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HomeMy WebLinkAbout09 - PH-1 - 2017 Lease Revenue Bonds for Lions Park - 9/19/2017CITY COUNCIL AGENDA REPORT CITY COUNC/L, COSTA MESA FINANCING AUTHORITYAND COSTA MESA PUBLIC FINANCING AUTHOR/TY MEETING DATE: September 19, 2017 ITEM NUMBER: PH -1 SUBJECT: 2017 Lease Revenue Bonds for Lions Park Projects and Refunding of Existing 2007 Certificates of Participation DATE: September 8, 2017 FROM: THOMAS R. HATCH, CITY MANAGER THOMAS P. DUARTE, CITY ATTORNEY STEPHEN DUNIVENT, INTERIM FINANCE DIRECTOR/TREASURER PRESENTATION BY: STEPHEN DUNIVENT, INTERIM FINANCE DIRECTOR/TREASURER FOR FURTHER INFORMATION CONTACT: Stephen Dunivent at (714) 754-5243 RECOMMENDATION: 1. The City Council adopt the City Council Resolution No. 17- authorizing the issuance of the 2017 Lease Revenue Bonds by the Financing Authority, approving the form of certain documents in connection therewith and authorizing certain actions in connection therewith. (Attachments 1, 3 through 8 and 10) 2. The Costa Mesa Financing Authority adopt the Financing Authority Resolution No. 17 - authorizing the issuance of the 2017 Lease Revenue Bonds by the Financing Authority, approving the form of certain documents in connection therewith and authorizing certain actions in connection therewith. (Attachments 2 through 9) 3. The Costa Mesa Public Financing Authority adopt the Public Financing Authority Resolution No. 17- approving the form of certain documents in connection with the termination of lease documents related to the 2003 Certificates of Participation and 2007 Certificates of Participation, which are being prepaid. (Attachments 11 through 15) BACKGROUND: In 2003, the City of Costa Mesa (the "City") caused the execution and delivery of the City of Costa Mesa 2003 Refunding Certificates of Participation (Public Facilities Project) Series 2003 (the "2003 COPs"), the proceeds of which refinanced the acquisition and/or construction of various public capital improvements of the City. Pursuant to direction from the City Council, the 2003 COPs were prepaid in full on July 12, 2017. 1 On February 7, 2007, the City caused the execution and delivery of the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 COPs"), the proceeds of which financed the acquisition and/or construction of various public capital improvements of the City. The 2007 COPs are currently outstanding in the amount of $16.8 million, with a maximum interest rate of 4.3% and a final maturity of October 1, 2026. The City has determined that refinancing the 2007 COPs will result in debt service payments which are lower than those which are currently due with respect to the 2007 COPs. In addition, the City desires to finance the acquisition and/or construction of various additional "public capital improvements" within the meaning of the Marks -Roos Local Bond Pooling Act of 1985 (commencing with Section 6584 of the California Government Code) as part of the City's undertaking of improvement projects in Lions Park. The portion of such Lions Park improvements to be financed by the proposed Bond issuance is referred to herein as the "Project." With respect to the Project, the original funding concept was presented to Council on November 17, 2015 with a total Project cost of $34.5 million including $25.3 million in proposed debt financing; 73% of the total Project cost. On June 21, 2016 a financing plan was presented to Council with a total Project cost of $36 million including $18.6 million in proposed debt financing; 52% of the total Project cost. On July 18, 2017 a final financing plan was presented to Council (as part of the award of the construction contract) with a total Project cost of $36.5 million including $18.5 million