENANTS AND AGREEMENTS OF THE LESSEE, AND THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF THE SAME. IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement, dated as of December 1, 2007, by and among the Trustee, the Lessee and the Lessor. The Bank of New York Trust Company, N.A., as Trustee an Authorized Signatory Date of Execution: 70037800.3 A4 STATEMENT OF INSURANCE 70037800.3 A-5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: (please print or typewrite name, address and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints: attorney to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed By: NOTICE: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. 70037800.3 A-( The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. EXHIBIT B SCHEDULE OF PRINCIPAL AND INTEREST COMPONENTS Lease Payment* Principal Interest Date Component Component 3/15/2008 9/15/2008 3/15/2009 9/15/2009 3/15/2010 9/15/2010 3/15/2011 9/15/2011 3/15/2012 9/15/2012 3/15/2013 9/15/2013 3/15/2014 9/15/2014 3/15/2015 9/15/2015 3/15/2016 9/1512016 3/15/2017 _ 9/15/2017 3/15/2018 9/15/2018 3/15/2019 9/15/2019 3/15/2020 9/15/2020 3/15/2021 9/15/2021 3/15/2022 9/15/2022 3/15/2023 9/15/2023 3/15/2024 9/15/2024 3/15/2025 9/15/2025 3/15/2026 9/15/2026 3/15/2027 9/15/2027 3/15/2028 9/15/2028 3/15/2029 9/15/2029 3/15/2030 9/15/2030 3/15/2031 9/15/2031 70037800.3 B-1 Total Total Annual Payments 3/15/2032 9/15/2032 3/15/2033 9/15/2033 3/15/2034 9/15/2034 3/15/2035 9/15/2035 3/15/2036 9/15/2036 3/15/2037 9/15/2037 *Lease Payments are due March IS and September 15 of the respective year. 70037800.3 B-2 EXHIBIT C -I FORM OF WRITTEN REQUISITION (DELIVERY COSTS FUND) The Bank of New York Trust Company, N.A., as Trustee 700 South Flower Street, Suite 500 Los Angeles, California 90017 RE: Disbursement from the Delivery Costs Fund pursuant to the Trust Agreement, dated as of December 1, 2007 (the "Agreement'), by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY (the "Lessor"), and CITY OF SANTA CLARITA (the "Lessee") REQUISITION NO. The undersigned hereby states and certifies: 1. That he/she is the duly appointed, qualified and acting of the City of Santa Clarita, a validly existing municpal corporation and the Lessee referenced above, and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; 2. That he/she is an "Authorized Representative" as that term is defined in Section I.1 of the Trust Agreement referenced above; 3. That, pursuant to Section 3.2 of the Trust Agreement, the Trustee is hereby requested to disburse from the Delivery Costs Fund established under the Trust agreement to the payees designated on Exhibit A attached hereto and by this reference incorporated herein, at the addresses set forth below each such payee name, the amounts set forth opposite such designations; 4. That each obligation set forth herein is a proper charge against the Delivery Costs Fund and has not been the basis of any prior disbursement; 5. That the amount of each disbursement requested herein is for payment of Delivery Costs, as defined in the Trust Agreement; 6. That no event of default has occurred and is continuing under the Lease; 7. That set forth opposite each obligation on Exhibit A attached hereto is a description of the nature of such obligation, and 70037800.3 C-1 8. That accompanying this Requisition is a bill or statement of account for each obligation included on Exhibit A. Dated: CITY OF SANTA CLARITA Authorized Representative RECEIPT ACKNOWLEDGED: as Trustee By: Authorized Signatory 70037800.3 C-2 EXHIBIT C -II FORM OF WRITTEN REQUISITION (PROJECT FUND) REQUISITION NO. RE: Disbursement from the Project Fund pursuant to the Trust Agreement, dated as of December 1, 2007 (the "Agreement"), by and among THE BANK OF NEW YORK TRUST COMPANY, N.A., as trustee (the "Trustee"), SANTA CLARITA PUBLIC FINANCING AUTHORITY (the "Lessor"), and CITY OF SANTA CLARITA (the "Lessee") The undersigned hereby states and certifies: 1. That he/she is the duly appointed, qualified and acting of the City of Santa Clarita, a validly existing municipal corporation and the Lessee referenced above, and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; 2. That he/she is an "Authorized Representative" as that term is defined in Section 1.1 of the Trust Agreement referenced above; 3. That, pursuant to Section 3.4 of the Trust Agreement, the Deputy City Manager/Director of Administrative Services is hereby requested to disburse from the Project Fund established under the Trust agreement to the payees designated on Exhibit A attached hereto and by this reference incorporated herein, at the addresses set forth below each such payee name, the amounts set forth opposite such designations; 4. That each obligation set forth herein is a proper charge against the Project Fund and has not been the basis of any prior disbursement; 5. That the amount of each disbursement requested herein is for payment of Project Costs, as defined in the Trust Agreement; 6. That no event of default has occurred and is continuing under the Lease; 7. That there has not been filed with or served upon the City a stop notice or any other notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the money payable to the person named in such requisition which has not been released or will not be released simultaneously with the payment of such obligation, other than liens accruing by mere operation of law; 8. That set forth opposite each obligation on Exhibit A attached hereto is a description of the nature of such obligation; and 70037800.3 C-3 9. [That accompanying this Requisition is a bill or statement of account for each obligation included on Exhibit A.] Dated: CITY OF SANTA CLARITA Authorized Representative RECEIPT ACKNOWLEDGED: Deputy City Manager/Director of Administrative Services 70037800.3 C-¢ 10/31/07 LEASE AGREEMENT Dated as of December 1, 2007 by and between SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessor and CITY OF SANTA CLARITA, as Lessee City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1 Definitions and Rules of Construction ................................................. 1 Section1.2 Exhibits................................................................................................2 Comprehensive General Liability Insurance ................. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES ..................... 2 Section 2.1 Representations, Covenants and Warranties of Lessee ........................ 2 Section 2.2 Representations, Covenants and Warranties of Lessor ........................ 3 ARTICLE III DEPOSIT OF MONEYS................................................................................. 4 Section 3.1 Deposit of Moneys............................................................................... 4 Section 3.2 Subject Matter of Lease....................................................................... 4 Section 3.3 Substitution of Alternate Leased Property and Release of LeasedProperty................................................................................... 4 ARTICLE IV AGREEMENT TO LEASE; TERMINATION OF LEASE; LEASE PAYMENTS; INTERESTS IN THE LEASED PROPERTY ......................... 6 Section4.1 Lease.................................................................................................... 6 Section 4.2 Term of Agreement.............................................................................. 6 Section4.3 Lease Payments.................................................................................... 7 Section4.4 Quiet Enjoyment................................................................................ 10 Section 4.5 Interests in the Leased Property......................................................... 10 Section 4.6 Additional Payments.......................................................................... 11 ARTICLE V MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS..................................................................................................... 11 Section 5.1 Maintenance, Utilities, Taxes and Assessments ............ Section 5.2 Modification of the Leased Property ............................. Section 5.3 Comprehensive General Liability Insurance ................. Section 5.4 Property Insurance......................................................... Section 5.5 Rental Interruption and Title Insurance ......................... Section 5.6 General Insurance Provisions ........................................ Section5.7 Liens............................................................................... Section 5.8 Use of the Leased Property ............................................ Section 5.9 Cooperation.................................................................... Section 5.10 Tax Covenants............................................................... Section 5.11 Insurer Requirements..................................................... ................... 11 ................... 11 ................... 12 ................... 12 ................... 13 ................... 13 ................... 14 ................. 14 ................... 14 ................... 15 ................... 19 ARTICLE VI DAMAGE AND DESTRUCTION; USE OF NET INSURANCE PROCEEDS.................................................................................... Section 6.1 Abatement of Lease Payments in Event of Loss of Use..... Section 6.2 Application of Net Insurance Proceeds ............................... Section 6.3 Laws and Ordinances.......................................................... ARTICLE VII DISCLAIMER OF WARRANTIES; ACCESS .............................. Section 7.1 Disclaimer of Warranties.................................................... 70037893.3 1 20 20 20 21 21 21 TABLE OF CONTENTS (Continued) Page Section 7.2 Lessee's Right to Enforce Warranties ................................................ 22 Section 7.3 Access to the Leased Property........................................................... 22 Section 7.4 Release and Indemnification Covenants ............................................ 22 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT .............................. 22 Section 8.1 Assignment by the Lessor.................................................................. 22 Section 8.2 Assignment and Subleasing by the Lessee ........................................ 23 Section8.3 Amendment........................................................................................ 23 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES ................................................ 23 Section 9.1 Events of Default Defined................................................................. 23 Section 9.2 Remedies on Default.......................................................................... 24 Section 9.3 No Remedy Exclusive........................................................................ 26 Section 9.4 Agreement to Pay Attorneys' Fees and Expenses ............................. 26 Section 9.5 No Additional Waiver Implied by One Waiver ................................. 27 Section 9.6 Application of the Proceeds from the Sale or Lease of the LeasedProperty................................................................................. 27 Section 9.7 Trustee, Insurer and Owners to Exercise Rights ................................ 27 ARTICLE X PREPAYMENT OF LEASE PAYMENTS AND PURCHASE OF LEASED PROPERTY................................................................................... 27 Section 10.1 Security Deposit................................................................................. 27 Section 10.2 Prepayment in Part ............................................................................. 28 Section 10.3 Mandatory Prepayment from Net Insurance Proceeds ...................... 28 Section 10.4 Credit for Amounts on Deposit.......................................................... 28 ARTICLE XI MISCELLANEOUS ... W Section11.1 Notices............................................................................................... 28 Section 11.2 Binding Effect.................................................................................... 29 Section11.3 Severability ........................................................................................29 Section 11.4 Net -Net -Net Lease............................................................................. 29 Section 11.5 Further Assurances and Corrective Instruments ................................ 29 Section 11.6 Execution in Counterparts.................................................................. 29 Section 11.7 Applicable Law.................................................................................. 29 EXHIBIT A— SCHEDULE OF LEASE PAYMENTS.............................................................A-1 EXHIBIT B — LEASED PROPERTY DESCRIPTION............................................................ B-1 EXHIBIT C —FORM OF AMENDMENT TO LEASE............................................................. C-1 70037893.3 11 LEASE AGREEMENT THIS LEASE AGREEMENT, dated as of December 1, 2007 (the "Lease"), by and between SANTA CLARITA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity duly organized and existing under the laws of the State of California, as lessor (the "Lessor"), and CITY OF SANTA CLARITA, a general law municipal corporation duly organized and existing under the laws of the State of California, as lessee (the "Lessee"); WITNESSETH: WHEREAS, pursuant to the Trust Agreement (defined below), the Lessee proposes to authorize the execution and delivery of its Certificates of Participation (Open Space and Parkland Acquisition Program), 2007 Series (the "Certificates"), evidencing and representing undivided and proportionate interests in lease payments (the "Lease Payments") to be made by the Lessee under this Lease in order to finance a portion of the costs of the acquisition of open space lands, parks, and Parklandland within the Lessee's open space, park, and Parklandland program (the "Project"); and WHEREAS, the Lessor, under Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title I of the California Government Code, is authorized to enter into this Lease for the purpose of assisting the Lessee in financing public capital improvements; and WHEREAS, Lessor's interest in that certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita (the "Leased Property") which is the subject hereof, arises out of that certain Base Lease of even date herewith (the "Base Lease"), to be recorded prior to or substantially concurrent with the recordation of this Lease; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1 Definitions and Rules of Constriction. Unless the context otherwise requires, the capitalized terms used herein but not defined in this Lease shall, for all purposes of this Lease, have the meanings specified in the Trust Agreement, dated as of the date hereof, by and among The Bank of New York Trust Company, N.A., as Trustee thereunder, the Lessor and the Lessee (the "Trust Agreement"), together with any amendments thereof or supplements thereto permitted to be made thereunder; and the additional terms defined in this Section shall, for all purposes of this Lease, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. 70037893.3 The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Lease, refer to this Lease as a whole. "Additional Assessment District Obligations" means obligations secured by the Assessment Revenues on a parity with the pledge of the Assessment Revenues to the Certificates under this Lease. "Bond Insurance Policy" means the municipal bond new issue insurance policy issued by the Insurer that guarantees payment of principal of and interest with respect to the Certificates. "Insurance Consultant" means an individual or firm employed by the Lessee as an independent contractor, experienced in the field of risk management. "Insurer" means [Insurer], or any successor thereto, as provider of the Bond Insurance Policy securing payments with respect to the 2007 Certificates, when due for payment. "Leased Property" means that certain real property and the improvements thereon, more commonly known as the Santa Clarita Sports Complex, located at 20850 Centre Pointe Parkway, City of Santa Clarita, State of California, which is the subject of the Base Lease, and more particularly described on Exhibit B to this Lease. Section 1.2 Exhibits. The following. Exhibits are attached to, and by this reference incorporated into and made a part of, this Lease: Exhibit A: Schedule of Lease Payments. Exhibit B: Leased Property Description. Exhibit C: Form of Amendment to Lease. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1 Representations, Covenants and Warranties of Lessee. The Lessee represents, covenants and warrants to the Lessor as follows: (a) Due Organization and Existence. The Lessee is a general law city and municipal corporation duly organized and existing under the laws of the State of California. (b) Authorization; Enforceability. The laws of the State authorize the Lessee to enter into this Lease, the Base Lease, the Trust Agreement and the Continuing Disclosure Agreement (collectively, the "Agreements") and to enter into the transactions contemplated by and to carry out its obligations under all of the Agreements, and the Lessee has, concurrently with the execution hereof, duly authorized and executed all of the Agreements. The Agreements constitute legal, valid and binding obligations of the Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, 70037893.3 2 moratorium or similar laws or equitable principles affecting the rights of creditors generally and by limitations on legal remedies against public agencies in the State. (c) No Defaults. Neither the execution and delivery of the Agreements, nor the fulfillment of or compliance with the terms and conditions thereof, nor the consummation of the transactions contemplated thereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Lessee is now a party or by which the Lessee is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any prohibited lien, charge or encumbrances whatsoever upon any of the property or assets of the Lessee. (d) Execution and Delivery. The Lessee has taken all actions required to authorize and execute this Lease in accordance with the Constitution and laws of the State. (e) Maintenance of Reserve Fund. To the extent permitted by law, Lessee covenants that it will maintain the Reserve Fund at the Reserve Requirement, but only to the extent provided in Section 6.4 of the Trust Agreement, on a priority immediately subordinate to payment of Lease Payments and senior to all other payments from its General Fund, at all times during the term of this Lease. The Lessee acknowledges the obligation of the Trustee to replenish the Reserve Fund for any withdrawals made therefrom only from delinquent Lease Payments paid by the Lessee and from investment earnings on the Reserve Fund. (f) Filings, Recordings and Delivery of Documents. The Lessee shall, on an ongoing basis, execute and deliver all documents and make or cause to be made all filings and recordings necessary or desirable in order to perfect, preserve and protect the interest of the Trustee in the Leased Property to the extent possible under applicable law. (g) Essentiality of the Leased Property. The Leased Property is essential to the governmental functions of the Lessee. Section 2.2 Representations, Covenants and Warranties of Lessor. The Lessor represents, covenants and warrants to the Lessee as follows: (a) Due Organization and Existence; Enforceability. The Lessor is a joint exercise of powers entity duty organized, existing and in good standing under and by virtue of the laws of the State, and has the power to enter into this Lease, the Assignment Agreement, the Base Lease and the Trust Agreement; is possessed of full power to own and hold real and personal property, and to lease the same; and has duly authorized the execution and delivery of all of the aforesaid Agreements. This Lease, the Assignment Agreement, the Base Lease and the Trust Agreement (the "Lessor Documents") constitute the legal, valid and binding obligations of the Lessor, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally and by limitations on legal remedies against public agencies in the State. (b) No Encumbrances. The Lessor will not pledge or assign the Lease Payments or other amounts derived from the Leased Property and from its other rights under this Lease, 70037893.3 3 except that the Lessor may create, assume or suffer to exist Permitted Encumbrances permitted under the terns of the Lessor Documents. (c) No Violations. Neither the execution and delivery of the Lessor Documents, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the Joint Exercise of Powers Agreement or Bylaws of the Lessor or any restriction or any agreement or instrument to which the Lessor is now a party or by which the Lessor is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any prohibited lien, charge or encumbrance whatsoever upon any of the property or assets of the Lessor, or upon the Leased Property. (d) No Assignment. Except as provided herein, in the Assignment Agreement and in the Trust Agreement, the Lessor will not assign this Lease, its right to receive Lease Payments from the Lessee, or its duties and obligations hereunder to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in this Section; provided, however, that Lessor shall have the absolute right to assign this Lease and its rights and obligations hereunder to any other such person, firm or corporation if the Lessee first obtains the consent of the Insurer and an opinion of Special Counsel to the effect that such assignment shall not cause the Interest Component to be subject to federal income taxation. ARTICLE III DEPOSIT OF MONEYS Section 3.1 Deposit of Moneys. In order to induce the Lessee to lease the Leased Property from the Lessor and to assure the Lessee that the moneys needed to fund the Project will be available for such purpose without delay, the Lessor shall, on the Closing Date, cause moneys to be deposited with the Trustee as provided in Section 2.7 of the Trust Agreement. All moneys held under the Trust Agreement shall be invested in accordance with the restrictions set forth in Section 8.2 thereof. Section 3.2 Subject Matter of Lease. The Leased Property is the subject of the Base Lease and shall be deemed to be and is subleased under this Lease. The Leased Property is described in Exhibit B hereto. The Lessee has leased the Leased Property to the Lessor in consideration, in part, for the Lessor's promise to assist in the financing of the Project. Section 3.3 Substitution of Alternate Leased Property and Release of Leased Property. The Lessee shall have the right, with the prior written consent of the Insurer, to substitute alternate real property for the Leased Property, including property acquired with the proceeds of the Certificates, or add or remove real property to or from the Leased Property listed in Exhibit B, but only with the consent of the Insurer which shall not be unreasonably withheld, by providing the Trustee with the appropriate supplement to the Base Lease and a supplement to this Lease substantially in the form attached as Exhibit C hereto. All costs and expenses incurred in connection with any such substitution, addition or release shall be borne by the Lessee. Notwithstanding any substitution, addition or release pursuant to this Section, there shall be no 70037893.3 4 reduction in or abatement of the Lease Payments due from the Lessee hereunder as a result of such action. If the Lessee shall desire to alter the legal description of the Leased Property for purposes of this Lease and the Base Lease, it shall comply with the appropriate provisions of the Base Lease at Sections 7 or 8 thereof; additionally, the Lessee shall not alter the legal description of the Leased Property without first obtaining an opinion of Special Counsel to the effect that such alteration shall not, in and of itself, impair the exclusion from gross income of interest payable. with respect to the Certificates. The parties hereto, agree to cooperate in the amendment of the Base Lease and this Lease to the extent required in order to effect substitutions, additions and releases of real property authorized under the Base Lease and this Section and to prepare and deliver such documents and instruments as may be necessary in order to effect the recordation of modifications to the Base Lease and this Lease, as well as appropriate releases and reconveyances. Unless expressly agreed to by the Insurer in its sole discretion, no substitution or release of the Leased Property shall be permitted. In the event of such substitution or release, the Lessee shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such substitution: (a) No Event of Default shall have occurred and be continuing; (b) The Lessee shall file with the Lessor and the Trustee, and cause to be recorded in the office of the Los Angeles County Recorder, sufficient memorialization of an amendment hereof which adds to Exhibit B hereto a description of such Alternate Leased Property and deletes therefrom the description of the former Leased Property; (c) The Lessee shall obtain an ALTA policy of title insurance insuring the Lessee's leasehold estate hereunder and the Lessor's leasehold estate therein under the Base Lease) in such Alternate Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof, (d) The Lessee shall certify in writing to the Lessor and to the Trustee that such Alternate Leased Property constitutes property which the Lessee is permitted to lease under the laws of the State of California; (e) The substitution of the Alternate Leased Property shall not cause the Lessee to violate any of its covenants, representations and warranties made herein; (f) The Lessee shall file with the Lessor and the Trustee a Certificate of the Lessee or other evidence which establishes that the annual fair rental value of the Alternate Leased Property after substitution or release will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the Alternate Leased Property. shall be at least equal to the remaining term of this Lease; 70037893.3 5 (g) An opinion of Special Counsel to the effect that the substitution or release is permitted under the Lease and will not impair the validity and enforceability of the Lease or impair the exclusion of Interest Components of Lease Payments from the gross income of the owners thereof for federal income tax purposes; (h) The Lessee shall provide a notice to each rating agency then rating the Certificates regarding such substitution or release; (i) The Lessee shall obtain Insurer consent to any substitution or release other than a substitution utilizing the Upon the satisfaction of all such conditions precedent, and upon the Lessee delivering to the Lessor and the Trustee a written certification of the Lessee certifying that the conditions set forth in subsections (a) and (i) of this Section have been satisfied, the Term of this Lease shall thereupon end as to the former Leased Property and shall thereupon commence as to the Alternate Leased Property, and all references to the former Leased Property shall apply with full force and effect to the Alternate Leased Property. The Lessee shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution. The Lessee and the Lessor shall execute, deliver and cause to be recorded all documents required to discharge this Lease of record against the former Leased Property. ARTICLE IV AGREEMENT TO LEASE; TERMINATION OF LEASE; LEASE PAYMENTS; INTERESTS IN THE LEASED PROPERTY Section 4.1 Lease. The Lessor hereby leases the Leased Property to the Lessee, and the Lessee hereby leases the Leased Property from the Lessor, upon the terms and conditions set forth in this Lease. Section 4.2 Term of Agreement. The "Term" of this Lease shall mean the duration of this Lease for the Leased Property, which shall commence on the date of delivery of the Certificates and shall continue for the period set forth on Exhibit A hereto, unless earlier terminated in accordance with the following paragraph. If on such October 1, 2037, the aggregate amount of Lease Payments shall not have been paid, or provision shall not have been made for their payment, then the term of this Lease shall be extended until such Lease Payments shall be fully paid or provision made for such payment, but in any event not beyond October 1, 2047. The Lessee hereby represents, warrants and covenants that the useful life of the Leased Property is correctly indicated on Exhibit A hereto. The Term of this Lease will end upon the earliest of any of the following events: (a) a default by the Lessee and the Lessor's subsequent election to terminate this Lease under Section 9.2(b); 70037893.3 6 (b) the payment by the Lessee of all Lease Payments required under Section 4.3 and any Additional Payments required under Section 4.6 hereof; (c) the deposit of moneys or Federal Securities with the Trustee in amounts sufficient to pay all of the Lease Payments as the same shall become due, as provided by Section 10.1; or (d) upon the exercise by the Lessee of its option to purchase the Leased Property as provided in Section 4.5(d). Section 4.3 Lease Payments. (a) Obligation to Pay. (1) Time and Amount. Subject to the provisions of Article VI hereof (regarding loss of use of the Leased Property) and Article X hereof (regarding prepayment of Lease Payments or the exercise by the Lessee of its option to purchase the Leased Property), the Lessee agrees to pay to the Lessor, its successors and assigns, as rental for the use and possession of the Leased Property, the Lease Payments, each comprised of a Principal Component and an Interest Component in the amounts specified in Exhibit A, to be due and payable on the fifteenth (15`h) day of each March and September or, if such day is not a Business Day, then the next succeeding Business Day (each, a "Lease Payment Date"), which are intended to be sufficient in both time and amount to pay when due the portion of the Principal Component and Interest Component evidenced and represented by the Certificates and due on the next Payment Date. Lease Payments shall be paid from any source of legally available funds of the Lessee, including the Assessment Revenues, and so long as the Leased Property, or a sufficient portion of the Leased Property, is available for the Lessee's use, the Lessee covenants to take such action as may be necessary to include all Lease Payments due hereunder in its budgets and to make the necessary appropriations for all such Lease Payments, which covenants of the Lessee shall be deemed to be, and shall be, ministerial duties imposed by law, and it shall be the duty of each and every public official of the Lessee to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the Lessee to carry out and perform the covenants made by the Lessee hereunder. During the Term hereof, the Lessee will furnish to the Trustee, within 30 days following the beginning of each Fiscal Year, a certificate of the Lessee's Authorized Representative to the effect that the Lease Payments due in that fiscal period have been included in the budget approved by the City Council for such fiscal period. The payment obligations under the Lease shall be absolute and unconditional, free of deductions and without any offset, recoupment, diminution or set-off whatsoever. (2) Credits. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than amounts required for payment of Principal Component or Interest Component due with respect to any Certificates not presented for payment) shall be credited towards the Lease Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund are at least equal to the Lease Payment then required to be paid. At such time as the moneys,on hand in the Lease Payment Fund and the Reserve Fund are equal to all Lease Payments remaining unpaid hereunder, such moneys shall be applied by the Trustee, pursuant to Section 14.1 of the Trust 70037893.3 7 Agreement, to such Lease Payments on behalf of the Lessee and the Lessee shall not be required to make any further Lease Payments hereunder. A Lease Payment payable on a Lease Payment Date is consideration for the use and possession of the Leased Property from the next preceding Lease Payment Date. (3) No Withholding. Notwithstanding any dispute between the Lessor and the Lessee, the Lessee shall make all Lease Payments when due and shall not withhold any Lease Payments pending the final resolution of such dispute. (b) Terms and Effect of Prepayment and Purchase of the Leased Property. (1) Terms for Optional Prepayment. The Lessee may prepay Lease Payments at the times, in the amounts and subject to the premiums provided for in Section 4.4 of the Trust Agreement by providing notice to the Trustee no later than the forty-fifth (45th) day prior to the date scheduled for prepayment and depositing in the Prepayment Fund an amount sufficient to effect prepayment of the designated Principal Component of Lease Payments no later than the day prior to the date scheduled for prepayment. (2) In Whole; Exercise of Purchase Option. In the event that the Lessee exercises its option to purchase the Leased Property in accordance with Section 4.5(d) hereof by prepaying all remaining Lease Payments either by irrevocably making a security deposit with the Trustee as provided in Section 10.1 or from Net Insurance Proceeds as provided in Section 10.2, the Lessee's obligations under this Lease shall thereupon cease and terminate, including but not limited to the Lessee's obligations to continue to pay Lease Payments under this Section. (3) In Part. In the event the Lessee prepays less than all of the remaining Principal Components of the Lease Payments pursuant to this Section or from Net Insurance Proceeds pursuant to Section 10.2, the amount of such prepayment shall be applied to reduce the Principal Components of the remaining Lease Payments in such order as shall be directed by the Lessee, and, in the absence of such direction, in the inverse order due, corresponding to the resulting prepayment of principal with respect to the Certificates. (c) Rate of Overdue Payments. In the event the Lessee should fail to make any of the payments required in this Section, the payments in default shall continue as an obligation of the Lessee until the amount in default [and any reimbursement owed under the Financial Guaranty Agreement] shall have been fully paid, and the Lessee agrees to pay the same with interest thereon, to the extent permitted by law [and as required under the Financial Guaranty Agreement], from the date such amount was originally payable at the rate equal to the net interest rate paid with respect to the Certificates. (d) Fair Rental Value. The Lease Payments shall be paid by the Lessee in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Leased Property during each such period for which said payments have been paid. The parties hereto have agreed and determined that such payments represent the fair rental value of the Leased Property. In making such determination, consideration has been given to the Leased 70037893.3 8 Property, other obligations of the parties under this Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the Lessee and the general public. In the event a payment is made under the Financial Guaranty Agreement by the Insurer during a period of abatement, the Insurer reserves the right to reduce an appraisal which may result in an increase in the fair rental value of the Leased Property, and to require payment of any rental payments in excess of the initially scheduled Lease Payment to the Insurer as reimbursement under the Financial Guaranty Agreement. (e) Budgets and Appropriation. The Lessee covenants to take such action as may be necessary to include (from all lawfully available money of the Lessee, including the Assessment Revenues) all Lease Payments (other than the Lease Payments constituting advance rental) due hereunder in its annual budgets and to make the necessary annual appropriations for all such Lease Payments. The Lessee will fumish to the Lessor copies of each final budget as provided in 4.3(a)(1) hereof. The Trustee will be provided only the certification provided for in Section 11.5 of the Trust Agreement. The covenants on the part of the Lessee herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the Lessee to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the Lessee to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by the Lessee. (f) Assessment Revenue Fund. In consideration of the Lessor assisting the Lessee with the funding of the Project, the Assessment Revenues derived from the Assessment District are hereby irrevocably pledged by the Lessee to make Lease Payments to the Lessor under this Lease. The Lease Payments shall constitute debt service to finance acquisitions and improvements authorized by the Assessment District. The Lessee covenants annually to impose, levy, and collect the Assessment Revenues during the duration of this Lease. A separate fund is hereby established to be held by the Deputy City Manager/Director of Administrative Services and to be known as the "Assessment Revenue Fund." As the County pays the annual Assessment Revenues to the Lessee, the Lessee covenants to deposit and hold such Assessment Revenues in the Assessment Revenue Fund each year until the amount on deposit therein equals the Lease Payments due for such Certificate Year. Thereafter, Assessment Revenues in excess of such required deposit shall be released to the Lessee for any lawful use. The Lessee shall withdraw funds from the Assessment Revenue Fund in the amounts and at the times needed to make Lease Payments. The City hereby covenants to continue to annually impose, levy, and collect the Assessments Revenues as long as there exist Outstanding Certificates subject to the final levy in Fiscal Year 2036/37. Notwithstanding the above, the City may further pledge the Assessment Revenues or incur Additional Assessment District Obligations provided the projected Assessment Revenues equal -or exceed the debt service of the Certificates and the Additional Assessment District Obligations. (g) Assignment. The Lessee understands and agrees that, pursuant to the Assignment Agreement, the Lessor has assigned its right to receive and collect Lease Payments, Assessment 70037893.3 9 Revenues, Additional Payments and prepayments thereof to the Trustee in trust for the benefit of the Owners of the Certificates, the Insurer and the Lessee assents to such assignment. The Lessor hereby directs the Lessee, and the Lessee hereby agrees to pay to the Trustee at the Trustee's Principal Office or to the Trustee at such other place as the Trustee shall direct in writing, all payments payable by the Lessee pursuant to this Section, Section 4.6 and Article X. (h) Use and Possession. The total Lease Payments due in any Fiscal Year (other than the Lease Payments representing advance rental and funded from the proceeds of sale of Certificates, if any) shall be for the use and possession of the Leased Property for such Fiscal Year. (i) Abatement. Lease Payments shall be subject to abatement as provided in Section 6.1. Section 4.4 Ouiet Enjoyment. During the term of this Lease, the Lessor shall provide the Lessee with quiet use and enjoyment of the Leased Property, and the Lessee shall during such term peaceably and quietly have and hold and enjoy the Leased Property, without suit, trouble or hindrance from the Lessor, or any person or entity claiming under or through the Lessor except as expressly set forth in this Lease. The Lessor shall, at the request and expense of the Lessee, join in any legal action in which the Lessee asserts its right to such possession and enjoyment to the extent the Lessor may lawfully do so. Notwithstanding the foregoing, the Lessor shall have the right to inspect the Leased Property as provided in Section 7.3. Section 4.5 Interests in the Leased Property. (a) Lessor Holds Leasehold During Term. During the term of this Lease, the Lessor shall hold a leasehold interest in the Leased Property and any and all additions which comprise repairs, replacements or modifications thereto. The Lessee shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents, reasonably required to maintain and evidence the Lessor's interest in the Leased Property at all times during the Term of this Lease. (b) Leasehold Transferred to Lessee at End of Term. Upon expiration of the Term, unless such expiration occurs pursuant to a default by the Lessee and the Lessor has elected to terminate this Lease under Section 9.2(b) hereof, all right, title and interest of the Lessor in and to all of the Leased Property shall be transferred to and vest in the Lessee, without the necessity of any additional document of transfer, except that with respect to the portion of the Leased Property constituting real property, the Lessor shall authorize, execute and deliver to the Lessee any documents required to transfer all interest in such real property to the Lessee. (c) Option to Purchase. The Lessee may exercise an option to purchase the entire Leased Property by irrevocably making a security deposit with the Trustee as provided in Section 10.1 or from Net Insurance Proceeds as provided in Section 10.2, by paying the purchase price therefor in the form of moneys or Federal Securities, or a combination thereof, in an aggregate amount sufficient to provide for the payment of all of the Principal Component and the Interest Component of the total Lease Payments, as and when due, taking into account investment income to be earned on the deposit of such moneys and investments whereupon all 70037893.3 10 right, title and interest of the Lessor in and to the Leased Property shall vest in the Lessee without the necessity of any additional document of transfer. In any such event, if necessary, the Lessor shall authorize, execute and deliver to the Lessee any documents reasonably requested by the Lessee to terminate this Lease in order to confirm such vesting of title in the Lessee. Section 4.6 Additional Payments. As Additional Payments, the Lessee shall also pay such amounts as shall be required for the payment of all administrative costs of the Lessor relating to the Leased Property or the execution, sale and delivery of the Certificates, including, without limitation, the Lessee's obligation to pay all expenses, compensation and indemnification of the Trustee or the Insurer payable by the Lessee under the Trust Agreement, taxes of any sort whatsoever payable by the Lessor as a result of its ownership of the Leased Property or its undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers, and all other necessary administrative costs of the Lessor or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates or of the Trust Agreement or to defend the Lessor and its members, and in the event a Qualified Reserve Fund Credit Instrument is maintained pursuant to Section 6.2 of the Trust Agreement, any amounts owing to the Insurer under the Financial Guaranty Agreement as a result of any draw on the Qualified Reserve Fund Credit Instrument. Additional Payments due under this Section shall be paid by the Lessee directly to the person or persons to whom such amounts shall be payable. The Lessee shall pay all such amounts when due or within ten days after notice in writing from the Trustee to the Lessee stating the amount of Additional Payments then due and payable and the purpose thereof. ARTICLE V MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS Section 5.1 Maintenance, Utilities, Taxes and Assessments. Throughout the Term of this Lease, as part of the consideration for the rental of the Leased Property, all repair and maintenance of the Leased Property shall be the responsibility of the Lessee, and the Lessee shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the Lessee or any sublessee thereof. In exchange for the Lease Payments herein provided, the Lessor agrees to provide only the Leased Property, as hereinbefore more specifically set forth. The Lessee shall also pay or cause to be paid any and all sales taxes or other taxes charged against the Leased Property, as additional payments under Section 4.6. Section 5.2 Modification of the Leased Property. (a) The Lessee shall, with the prior written consent of the Insurer (so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder) at its own expense, have the right to make additions, modifications, and. improvements to the Leased Property if such improvements are necessary or beneficial for the use of the Leased Property. All such additions, modifications and improvements shall thereafter comprise part of the Leased 70037893.3 11 Property and be subject to the provisions of this Lease. Such additions, modifications and improvements shall not in any way damage the Leased Property or cause them to be used for purposes other than those authorized under the provisions of state and federal law or in any way which would impair the tax status of the Interest Components of the Lease Payments; and the Leased Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value in the aggregate which is not less than the value of the Leased Property immediately prior to the making of such additions, modifications and improvements. (b) The Lessee will not permit any mechanic's or other lien to be established or remain against the Leased Property for labor or materials furnished in connection with any additions, modifications, remodeling or construction made by the Lessee pursuant to this Section, except Permitted Encumbrances; provided, that if any such lien is established and the Lessee shall first notify or cause to be notified the Lessor and the Insurer of the Lessee's intention to do so, the Lessee may in good faith contest any lien filed or established against the Leased Property, and in such event may permit the liens so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Lessor and the Insurer with full security against any loss or forfeiture which might arise from such nonpayment with respect to the Leased Property, in form satisfactory to the Lessor and the Insurer. The Lessor will cooperate fully in any such contest, upon the request and at the expense ofthe Lessee. Section 5.3 Comprehensive General Liability Insurance. The Lessee shall maintain or cause to be maintained, throughout the Term of this Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the Lessee and the Lessor, including their respective members, officers, agents employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Said policy or policies must provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the Lessee, and may be maintained in the form of self-insurance by the Lessee or through Lessee's participation in a joint powers insurance authority. The Net Insurance Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid, including, where appropriate, the application of Net Insurance Proceeds with respect to the prepayment of the Lease Payments. Section 5.4 - Property Insurance. The Lessee shall maintain or cause to be maintained, throughout the Term of this Lease, casualty insurance insuring the Leased Property against loss or damage to any part of the Leased Property (excluding pipelines and other underground facilities) by fire and lightning, with extended coverage insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, 70037893.3 12 aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance is required to be in an amount equal to the lesser of 100% of the replacement cost of the Leased Property (excluding pipelines and other underground facilities) or the outstanding principal amount of the Certificates if available at commercially reasonable rates. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the Lessee and may be maintained in whole or in part in the form of the participation of the Lessee in a joint powers authority or in the form of self-insurance by the Lessee. The Net Insurance Proceeds of each policy or coverage shall be applied as provided in Section 6.2(a) and (c). Each policy of insurance required by this Section shall provide that all proceeds therefrom with respect to a claim arising by reason of the care and possession of the Leased Property shall be payable to the Trustee for the benefit of the Owners. Section 5.5 Lental Interruption and] Title Insurance. (a) [The Lessee shall maintain or cause to be maintained rental interruption or use and possession insurance to cover the loss, total or partial, of any part of the Leased Property constituting structures as a result of any hazards covered by the casualty insurance described in Section 5.4, in an amount not less than the maximum remaining scheduled Lease Payments in any twenty -four-month period, by an insurance provider rated at least "A" by A.M. Best & Company. ] (b) [Such insurance may be maintained as part of or in conjunction with any other rental interruption insurance carried by the Lessee and must list the Lessor and the Trustee as additional secured parties. Such insurance shall be in place as of the Closing Date. The Net Insurance Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited toward the payment of the Lease Payments in the order in which such Lease Payments come due and payable.] (c) If required by the Insurer, the Lessee shall obtain an ALTA title insurance policy respecting the ownership and condition of the Alternate Leased Property, in an amount equal to the aggregate principal amount of the Certificates and in form and substance satisfactory to the Insurer. Section 5.6 General Insurance Provisions. (a) Form of Policies. All policies of insurance obtained under the requirements of this Lease and any statements of self-insurance shall be in forms acceptable to the Lessor and the Insurer and certified by an insurance agent, broker or consultant to the Lessee to comply with the provisions hereof. All policies shall provide that the Trustee shall be given 30 days' prior written notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. (b) Payment of Premiums. The Lessee shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease, and shall promptly furnish or cause to 70037993.3 13 be furnished to the Trustee a certificate to such effect accompanied by evidence of such payments. (c) Evidence of Insurance. The Lessee will deliver to the Lessor, the Insurer and the Trustee in the month of September in each year a certificate to the effect that the requirements of Sections 5.3, 5.4 and 5.5.6 hereof have been satisfied. The Trustee and the Insurer may conclusively rely upon such certification. Upon request, the Lessee shall provide a schedule, in such detail as the Lessor, the Insurer or Trustee may reasonably request, setting forth any insurance policies then in force described in Sections 5.3 through 5.5 of this Lease, listing the names of the insurers which have issued the policies, the policy limits thereof and the hazards and risks covered thereby, or the certificate of an Insurance Consultant providing similar information. Each such insurance policy shall require that the Lessor and the Trustee be given 30 days' notice of any intended cancellation thereof or reduction of the coverage provided thereby. (d) Self -Insurance Requirements. The Lessee is permitted to self -insure for the risks described in Section 5.3 and/or 5.4, but not for those described in Section 5.5. If the Lessee chooses to self -insure for any of the risks described in Section 5.3 and/or 5.4, it must on at least an annual basis in the month of July provide a certificate of an Authorized Representative of the Lessee to the Trustee and the Insurer and the Lessor to the effect that the Lessee's general insurance reserves are adequate to provide the required amount of coverage. The Trustee and the Insurer may conclusively rely upon such certificate. Section 5.7 Liens. Except as provided in this Article (including without limitation Section 5.2(b)), the Lessee shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Property, or any portion thereof, other than the respective rights of the Lessor and the Lessee as herein provided and Permitted Encumbrances. Except as expressly provided in this Article, the Lessee shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time. The Lessee shall reimburse the Lessor for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. . Section 5.8 Use of the Leased Property. The Lessee represents and warrants that it has or will, as of the Completion Date, have an immediate need for, and expects to make immediate use of, the Leased Property, which need is not temporary or expected to diminish in the foreseeable future. The Lessee agrees not to give priority in the appropriation of funds for the construction, acquisition or use of any additional equipment or facilities, as the case may be, performing functions similar to that performed by the Leased Property. Section 5.9 Cooperation. The Lessor shall cooperate fully with the Lessee at the expense of the Lessee in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article. 70037893.3 14 Section 5.10 Tax Covenants. (a) Special Definitions. When used in this Section, the following terms have the following meanings: i "Code" means the Internal Revenue Code of 1986. "Computation Date" has the meaning set forth in section 1.148-1(b) of the Tax Regulations. "Gross Proceeds" means any Proceeds and any replacement proceeds as defined in section 1.148-1(c) of the Tax Regulations, of the Lease and any of any lease the proceeds of the Lease refunded. For purposes of this subsection (a), the Lessee acknowledges that the Lessor intends to syndicate the beneficial ownership of the Lease through the issuance of certificates of participation, and agrees that should such syndication occur in connection with the execution and delivery of this Lease it will treat all proceeds of such syndication as sale proceeds of the Lease (within the meaning of said section 1.148-1(b)). "Investment" has the meaning set forth in section 1.148-1(b) of the Tax Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds are invested and that is not acquired to carry out the governmental purposes of this Lease. "Proceeds" with respect to an issue'of governmental obligations, has the meaning set forth in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds). "Rebate Amount," has the meaning set forth in section 1.148-1(b) of the Tax Regulations. "Tax Regulations" means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code. "Yield" (i) of any Investment has the meaning set forth in section 1.148-5 of the Tax Regulations; and (ii) with respect to this Lease, has the meaning set forth in section 1.148-4 of the Tax Regulations. (b) Lease as Obligation: Not to Cause Interest to Become Taxable. The Lessee represents and warrants that it intends that for federal income tax purposes and for California personal income tax purposes this Lease is to be treated as an obligation of the Lessee, that the Interest Component and Principal Component of each Lease Payment is intended to be treated as 70037893.3 15 the corresponding payment of interest on.and.principal of_such obligation, respectively, and that the interest on such obligation is intended to be excluded pursuant to section 103(a) of the Code from the gross income of the Lessor or its assigns. The Lessee covenants that it shall not use, and shall not permit the use of, and shall not oimitto use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest component of any Lease Payment to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the Lessor or its assigns for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Trustee receives a written opinion of Special Counsel to the effect that failure to comply with such covenant will not adversely affect such exclusion of the Interest Component from the gross income of the owner thereof for federal income tax purposes, the Lessee shall comply with each of the specific covenants in this Section. (c) Private Use or Private Payments. Except as would not cause this Lease to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Lessee shall at all times prior to the final termination of the Lease: (1) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the jurisdiction of any of the Lessee or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (d) No Private Loan. Except as would not cause this Lease to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Lessee shall not use Gross Proceeds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (a) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (b) capacity in or service from such property is committed to such person or entity under a take -or -pay, output or similar contract or arrangement; or (c) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. 70037893.3 16 (e) Not to Invest at Higher Yield. Except as would not cause this Lease to become an "arbitrage bond" within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, the Lessee shall not, at any time prior to the final termination of this Lease, directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the Lease within the meaning of said section 148. (f) Not Federally Guaranteed. Except to. the extent permitted by section 149(b) of the Code and the Tax Regulations and rulings thereunder, the Lessee shall not take or omit to take any action that would cause this Lease to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder. (g) Information Report. The Lessee shall timely file any information required by section 149(e) of the Code with respect to this Lease with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. (h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Tax Regulations: (1) The Lessee shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the Lease is terminated. However, to the extent permitted by law, the Lessee may commingle Gross Proceeds with its other moneys, provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the Lessee shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Tax Regulations and rulings thereunder. The Lessee shall retain the results of such calculation, including the basis therefor, in sufficient detail and on a timely basis inorder to demonstrate compliance with its covenants herein. The Lessee shall maintain a copy of the calculation with its official transcript of proceedings relating to the execution and delivery of this Lease until six years after the final Computation Date. (3) In order to assure the excludability of the interest components of the Lease Payments from the gross income of the Lessor or its assigns for federal income tax purposes, if the Lessee shall have received notice that the Lessor has assigned the Lease to the Trustee in accordance with the provisions of the Trust Agreement, the Lessee shall pay to the Trustee for deposit into the Excess Earnings Account established pursuant to the Trust Agreement an amount sufficient to permit the Lessee timely to pay to the United States the amount that when added to the future value of previous rebate payments made for the Lease equals (i) in the case of a Final Computation Date as defined in section 1.148-3(e)(2) of the Tax Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate 70037893.3 17 payments shall be made by the Lessee at the times and in the amounts as are or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder, and shall be accompanied by Form 8038-T prepared by the Lessee or such other forms and information as is or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder for execution and filing by the Lessee. (4) The Lessee shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section 1.148-3(h) or other provision of the Tax Regulations. (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, the Lessee shall not, at any time prior to the final termination of this Lease, enter into any transaction that reduces the amount required to be paid to the United States pursuant to paragraph (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield on the Lease not been relevant to either party. Q) Lease Not a Hedge Bond. (1) The Lessee represents that this Lease will not be a "hedge bond" within the meaning of section 149(g) of the Code. (2) Without limitation of paragraph (1) above: (a) the Lessee reasonably expects that at least 85% of the spendable Certificate proceeds will be expended within the three-year period commencing on the Closing Date, and (b) no more than 50% of the proceeds of such portion will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (3) The Lessee represents that any lease in which proceeds of this Lease were used to prepay such lease will not be a "hedge bond" within the meaning of section 149(g) of the Code. (4) Without limitation of paragraph (3) above: (a) the Lessee reasonably expected that at least 85% of the spendable proceeds of any lease referenced in (3) above would be expended within the three-year period commencing after entering into such lease, and (b) no more than 50% of the proceeds of such portion were invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (k) Use of Proceeds: Weighted Average Maturity. The Lessee hereby represents and covenants that it will apply the proceeds of the Certificates in a manner so that the weighted average maturity of the Certificates does not exceed 120% of the average reasonably expected 70037893.3 18 economic life (or remaining economic life) of the facilities financed (or refinanced) by this Lease (all determined in accordance with the provisions of section 147(b) of the Code). (1) Elections. The Lessee hereby directs and authorizes any Lessee Representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such Representative (after consultation with Special Counsel) deems necessary or appropriate in connection with this Lease, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or document. (m) Closing Certificate. The Lessee agrees to execute and deliver in connection with the execution and delivery of this Lease a Tax Certificate, or similar document containing additional representations and covenants pertaining to the exclusion of the Interest Component of the Lease Payments from the gross income of the Lessor or its assigns for federal income tax purposes, which representations and covenants are incorporated as though expressly set forth herein. Section 5.11 rinsurer Requirements. (a) The Lessee shall provide the Insurer with the following information: (1) Within 120 days after the end of each Fiscal Year, the budget for the succeeding year, annual audited financial statements, and a statement of the amount on deposit in the Reserve Fund as of the last valuation,- (2) aluation; (2) The official statement or other disclosure document, if any, prepared in connection with the issuance of additional debt, whether or not it is on parity with the Trust Agreement; and (3) Such other information as the Insurer may reasonably request from time to time. (b) The Lessee shall pay or reimburse the Insurer for any and all charges, fees, costs, and expenses that the Insurer may reasonably pay or incur in connection with the following: (i) the administration, enforcement, defense, or preservation of any rights or security hereunder or under any other transaction document; (ii) the pursuit of any remedies hereunder, under any other transaction document, or otherwise afforded by law or equity, (iii) any amendment, waiver, or other action with respect to or related to this Lease or any other transaction document whether or not executed or completed; (iv) the violation by the Lessee of any law, rule, or regulation or any judgment, order or decree applicable to it; (v) any advances or payments made by the Insurer to cure defaults of the Lessee under the transaction documents; or (vi) any litigation or other dispute in connection with this Lease, any other transaction document, or the transactions contemplated hereby or thereby, other than amounts resulting from the failure of the Insurer to honor its payment obligations under the Bond Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver, or consent proposed in respect of this Lease or any other transaction document. The obligations of the Lessee to the Insurer shall survive discharge and termination of this Lease.] 70037893.3 19 1. ARTICLE VI DAMAGE AND DESTRUCTION; USE OF NET INSURANCE PROCEEDS Section 6.1 Abatement of Lease Payments in Event of Loss of Use. A proportional amount of the Lease Payments shall be abated during any period in which, by reason of condemnation, damage or destruction, there is substantial interference with the use and possession of the Leased Property by the Lessee. The amount of such abatement shall be determined by the Lessee and approved by the Insurer (so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder) such that the resulting Lease Payments represent fair consideration for the use and possession of the portion of the Leased Property not condemned, damaged or destroyed. Such abatement shall commence on the date of condemnation, damage or destruction and shall end with the substantial completion of the replacement or work of repair. There shall be no abatement in Lease Payments as a result of any design defects other than design defects that result in condemnation, damage or destruction with regard to the Leased Property. Except as provided herein, in the event of any such condemnation, damage or destruction, this Lease shall continue in full force and effect and the Lessee waives any right to terminate this Lease by virtue of any such condemnation, damage or destruction. Notwithstanding the above, to the extent that amounts are legally available in the Assessment Revenue Fund to make Lease Payments, such amounts in the Assessment Revenue Fund shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited toward the payment of the Lease Payments in the order in which such Lease Payments come due and payable. Section 6.2 AAnplication of Net Insurance Proceeds. (a) Deposit in Net Insurance Proceeds Fund. Net Insurance Proceeds shall be deposited in the Net Insurance Proceeds Fund by the Trustee promptly upon receipt thereof and, if the Lessee Representative notifies the Trustee in writing of the Lessee's determination that the replacement or repair of the affected portion of the Leased Property is not economically feasible or in the best interests of the Lessee, then such Net Insurance Proceeds shall be promptly transferred by the Trustee to the Prepayment Fund and applied as provided in Section 10.2 unless, as provided in Section 4.2 of the Trust Agreement, such Net Insurance Proceeds together with funds then on hand in the Lease Payment Account and the Reserve Fund are insufficient to prepay all of that portion of the Certificates representing interests in the Lease Payments for the Leased Property or relevant portion thereof in which event such Net Insurance Proceeds will be deposited in a separate account by the Trustee and invested and used in accordance with Section 4.2 of the Trust Agreement; otherwise, such Net Insurance Proceeds shall be applied as provided in Section 6.2(c) hereof. Prior written consent of the Insurer shall be required for any prepayment of less than all outstanding Certificates prepaid from Net Insurance Proceeds. The Lessee's determination regarding replacement or repair shall be made within one hundred eighty (180) days of the damage to the Leased Property, unless a longer period is required by actions of 70037893.3 20 the Federal Emergency Management Association, in which case the determination shall be made within one (I) year of the damage. (b) Replacement or Repair of the Leased Propertv. Notwithstanding the foregoing, however, the Lessee may exercise its option to replace or repair the affected portion of the Leased Property only if (i) the Net Insurance Proceeds available for such purpose, together with any other funds supplied by the Lessee for such purpose, are sufficient therefor, and (ii) in the event that damage or destruction results in an abatement of Lease Payments, the Lessee Representative certifies and covenants to the Lessor that such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds will be available to pay in full all Lease Payments coming due during such period as described in Section 5.5 hereof. (c) Requisition. All Net Insurance Proceeds deposited in the Net Insurance Proceeds Fund and not so transferred to the Prepayment Fund as provided in Section 6.2(a) shall be applied to the prompt replacement or repair of the affected portion of the Leased Property by the Lessee, upon receipt of a requisition signed by the Lessee Representative (each, a "Requisition") stating with respect to each payment to be made (i) the Requisition number, (ii) the name and address of the person, firm or corporation to whom payment is due, (iii) the amount to be paid and (iv) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Insurance Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation, accompanied by a bill or a statement of account for such obligation. The Trustee may conclusively rely on the representations set forth in such Requisition and as to the amount of such obligation. Any balance of the Net Insurance Proceeds remaining after such replacement or repair has been completed shall, after payment of amounts due the Trustee, be paid to the Lessee upon written request of the Lessee. Section 6.3 Laws and Ordinances. The Lessee agrees to observe and comply with all rules, regulations and laws applicable to the Lessee with respect to the Leased Property and the operation thereof. The cost, if any, of such observance and compliance shall be borne by the Lessee, and the Lessor shall not be liable therefor. The Lessee agrees further to place, keep, use, maintain and operate the Leased Property in such a manner and condition as will provide for the safety of its agents, employees, invitees, subtenants, licensees and the public. ARTICLE VII DISCLAIMER OF WARRANTIES; ACCESS Section 7.1 Disclaimer of Warranties. THE LESSOR, THE INSURER AND THEIR ASSIGNS MAKE NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE LESSEE OF THE LEASED PROPERTY. THE LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT A MANUFACTURER OF ANY COMPONENTS OF THE LEASED PROPERTY OR A DEALER THEREIN, AND THE LESSEE IS LEASING THE LEASED PROPERTY, "AS -IS." In no event shall the Lessor or 70037893.3 1 21 the Insurer or their assigns be liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease, the Base Lease or the Trust Agreement for the existence, famishing, functioning or Lessee's use and possession of the Leased Property. Section 7.2 Lessee's Right to Enforce Warranties. The Lessor hereby irrevocably appoints the Lessee as its agent and attomey-in-fact during the term of this Lease, so long as the Lessee shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, respecting the Leased Property which the Lessor may have. The Lessee's sole remedy for the breach of any such warranty, indemnification or representation shall not be against the Lessor, nor shall such matter have any effect whatsoever on the rights and obligations of the Lessor with respect to this Lease, including the right to receive full and timely Lease Payments and all other payments due hereunder. The Lessee shall be entitled to retain any and all amounts recovered as a result of the assertion of any such claims and rights. The Lessor shall, upon the Lessee's request and at the Lessee's expense, do all things and take all such actions as the Lessee may request in connection with the assertion of any such claims and rights. Section 7.3 Access to the Leased Property. The Lessee agrees that the Lessor, any Lessor Representative, the Lessor's successors or assigns and the Insurer, shall have the right (but no duty) at all reasonable times to enter upon and to examine and inspect the Leased Property. The Lessee further agrees that the Lessor, any Lessor Representative, the Lessor's successors or assigns and the Insurer shall have such rights of access to the Leased Property as may be reasonably necessary to cause the proper maintenance of the Leased Property in the event of failure by the Lessee to perform its obligations hereunder; provided, however, that the Lessor's assigns shall have no duty to cause such proper maintenance. Section 7.4 Release and Indemnification Covenants. To the extent permitted by law, the Lessee shall and hereby agrees to indemnify and save the Lessor and the Insurer and their successors, assigns, agents, officers, employees and servants harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Leased Property by the Lessee, (ii) any breach or default on the part of the Lessee in the performance of any of its obligations under this Lease, (iii) any act or negligence of the Lessee or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Property, or (iv) any act or negligence of any assignee or sublessee of the Lessee with respect to the Leased Property. No indemnification is made under this Section or elsewhere in this Lease for claims, losses or damages, including legal fees and expenses arising out of the willful misconduct or gross negligence, under this Lease by the Lessor, the Insurer, their officers, agents, employees, successors or assigns. ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1 Assignment by the Lessor. Certain of the Lessor's rights under this Lease, including the right to receive and enforce payment of the Lease Payments to be made by the 70037893.3 22 Lessee under this Lease, have been assigned to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the Lessee hereby consents. Except as provided herein and in the Trust Agreement, the Lessor will not assign this Lease, its right to receive Lease Payments from the Lessee, or its duties and obligations hereunder to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in Section 2.2. Section 8.2 Assignment and Subleasing by the Lessee. This Lease may be assigned by the Lessee so long as such assignment does not adversely affect the exclusion from gross income of the Interest Component of the Lease Payments. The Lessee may sublease the Leased Property, with the consent of the Lessor and the Insurer, subject to all of the following conditions: (i) This Lease and the obligation of the Lessee to make Lease Payments hereunder shall remain obligations of the Lessee; (ii) . The Lessee shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Lessor, the Insurer and the Trustee a true and complete copy of such sublease; (iii) No sublease by the Lessee shall cause the Leased Property to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State; and (iv) No sublease shall cause the Interest Component of the Lease Payments due with respect to the Leased Property to become included within gross income for federal income tax purposes or subject to State of California personal income taxes. Section 8.3 Amendment. The Lessee will not alter, modify or cancel or agree or consent to alter, modify or cancel this Lease except as permitted by Section 2.13 and Article X of the Trust Agreement. Notwithstanding anything herein or the Trust Agreement to the contrary, however, the Lessee shall have the right in its sole discretion to modify the description of the site on which the Leased Property is located to more particularly describe such location. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1 Events of Default Defined. The following shall be "events of default" under this Lease and the terms "events of default" and "default' shall mean, whenever they are used in this Lease, any one or more of the following events: (i) Failure by the Lessee to pay any Lease Payment required to be paid hereunder by the next succeeding Payment Date following each corresponding Lease Payment Date. 70037893.3 23 (ii) Failure by the Lessee to observe and perform any covenant, condition or agreement on its part to be observed or performed herein or otherwise with respect hereto or in the Trust Agreement, other than as referred to in clause (i) of this Section, for a period of 30 days after written notice specifying such failure and requesting that if be remedied has been given to the Lessee by the Lessor, the Trustee, the Insurer or the Owners of not less than twenty-five percent (25%) in aggregate principal amount of Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Lessor, the Trustee, the Insurer or such Owners, as the case may be, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Lessee within the applicable period and diligently pursued until the default is corrected. (iii) The filing of a voluntary petition in bankruptcy by the Lessee, or the failure by the Lessee promptly to institute judicial proceedings to lift any execution, garnishment or attachment of such consequence as will materially impair its ability to carry on its operations, or the filing of a petition by the Lessee under the Federal Bankruptcy Code, or the adjudication of the Lessee as insolvent or as a bankrupt, or any assignment by the Lessee for the benefit of its creditors, or the application for, or consent to, the appointment of any receiver, trustee, custodian or similar officer by the Lessee or the entry by the Lessee into an agreement of composition with its creditors; provided, however, that no involuntary petition in bankruptcy, or appointment of a trustee, custodian or receiver without the consent of the Lessee shall constitute an event of default hereunder until 15 days shall have elapsed from the day of filing thereof, during which time the Lessee has been unable to dismiss the petition. Section 9.2 Remedies on Default. Upon the written consent of the Insurer (so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder), whenever any event of default referred to in Section 9.1 shall have happened and be continuing, it shall be lawful for the Lessor to exercise any and all remedies available pursuant to law or in equity, or granted pursuant to this Lease; provided, however, that notwithstanding anything herein or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. After the occurrence of an event of default hereunder, the Lessee will surrender possession of the Leased Property to the Lessor, if requested to do so by the Lessor, or the Insurer or by the Trustee or the Owners in accordance with the provisions of the Trust Agreement. (a) No Termination: Repossession and Re -Lease on Behalf of Lessee. Subject to the right of the Insurer to direct remedies (so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder), in the event the Lessor does not elect to terminate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the Lessor with the consent of the Lessee, which consent is irrevocably given, may repossess the Leased Property and re -let them for the account of the Lessee, in which event the Lessee's obligation will continue to accrue from year to year in accordance with the Lease and the Lessee will continue to receive the value of the use of the Leased Property from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the Lessee shall remain the same as prior 70037893.3 24 to such default to pay Lease Payments whether the Lessor re-enters. The Lessee agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions contained herein and shall reimburse the Lessor for any deficiency arising out of the re -letting of the Leased Property, or, in the event the Lessor is unable to re -let the Leased Property, then for the full amount of all Lease Payments to the end of the term of this Lease, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments hereunder, notwithstanding such repossession by the Lessor or any suit, brought by the Lessor for the purpose of effecting such repossession of the Leased Property or the exercise of any other remedy by the Lessor. The Lessee hereby irrevocably appoints the Lessor as the agent and attorney-in-fact of the Lessee to repossess and re -let the Leased Property in the event of default by the Lessee in the performance of any covenants contained herein to be performed by the Lessee and to remove (any removal to be done with reasonable prudence) all personal property connected to or made a part of the Leased Property, to place such property in storage or other suitable place in the County of Riverside, for the account of and at the expense of the Lessee, and the Lessee hereby exempts and agrees to save harmless the Lessor from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re -letting of the Leased Property. The Lessee hereby waives any and all claims for damages caused or which may be caused by the Lessor in repossessing the Leased Property as provided herein and all claims for damages that may result from the destruction of or the injury to the Leased Property and all claims for damage to or loss of any property belonging to the Lessee that may be in or upon the Leased Property. The Lessee agrees that the terms of this Lease constitute full and sufficient notice of the right of the Lessor to re -let the Leased Property in the event of such repossession without effecting a surrender of this Lease, and further agrees that no acts of the Lessor in effecting such re -letting shall constitute a surrender or termination of this Lease irrespective of the term for which such re -letting is made or the terms and conditions of such re -letting or otherwise, but that, on the contrary, in the event of such default by the Lessee the right to terminate this Lease shall vest in the Lessor to be effected in the sole and exclusive manner provided for in subparagraph (b) below. The Lessee further waives the right to any rental obtained by the Lessor in excess of the Lease Payments and hereby conveys and releases such excess to the Lessor as compensation to the Lessor for its services in re -letting the Leased Property. In the event that the liability of the Lessee under this subsection (a) is held to constitute indebtedness or liability in any year exceeding the income and revenue provided for such year, the Lessor, or the Trustee or the Owners as assignees of the Lessor, shall not exercise the remedies provided in this subsection (a). (b) Termination: Repossession and Re -Lease. Subject to the right of the Insurer to direct remedies (so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder), in the event of the termination of this Lease by the Lessor at its option and in the manner hereinafter provided on account of default by the Lessee (and notwithstanding any repossession of the Leased Property by the Lessor in any manner whatsoever or the sale or re -letting of the Leased Property), the Lessee nevertheless agrees to pay to the Lessor all costs, losses or damages, but not Lease Payments, howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments. 70037893.3 25 Any proceeds of the re -letting or other disposition of the Leased Property or the sale of the improvements located on the Leased Property by the Lessor shall, after payment of the fees and expenses of the Trustee, be deposited into the Lease Payment Account and be applied in accordance with the provisions of Section 5.5 of the Trust Agreement. Any surplus received by the Lessor from such sale or re -letting shall be the absolute property of the Lessor and the Lessee shall have no right thereto, nor shall the Lessee be entitled to any credit in the event of a surplus in the rentals received by the Lessor for the Leased Property. Neither notice to pay rent or to deliver up possession of the Leased Property given pursuant to law nor any proceeding taken by the Lessor to recover possession of the Leased Property shall by itself operate to terminate this Lease, and no termination of this Lease on account of default by the Lessee shall be or become effective by operation of law, or otherwise, unless and until the Lessor shall have given written notice to the Lessee of the election on the part of the Lessor to terminate this Lease. The Lessee covenants and agrees that no surrender of the Leased Property or of the remainder of the term hereof or any termination of this Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Lessor by such written notice. No such termination shall be effected whether by operation of law or acts of the parties hereto, except only in the manner herein expressly provided. (c) Opinion of Special Counsel. The re -letting of the Leased Property as provide herein shall be subject to the opinion of Special Counsel that such re -letting will not cause the Certificates to become "private activity bonds" pursuant to Section 141(a) of the Code resulting in the inclusion of the Interest Component of the Lease Payments in gross income for federal income tax purposes. (d) Right of Insurer to Direct Remedies. Notwithstanding any other provisions of this Lease, so long as the Bond Insurance Policy is in effect and the Insurer is not in default thereunder, the Insurer shall have the right to direct the remedies to be taken upon any Event of Default hereunder, and the Insurer's consent shall be required for remedial action taken by the Trustee of the Lessor hereunder. Section 9.3 No Remedy Exclusive. No remedy conferred herein upon or reserved to the Lessor is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Lessor to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Section 9.4 Agreement to Pay Attorneys' Fees and Expenses. In the event either party to this Lease should default under any of the provisions hereof and the nondefaulting party or the Insurer should employ attorneys or incur other expenses for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party or the Insurer. 70037893.3 26 Section 9.5 No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.6 Application of the Proceeds from the Sale or Lease of the Leased Property. All amounts received by the Lessor under this Article, after payment of all fees and expenses of the Trustee including but not limited to attorneys' fees, shall be applied by the Trustee as set forth in Section 13.3 of the Trust Agreement. Section 9.7 Trustee, Insurer and Owners to Exercise Rights. Such rights and remedies as are given to the Lessor under this Article have been assigned by the Lessor to the Trustee and, in certain circumstances, by the Trustee to the Insurer, under the Trust Agreement, to which assignment the Lessee hereby consents. Subject to the rights of the Insurer, such rights and remedies shall be exercised by the Trustee and the Owners of the Certificates as provided in the Trust Agreement. ARTICLE X PREPAYMENT OF LEASE PAYMENTS AND PURCHASE OF LEASED PROPERTY Section 10.1 Security Deposit. Notwithstanding any other provision of this Lease, following payment of the amount owing the Insurer under the Policy, the Lessee may on any date exercise its option to purchase the Leased Property by an irrevocable deposit by it with the Trustee of: (i) an amount of cash which, together with amounts on deposit in the Lease Payment Fund, Assessment Revenue Fund and Reserve Fund, is sufficient to pay all Lessee's unpaid Lease Payments, including the Principal Components and Interest Components represented thereby, in accordance with the Lease Payment schedule set forth in Exhibit A, or (ii) Federal Securities together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon, and money then on deposit in the Lease Payment Fund, Assessment Revenue Fund and Reserve Fund, together with interest thereon, be fully sufficient to pay all of the Lessee's unpaid Lease Payments on its Lease Payment Dates or by prepayment thereof pursuant to Section 10.2, as the Lessee with respect to payments of Lease Payments shall instruct at the time of said deposit. In the event of a deposit pursuant to this Section, all obligations of the Lessee under this Lease, and all security provided by this Lease for said obligations, shall cease and terminate, excepting only the obligation of the Lessee to make, or cause to be made, Lease Payments from the deposit made by the Lessee pursuant to this Section, and title to the Leased Property shall vest in the Lessee on the date of said deposit automatically and without further action by the Lessee or the Lessor (except as provided herein); provided, that vesting of title to the Leased Property in the Lessee shall be subject to the subsequent payment of Lease Payments made from said deposit in accordance with the provisions of this Lease. Said deposit shall be deemed to be and shall constitute a special fund for the payment of the Lease Payments in accordance with the provisions of this Lease. The Lessor shall execute and deliver such further instruments and take 70037893.3 27 such further action as may reasonably be requested by the Lessee for carrying out the title transfer of the Leased Property. Section 10.2 Prepayment in Part. Provided that all amounts owed under the Financial Guaranty Agreement are paid, the Lessee may exercise its option to prepay the Lease Payments in part on any date on or after October 1, [2017], at a prepayment price of the principal amount plus accrued interest to the date fixed for prepayment, without premium. The Lessee shall deposit sufficient funds with the Trustee prior to the scheduled prepayment date in the Lease Payment Fund to be applied to the prepayment of Certificates pursuant to Section 4.3 of the Trust Agreement. Section 10.3 Mandatory Prepayment from Net Insurance Proceeds. The Lessee shall be obligated to prepay the Lease Payments from and to the extent of any Net Insurance Proceeds heretofore transferred to the Prepayment Fund pursuant to Section 7.1 of the Trust Agreement subject to the requirements of Section 6.2(a) hereof and Section 7.1 of the Trust Agreement. The Lessee and the Lessor hereby agree that such Net Insurance Proceeds shall be credited towards the Lessee's obligations hereunder. Except in the case of such prepayment of the Lease Payments in whole, such prepayment shall be credited to the Lessee, in inverse order of the due dates of the Lease Payments. Section 10.4 Credit for Amounts on Deposit. In the event of prepayment of the Principal Components of the Lease Payments in full under Section 10.1, all amounts then on deposit in the Lease Payment Fund, the Assessment Revenue Fund and the Reserve Fund shall be credited toward the amounts then required to be so prepaid. ARTICLE XI MISCELLANEOUS Section 11.1 Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received five business days after deposit in the United States first-class mail, postage prepaid, to the Lessee and the Lessor at the following addresses: If to the Lessee: City of Santa Clarita 23920 Valencia Boulevard, Santa Clarita, California 91355 Attn: Deputy City Manager/Director of Administrative Services . If to the Lessor: Santa Clarita Public Financing Authority c/o City of Santa Clarita 23920 Valencia Boulevard, Santa Clarita, California 91355 Attn: Deputy City Manager/Director of Administrative Services 70037893.3 28 If to the Insurer: [Insurer] Attention: The Lessor, the Insurer and the Lessee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 11.2 Binding Effect. This Lease shall inure to the benefit of and shall be binding upon the Lessor, the Insurer and the Lessee and their respective successors and assigns. Section 11.3 Severability. In the event any provision of this Lease shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provisions hereof. Section 11.4 Net -Net -Net Lease. This Lease shall be deemed and construed to be a "net -net -net lease" and the Lessee hereby agrees that the Lease Payments shall be an absolute net return to the Lessor, free and clear of any expenses, charges or set -offs whatsoever, except as expressly provided herein. Section 11.5 Further Assurances and Corrective Instruments. The Lessor and the Lessee agree that they will, from time to time, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease. Section 11.6 Execution in Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 11.7 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, applicable to contracts made and performed in such State. 70037893.3 29 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be executed in their names by their duly authorized officers, as of the date first above written. ATTEST: Sharon L. Dawson, Secretary ATTEST: an Sharon L. Dawson, City Clerk 70037893.3 SANTA CLARITA PUBLIC FINANCING AUTHORITY, as Lessor 0 Kenneth R. Pulskamp, Executive Director CITY OF SANTA CLARITA, as Lessee Marsha McLean, Mayor EXHIBIT A SCHEDULE OF LEASE PAYMENTS Lease Payment Principal Interest Total Date Component Component Total Annual Payments 3/15/2008 9/15/2008 3/15/2009 9/15/2009 3/15/2010 9/15/2010 3/15/2011 9/15/2011 3/15/2012 9/15/2012 3/15/2013 9/15/2013 3/15/2014 9/15/2014 3/15/2015 9/15/2015 3/15/2016 9/15/2016 3/15/2017 9/15/2017 3/15/2018 9/15/2018 3/15/2019 9/15/2019 3/15/2020 9/15/2020 3/15/2021 9/15/2021 3/15/2022 9/15/2022 3/15/2023 9/15/2023 3/15/2024 9/15/2024 3/15/2025 9/15/2025 3/15/2026 9/15/2026 3/15/2027 9/15/2027 3/15/2028 9/15/2028 3/15/2029 9/15/2029 3/15/2030 9/15/2030 3/15/2031 9/15/2031 70037893.3 A- I 3/15/2032 9/15/2032 3/15/2033 9/15/2033 3/15/2034 9/15/2034 3/15/2035 9/15/2035 3/15/2036 9/15/2036 3/15/2037 9/15/2037 70037893.3 A-2 EXHIBIT B LEASED PROPERTY DESCRIPTION To follow 70037893.3 B-1 EXHIBIT C FORM OF AMENDMENT TO LEASE There is hereby subjected to the terms of that certain Lease Agreement, dated as of December 1, 2007 (the "Lease"), between Santa Clarita Public Financing Authority ("Lessor") and City of Santa Clarita ("Lessee") the following described property: DESCRIPTION (Check One) ❑ Addition of property only. The property described above is hereby deemed to be incorporated into Exhibit C to the Lease and deemed to be added to the definition of Leased Property. 2. ❑ Substitution of a portion of the Leased Property. I, the Authorized Representative of the Lessee, hereby certify that: (1) the above-described property, and the portion of the Leased Property for which it is being substituted, are located on an identifiable, insurable parcel or parcels of land; (2) the above-described property will be used by the Lessee for its authorized public purposes; (3) the Lessee certifies that the annual fair rental value of the above-described property and remaining portion of the Leased Property after substitution or release will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the above- described property shall be at least equal to the remaining useful life of the portion of the Leased Property for which it was substituted for the remaining term of the Lease; (4) the above-described property may be leased under the provisions of the Lease and under the laws of the State of California; (5) no Event of Default under the Lease has occurred and is continuing; (6) the Lessee has obtained an ALTA policy of title insurance insuring the Lessee's leasehold estate under the Lease and the Lessor's leasehold estate therein under the Base Lease) in the above-described property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof, and 70037893.3 C-1 (7) the substitution of the above-described property shall not cause the Lessee to violate any of its covenants, representations and warranties made in the Lease. The Lessor hereby grants to the Trustee a security interest in the above-described property for the benefit of the Owners of the Certificates and as security therefor, all as described in the Trust Agreement. 3. ❑ Substitution of all of the Leased Property. The property described above shall, from and after the date of this Amendment to Lease, comprise all of the Leased Property which are subject to the terms of said Lease; any parcel or parcels in addition to the foregoing real property that may have been the subject of the Lease prior to the date hereof shall be released and reconveyed to the Lessee in accordance with the provisions of Section 3.6 of said Lease. I, the Authorized Representative of the Lessee, hereby certify that: (1) the above-described property is located on an identifiable, insurable parcel or parcels of land; (2) the above-described property will be used by the Lessee for its authorized public purposes; (3) the Lessee certifies that the annual fair rental value of the above-described property will be at least equal to 100% of the maximum amount of the Lease Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the above-described property shall be at least equal to the remaining useful life of the Leased Property for which it was substituted for the remaining term of the Lease; (4) the above-described property may be leased under the provisions of the Lease and under the laws of the State of California; (5) no Event of Default under the Lease has occurred and is continuing; (6) the Lessee has obtained an ALTA policy of title insurance insuring the Lessee's leasehold estate under the Lease and the Lessor's leasehold estate therein under the Base Lease) in the above-described property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof; and (7) the substitution of the above-described property shall not cause the Lessee to violate any of its covenants, representations and warranties made in the Lease. 1, the Authorized Lessee Representative, hereby certify that the new portion of the Leased Property described herein is, and shall be, free and clear of all liens or claims of others, except for the lien of the Trust Agreement referred to in the Lease and the rights of the Lessor under the Base Lease, and that the Lessee will not otherwise encumber title to the Leased Property while the Certificates remain Outstanding. 70037893.3 C-2 CITY OF SANTA CLARITA Authorized Representative 70037893.3 C-3 10/31/07 NOTICE OF INTENTION TO SELL SECURITIES (Approximate) City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series NOTICE IS HEREBY GIVEN that sealed proposals will be received by representatives of the City of Santa Clarita (the "City"), at the offices of C.M. de Crinis & Co., Inc., 15300 Ventura Boulevard, Sherman Oaks, CA 91403, on Tuesday, November 27, 2007 at 9:30 A.M. (Pacific time), for the purchase of $ (approximate) aggregate principal amount of City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series (the "Certificates'). Bids for less than all of the Certificates will not be accepted. The Certificates will be dated as of date of closing, and shall be payable with respect to interest from their date at the rate or rates to be fixed upon the sale thereof. The City has caused to be prepared an Official Notice of Sale and a Preliminary Official Statement for the Certificates, copies of which will be furnished on request made to the financial advisor to the District, C.M. de Crinis & Co., Inc., 15300 Ventura Boulevard, Sherman Oaks, CA 91403, Telephone (818) 385-4900, Telecopier (818) 385-4904. The City may postpone the date or change the time of sale to any subsequent date or any other time by providing notification through Thomson Municipal News, no later than 5:00 P.M. California time the day prior to the new day bids are to be received. /s/ Darren P. Hernandez Deputy City Manager/ Director of Administrative Services of the City of Santa Clarita Dated: November _, 2007 10/31/07 OFFICIAL NOTICE OF SALE CITY OF SANTA CLARITA (LOS ANGELES COUNTY, CALIFORNIA) CERTIFICATES OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES NOTICE IS HEREBY GIVEN by the City of Santa Clarita (the "City ") that faxed and electronic bids will be received by a representative of the City for the purchase of $ * principal amount of Certificates designated the "City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series" (the "Certificates"). No hand delivered bids will be accepted. The bids will be received in the manner and up to the time and date specified below, provided, however, that the City reserves the right to postpone or change the sale date upon notice delivered via Thompson Municipal News as provided in this Official Notice of Sale: DATE AND TIME: 9:30 A.M. California Time on Tuesday, November 27, 2007, and so long as a proposal has not theretofore been accepted by the City, on any date thereafter without further advertising, as provided in this Official Notice of Sale. ELECTRONIC BIDS: Bid proposals may be submitted via I -Deal LLC BIDCOMP/PARITY° System (the "PARITY"), as provided below. FAXED BIDS: By telecopy to the City's Financial Advisor, C.M. de Crinis & Co., Inc., 15300 Ventura Boulevard, Suite 404, Sherman Oaks, California 91403, phone (818) 385-4900, fax (818) 385-4904„ email cm@cmdecrinis.com (the "Financial Advisor") See "TERMS OF SALE - Warnings Regarding Electronic Bids" and "- Warnings Regarding Telecopy Bids" herein. Please note that the City reserves the right to cancel or reschedule the sale of the Certificates upon notice given through Thompson Municipal News by 1:30 P.M., California time the day prior to the day bids are scheduled to be received, and if the sale is rescheduled, notice of the new.sale date and time, if any, will be given through Thompson Municipal News no later than 5:00 P.M. California time the day prior to the new day bids are to be received, and bids will be received in the manner set forth above at the rescheduled date and time as the City shall determine. Bids must be received by 9:30 A.M., California time, on such date of sale. Preliminary. 70100321.1 DESCRIPTION OF THE CERTIFICATES DATE; FORM; DENOMINATION: The Certificates will be dated the date of original delivery, and will be executed and delivered in non-negotiable, fully registered form, without coupons, in denominations of $5,000 each or any integral multiple thereof. The Certificates will be delivered in a book -entry only system with no physical distribution of the Certificates to the public. The Depository Trust Company, New York, New York ("DTC") will act as depository for the Certificates. The Certificates will be registered in the name of Cede & Co., as nominee for DTC, on behalf of the participants in the DTC system and the subsequent beneficial owners of the Certificates. The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of December 1, 2007 (the "Trust Agreement"), among the City, the Santa Clarita Public Financing Authority (the "Authority") and The Bank of New York Trust Company, N.A. (the "Trustee"). Reference is made to the Trust Agreement for further details regarding the terms and provisions of the Certificates. MATURITIES: The Certificates will mature on October 1 in each of the years, and in the approximate amounts, in accordance with the following schedule. Year Principal (October 1) Amount* MANDATORY PREPAYMENT, BIDDER'S RIGHT TO DESIGNATE TERM CERTIFICATES: Bidders may designate two or more consecutive maturities of the Certificates as term Certificates, subject to the following limitations: (1) the final maturity date for the Certificates, including any term Certificate, shall be October 1, 2037; (2) each term Certificate shall bear a single rate of interest; and (3) the term Certificate(s) shall be subject to mandatory sinking find prepayment by lot on October 1 of each year, commencing with the year following the final serial Certificate maturity (or, if there is more than one term Certificate, the maturity . Preliminary. 70100321.1 date of any term Certificate having an earlier maturity, as the case may be), with the aggregate principal amount to be prepaid in each such year to be same as the aggregate principal amount set forth in the above maturity table and with each such prepayment to be at a price equal to 100% of the principal amount to be prepaid plus accrued and unpaid interest thereon to the date fixed for prepayment but without premium. If no term Certificates are designated in the winning bid, the Certificates will mature serially as shown in the preceding schedule. INTEREST.- Interest on the Certificates will be payable from their dated date at such rate or rates to be fixed upon the sale thereof, payable semiannually on April 1 and October 1 of each year (each, an "Interest Payment Date"), commencing April 1, 2008. PAYMENT: The Certificates and interest with respect thereto are payable in lawful money of the United States of America, interest being payable by check mailed on each Interest Payment Date to the registered owners thereof at the address shown on the Certificate registration books maintained by the Trustee on the 15th day of the month preceding an interest payment date. Principal will be payable upon surrender at the principal corporate trust office of the Trustee in Los Angeles, California. PREPAYMENT: Optional Prepayment. The Certificates maturing on or before October 1, 20_, are not subject to optional prepayment prior to their respective stated maturities. The Certificates maturing on or after October 1, 20, are subject to optional prepayment on any date on or after October 1, 20, in whole or in part, at the option of the City, at a prepayment price equal to the principal amount thereof to be prepaid together with accrued interest to the prepayment date, without a premium. Extraordinary Casualty Prepayment. The Certificates are subject to prepayment, in whole or in part on any date, from the Net Insurance Proceeds of insurance or condemnation with respect to the Leased Property, which Net Insurance Proceeds are credited towards the prepayment of Certificates pursuant to the Trust Agreement, at a prepayment price equal to the principal amount of the Certificates to be prepaid, together with accrued interest to the date fixed for prepayment, without premium. Sinking Fund Prepayment of Certificates. The Certificates shall be subject to mandatory sinking fund prepayment in part, by lot, from mandatory sinking fund prepayments, at a prepayment price equal to the principal amount thereof to be prepaid, together with accrued interest to the date fixed for prepayment, without premium, in the aggregate respective principal set forth in the accepted bid for the Certificates; provided, however, that if some but not all of such Certificates have been prepaid pursuant to optional or extraordinary prepayment, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of such Certificates so prepaid, to be allocated among such sinking fund payments on a pro rata basis as determined by the City: PURPOSE: The proceeds of the Certificates will be used (i) to finance a portion of the costs of the acquisition of open space lands, parks, and parkland, both inside and outside the City, in accordance with the City's open space, park, and parkland program (the "Program"), to fund a Reserve Fund or Surety Policy and to pay costs of delivery of the Certificates. 70100321.1 3 SECURITY. The Certificates evidence proportionate interests of the registered owners thereof in lease payments (the "Lease Payments") to be made by the City, pursuant to a Lease Agreement, dated as of December 1, 2007 (the "Lease"), between Santa Clarita Public Financing Authority, as lessor (the "Authority"), and the City, as lessee, for the use and occupancy of certain real property and the improvements thereon, more commonly known as the Aquatic Center and Sports Complex, located at 20850 Centre Pointe Parkway, Santa Clarita. The Lease . Payments are payable from any legally available funds of the City, including the City's general fund, although such fund is not pledged therefor. Legally available funds include certain assessment revenues collected from the City's Open Space Preservation District (the "Assessment Revenues") since the proceeds of the Certificates constitute indebtedness for the purposes of the Open Space and Preservation District. Pursuant to the Lease, the City covenants to contribute all or a portion of annual Assessment Revenues collected for Lease Payments and for any Additional Assessment District Obligations (as defined below) as provided in the Lease. The City may pledge the Assessment Revenues or incur obligations secured by the Assessment Revenues on a parity with the pledge of the Assessment Revenues to the Certificates (the "Additional Assessment District Obligations") provided the projected Assessment Revenues equal or exceed the debt service of the Certificates and the Additional Assessment District Obligations. The obligation of the City to make Lease Payments is not a general obligation of the City and the City's obligation to make Lease Payments does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes a debt of the City, the Authority, the County of Los Angeles, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. RESERVE FUND: A Reserve Fund is established under the Trust Agreement, initially funded at the Reserve Requirement, or with a reserve surety deposited with the Trustee in a face amount equal to the Reserve Requirement. The Reserve Requirement is that amount, at any time, equal to the least of: (i) ten percent (10%) of the net proceeds of sale of the Certificates and Additional Certificates; (ii) the maximum prospective aggregate amount of Lease Payments to be paid in any Certificate Year; or (iii) 125% of the average Lease Payments to be paid by the City in the then-current or any future Certificate Year. [A Reserve Fund for the Certificates will be provided by a Surety Policy issued by the bond insurer, .] MUNICIPAL BOND INSURANCE and UNDERLYING RATING: ("Insurer") has issued a commitment for municipal bond insurance relating to the Certificates. Bids may be conditioned upon the issuance of such policy on the date of delivery of the Certificates. The cost of obtaining such insurance and any rating agency costs related. thereto will be borne entirely by the City and not by the successful bidder. Moody's Investors Service and Standard & Poor's Credit Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), will assign the Certificates ratings of "Aaa" and "AAA," respectively, upon the understanding that the Insurer will issue its municipal bond insurance policy simultaneously upon the execution and delivery of the Certificates. The Certificates have also been assigned an underlying rating of "AA-" from Standard and Poor's Corporation. 70100321.1 4 TAX-EXEMPT STATUS: In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, subject, however to certain qualifications, under existing law, interest with respect to on the Certificates received by the owners of the Certificates is excluded from gross income for federal income tax purposes, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. In the event that, prior to the delivery of the Certificates (a) the interest on other obligations of the same type and character shall be declared to be subject to taxation (either at the time of such declaration or at any future date) under any federal income tax laws, either by the terms of such laws or by ruling of a federal income tax authority or official which is followed by the Internal Revenue Service, or by decision of any federal court, or (b) any federal income tax law is enacted which will have a substantial adverse effect upon the owners of the Certificates as such, the successful bidder may, at its option, prior to the tender of the Certificates, be relieved of its obligation to purchase the Certificates, and in such case the deposit accompanying its bid will be returned. LEGAL OPINION: The legal opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, approving the validity of the Trust Agreement and the Certificates will be famished to the successful bidder without cost. A copy of the legal opinion, certified by the official in whose office the original is filed, will be attached to each Certificate without charge to the successful bidder. FURTHER INFORMATION- A copy of the preliminary Official Statement describing the Certificates, and any other information concerning the proposed financing, will be furnished upon request to the City's Financial Advisor, cm@cmdecrinis.com (the "Financial Advisor"). A copy of the preliminary Official Statement can also be downloaded without charge from the Parity website at http:H www.i-dealprospectus.com. TERMS OF SALE FORM OF BID; MAXIMUM DISCOUNT: All bids must be for not less than all of the Certificates hereby offered for sale and for not less than ninety nine percent (99.00%) of the aggregate par value thereof and not more than one hundred and one percent (101.00%) of the aggregate par value thereof. The amount of any discount specified in any bid shall not exceed one percent (1.00%) of the aggregate principal amount of the Certificates. Bidders may submit only one bid, and such bid shall be submitted electronically through PARITY or by telecopy submitted to the Financial Advisor at (818) 385-4904. All bids must comply with the requirement for a good faith deposit. See "GOOD FAITH DEPOSIT" herein. Electronic Bids. Electronic bids must conform with the procedures established by PARITY. Solely as an accommodation to bidders, electronic bids will be received exclusively through PARITY in accordance with this Official Notice of Sale until 9:30 A.M. California time, but no 70100321.1 5 bid will be received after the time specified for receiving bids. To the extent any instructions or directions set forth in PARITY conflict with this Official Notice of Sale, the terms of this Official Notice of Sale shall control. For further information about PARITY, potential bidders may contact the City's Financial Advisor. Telecopy Bids. Telecopy bids may be submitted to the City's Financial Advisor at (818) 385- 4904. Neither the City, the Financial Advisor nor Fulbright & Jaworski L.L.P., Special Counsel, takes any responsibility for any difficulties receiving fax submittals prior to the deadline for receipt of bids. A copy of the prescribed bid form is attached hereto. Neither the City, the Financial Advisor nor Special Counsel will accept responsibility for inaccurate or illegible bids, or for delay due to engaged telephone lines at the place of bid opening, or for delay arising out of any bidder's election to deliver its bid by any means. THE CITY RETAINS ABSOLUTE DISCRETION TO DETERMINE WHETHER ANY BID, WHETHER FAXED OR ELECTRONIC, IS TIMELY, LEGIBLE AND COMPLETE. THE CITY TAKES NO RESPONSIBILITY FOR INFORMING ANY BIDDER PRIOR TO THE TIME FOR RECEIVING BIDS THAT ITS BID IS INCOMPLETE, ILLEGIBLE OR NOT RECEIVED. WARNING REGARDING ELECTRONIC BIDS: THE CITY WILL ACCEPT BIDS IN ELECTRONIC FORM SOLELY THROUGH PARITY ON THE OFFICIAL BID FORM CREATED FOR SUCH PURPOSE. EACH BIDDER SUBMITTING AN ELECTRONIC BID UNDERSTANDS AND AGREES BY DOING SO THAT IT IS SOLELY RESPONSIBLE FOR ALL ARRANGEMENTS WITH PARITY, THAT THE CITY NEITHER ENDORSES NOR EXPLICITLY ENCOURAGES THE USE OF PARITY, AND THAT PARITY IS NOT ACTING AS AN AGENT OF THE CITY. INSTRUCTIONS AND FORMS FOR SUBMITTING ELECTRONIC BIDS MUST BE OBTAINED FROM PARITY, AND THE CITY ASSUMES NO RESPONSIBILITY FOR ENSURING OR VERIFYING BIDDER COMPLIANCE WITH THE PROCEDURES OF PARITY. THE CITY SHALL ASSUME THAT ANY BID RECEIVED THROUGH PARITY HAS BEEN MADE BY A DULY AUTHORIZED AGENT OF THE BIDDER. THE CITY WILL MAKE ITS BEST EFFORTS TO ACCOMMODATE ELECTRONIC BIDS; HOWEVER THE CITY, THE FINANCIAL ADVISOR AND SPECIAL COUNSEL ASSUME NO RESPONSIBILITY FOR ANY ERROR CONTAINED IN ANY BID SUBMITTED ELECTRONICALLY, OR FOR FAILURE OF ANY BID TO BE TRANSMITTED, RECEIVED OR OPENED AT THE OFFICIAL TIME FOR RECEIPT OF BIDS. THE OFFICIAL.TIME FOR RECEIPT OF BIDS WILL BE DETERMINED BY THE CITY AT THE PLACE OF BID OPENING, AND THE CITY SHALL NOT BE REQUIRED TO ACCEPT THE TIME KEPT BY PARITY AS THE OFFICIAL TIME. IN THE EVENT OF A MALFUNCTION IN THE ELECTRONIC BIDDING PROCESS, BIDDERS SHOULD SUBMIT THEIR BIDS ON THE OFFICIAL BID FORM ATTACHED HERETO BY FACSIMILE TO: (818) 385-4904. WARNINGS REGARDING TELECOPY BIDS: NEITHER THE CITY, THE FINANCIAL ADVISOR, NOR SPECIAL COUNSEL SHALL BE RESPONSIBLE FOR, AND THE 70100321.1 6 BIDDER EXPRESSLY ASSUMES THE RISK OF, ANY INCOMPLETE, ILLEGIBLE OR UNTIMELY BID SUBMITTED BY SUCH BIDDER BY FACSIMILE TRANSMISSION, INCLUDING, WITHOUT LIMITATION, BY REASON OF GARBLED TRANSMISSION, MECHANICAL FAILURE, ENGAGED TELEPHONE OR TELECOMMUNICATIONS LINES AT THE PLACE OF BID OPENING, OR ANY OTHER CAUSE FOR REJECTION ARISING OUT OF ANY BIDDER'S ELECTION TO DELIVER ITS BID BY MEANS OF FACSIMILE DELIVERY. INTEREST RATE: Bidders must specify the rate or rates of interest which shall be payable with respect to the Certificates. The maximum net interest cost bid may not exceed six percent (5.50%) per annum. Interest with respect to the Certificates is payable from the date of delivery (expected to be December _, 2007), semiannually on each April 1 and October 1, commencing April 1, 2007. Bidders will be permitted to bid different rates of interest but (a) each interest rate specified in any bid must be in a multiple of one -twentieth (1/20) or one-eighth (1/8) of one percent; (b) interest with respect to each Certificate shall be computed from the date of delivery thereof, to its stated maturity date at the interest rate specified in the bid, payable semiannually as set forth above; (c) interest with respect to all Certificates maturing at any one time shall be payable at the same rate of interest; (d) the rate of interest to be borne by each maturity of Certificates shall be equal to or greater than the rate of interest borne by the preceding maturity of Certificates; provided that the difference between the lowest interest rate and the highest interest rate shall not exceed three percent (3%); (e) any premium must be paid as part of the purchase price, (f) no bid will be accepted which contemplates the waiver of any interest or other concession by the bidder as a substitute for payment in full of the purchase price. BEST BID: The Certificates will be awarded to the best responsible bidder therefor, considering the interest rate or rates specified and the premium offered, if any, or discount taken, if any, and the best bid will be determined on the basis of the lowest true interest cost. The true interest cost will be that nominal annual discount rate which, when discounted semiannually and when used to discount all payments of principal and interest with respect to the Certificates'at the rate or rates specified in the bid to the date of delivery (expected to be December _, 2007) of the Certificates results in the amount equal to the purchase price, which is the principal amount of the Certificates plus the amount of any premium, less the amount of any discount. In the event two or more bids setting forth identical interest rates are received, the City reserves the right to allow its authorized representative to exercise his or her own discretion and judgment in making the award and may award the Certificates on a pro rata basis in such denominations as he or she shall determine. ADJUSTMENT OF PRINCIPAL AMOUNTS: The City reserves the right to increase or to decrease the principal amount of any maturity of the Certificates as the City deems advisable, based on the actual rates of interest on the Certificates. Any such increase or decrease shall be allocated among the various maturities of the Certificates on such basis as the City deems advisable, and shall result in a proportionate increase or decrease (as the case may be) in the amount of any premium or discount bid. . Notice of such increase or decrease shall be given to the successful bidder as soon as practicable following the notification of award, as described below. No such adjustment will have the effect of altering the basis upon which the best bid is determined. 70100321.1 7 RIGHT OF CANCELLATION OF SALE BY THE CITY: The City reserves the right, in its sole discretion, at any time to cancel the public sale of the Certificates. In such event, the. City shall cause notice of cancellation of this invitation for bids and the public sale of the Certificates to be communicated through Thompson Municipal News as promptly as practicable. However, no failure to publish such notice or any defect or omission therein shall affect the cancellation of the public sale of the Certificates. RIGHT TO MODIFY OR AMEND: The City reserves the right, in its sole discretion, to modify or amend this Official Notice of Sale including, but not limited to, the right to adjust and change the principal amount and principal amortization schedule of the Certificates being offered; however, such modifications or amendments shall be made not later than 1:30 P.M., California time, on the business day prior to the bid opening and communicated through Thompson Municipal News. RIGHT OF POSTPONEMENT BY CITY: The City reserves the right, in its sole discretion, to postpone, from time to time, the date established for the receipt of bids. Any such postponement will be communicated through Thompson Municipal News not later than 1:30 P.M., California time, on the business day prior to any announced date for receipt of bids. If any date is postponed, any alternative sale date will be announced via Thompson Municipal News at least 20 hours prior to such alternative sale date. On any such alternative sale date, any bidder may submit a bid for the purchase of the Certificates in conformity in all respects with the provisions of this Official Notice of Sale, except for the date of sale and except for the changes announced by Thompson Municipal News at the time the sale date and time are announced. RIGHT OF REJECTION. The City reserves the right, in its sole discretion, to reject any and all bids and to waive any irregularity or informality in any bid, except that no bids will be accepted later than 9:30 A.M. California time on the date set for receipt of bids. PROMPT AWARD: An authorized representative of the City will take action awarding the sale of the Certificates or reject all bids not later than twenty-six (26) hours after the expiration of time herein prescribed for the receipt of bids and until such expiration of time all bids received shall be irrevocable. Unless such time of award is waived by the successful bidder, the award may be made after the expiration of the specified time if the bidder shall not have given to the City notice in writing of the withdrawal of such proposal. Notice of the award will be given promptly to the successful bidder. DELIVERY AND PAYMENT: Delivery of the Certificates will be made to the successful bidder in New York, New York, as soon as the Certificates can be prepared, which is estimated to be December _, 2007. The Certificates will be delivered in full book -entry form through the facilities of The Depository Trust Company. Payment for the Certificates must be made in immediately available funds to the Trustee. Any expense in providing immediately available funds shall be borne by the purchaser. RIGHT OF CANCELLATION: The successful bidder shall have the right, at its option, to cancel its purchase of the Certificates if the City shall fail to cause the execution and delivery of 70100321.1 8 the Certificates and tender the same for delivery within 30 days* from the date of sale thereof, and in such event the successful bidder shall be entitled to the return of the deposit accompanying its bid. GOOD FAITH DEPOSIT: A good faith deposit ("Deposit") in the form of a Financial Surety Bond in the amount of $300,000 payable to the order of the Trustee is required for each bid to be considered. The Financial Surety Bond must be from an insurance company licensed to issue such bond in the State of California, and such bond must be submitted to the Financial Advisor prior to the opening of the bids. The Financial Surety Bond must identify each bidder whose Deposit is guaranteed by such Financial Surety Bond. When the Certificates are awarded to a bidder, then such bidder must submit its Deposit to the Trustee in the form of a cashier's check (or wire transfer such amount as instructed by the City or such Financial Advisor) not later than 12:30 P.M. California time on the next business day following the award. If such Deposit is not received by that time, the Financial Surety may be drawn by the City to satisfy the Deposit requirement. The amount of the Deposit will be applied as a credit towards the payment of the purchase price by the successful bidder. If after award of the Certificates, the successful bidder fails to complete its purchase on the terms stated in its proposal, the full amount of the good faith deposit will be retained by the City. ESTIMATE OF TRUE INTEREST COST. • Each bidder is requested, but not required, to state in its bid the true interest cost, as described under the caption "BEST BID" herein, which shall be considered as informative only and not binding on either the bidder or the City. CERTIFICATION OF REOFFERING PRICE: The successful bidder shall be required, as a condition to the delivery of the Certificates, to certify to the City in writing that, as of the date of award, the Certificates were expected to be reoffered in a bona fide public offering, and the price at which the Certificates were expected to be sold to the public, in form and substance satisfactory to the City and to Special Counsel. CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION: The Cityhas duly notified the California Debt and Investment Advisory Commission of the proposed sale of the Certificates. Payment of all fees to the California Debt and Investment Advisory Commission in connection with the execution, sale and delivery of the Certificates shall be the responsibility of the successful bidder. NO LITIGATION: There is no litigation pending concerning the validity of the Certificates, the existence of the City or the entitlement of the officers thereof to their respective offices, and the successful bidder will be furnished a no -litigation certificate certifying to the foregoing as of and at the time of delivery of the Certificates. CUSIP NUMBERS: It is anticipated that CUSIP numbers will be printed on the Certificates, but neither the failure to print such numbers on any Certificates nor any error with respect thereto shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for the Certificates in accordance with the terms hereof. All expenses in relation to the printing of CUSIP numbers on the Certificates shall be paid for by the City; provided, however, * To be confirmed. 70100321.1 9 that the CUSIP Service Bureau charge for the assignment of said numbers shall be the responsibility of and shall be paid for by the successful bidder. OFFICIAL STATEMENT: The City will approve an Official Statement relating to the Certificates. Copies of a Preliminary Official Statement will be distributed to the Bidder prior to the sale in a form "deemed final" by the City for purposes of Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule") and approved for distribution by resolution of the City. Within seven business days from the sale date, the City will deliver to the purchaser 100 copies of the final Official Statement, executed by an authorized representative of the City and dated the date of delivery thereof to the purchaser, in sufficient number to allow the purchaser to comply with paragraph (b)(4) of the Rule and to satisfy the Municipal Securities Rulemaking Board (the "MSRB") Rule G-32 or any other rules adopted by the MSRB, which shall include information permitted to be omitted by paragraph (b)(1) of the Rule and such other amendments or supplements as shall have been approved by the City (the "Final Official Statement'). The successful bidder agrees to supply the City all pricing information necessary to complete the Final Official Statement within 24 hours after the award of the Certificates. The purchaser agrees that it will not confirm the sale of any Certificates unless the confirmation of sale is accompanied or preceded by the delivery of a copy of the Final Official Statement. By making a bid for the Certificates, the successful bidders agree (1) to disseminate to all members of the underwriting syndicate copies of the final Official Statement, including any supplements prepared by the City, (2) to promptly file a Copy of the final Official Statement, including any supplements prepared by the City, with a Nationally Recognized Municipal Securities Information Repository, and (3) to take any and all other actions necessary to comply with applicable Securities and Exchange Commission rules and Municipal Securities Rulemaking Board rules governing the offering, sale and delivery of the Certificates and the Official Statement to ultimate purchasers. DISCLOSURE COUNSEL OPINION. The Purchaser shall receive an opinion, dated the date of the Closing addressed to the City and the Purchaser, of Fulbright & Jaworski L.L.P., Disclosure Counsel, to the effect that based upon their participation in the preparation of the Official Statement as Disclosure Counsel to the District and without having undertaken to determine independently the accuracy or completeness of the contents in the Official Statement, such counsel has no reason to believe that the Official Statement, as of its date and as of the Closing Date (except for the financial statements and the other financial and statistical data included therein and the information included therein relating to The Depository Trust Company and the book -entry system (as such terms are defined in the Official Statement), and in the Appendices thereto as to all of which no opinion or belief need be expressed) contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. CONTINUING DISCLOSURE: In order to assist bidders in complying with S.E.C. Rule 15c2 - 12(b)(5), the City has committed to undertake, pursuant to the Trust Agreement and a Continuing Disclosure Agreement, to provide certain annual financial information and notices of the occurrence of certain events, if material. A description of this undertaking is set forth in the preliminary Official Statement and will also be set forth in the final Official Statement. Such 70100321.1 10 Continuing Disclosure Agreement will be a document required to be delivered at closing by the City, and the failure by the City to deliver such document in form and substance acceptable to Special Counsel and the successful bidder will relieve the successful bidder of its obligation to purchase the Certificates. The City is currently in compliance in all material respects with any previous undertaking with respect to said Rule. Dated: As of November , 2007 CITY OF SANTA CLARITA Deputy City Manager/Director of Administrative Services 7010032 1.1 11 OFFICIAL BID FORM BID FOR THE PURCHASE OF CITY OF SANTA CLARITA (LOS ANGELES COUNTY, CALIFORNIA) CERTIFICATES OF PARTICIPATION (OPEN SPACE AND PARKLAND ACQUISITION PROGRAM) 2007 SERIES November_, 2007 City of Santa Clarita c/o, C.M. de Crinis & Co., Inc. 15300 Ventura Boulevard Sherman Oaks, CA 91403 Phone(818)385-4900 FAX (818) 385-4904 email cm@cmdecrinis.com Ladies and Gentlemen: We offer to purchase the $ * City of Santa Clarita Certificates of Participation (Open Space and Parkland Acquisition Program) 2007 Series, dated as of the date of delivery, expected to be December _, 2007, and in the principal amounts, in such denominations, maturing on October 1 in the years and bearing interest as follows: Maturity Sinking Fund Maturity Sinking Fund Date Principal Serial Prepayment Interest Date Principal Serial Prepayment Interest (October 1) Amount Maturity (check) Rate (October I) Amount Mature (check) Rate and to pay therefor the principal amount thereof, plus a premium of $ or mimes a discount of $ (not to exceed 1% of the principal amount of the Certificates) on the aggregate principal amount (making an aggregate sum of $ ). Preliminary. 70100321.1 Bid Form - i This bid is made subject to all the terms and conditions of the Official Notice of Sale for said Certificates dated as of November , 2007, all of which terms and conditions are made a part hereof as fully as though set forth in full in this bid. This proposal is subject to acceptance, in whole or in part, within twenty-six (26) hours after the expiration of the time for the receipt of proposals, as specified in said Official Notice of Sale. This bid is secured by a Financial Surety Bond (as defined in the Official Notice of Sale), and we certify that evidence thereof has heretofore been provided to C.M. de Crinis & Co., Inc., as financial advisor to the City. We hereby request that (not to exceed 100) printed copies of the Official Statement pertaining to the Certificates be furnished us in accordance with the terms of said Official Notice of Sale. The following is our computation made as provided in the Official Notice of Sale, but not constituting any part of the foregoing, of the true interest cost under the foregoing proposal: Total Interest True Interest Cost Following is a list of the members of our account on whose behalf this bid is made. Respectfully submitted, Name of Firm: By: Address: City: 70100321.1 Bid Form - ii Zip: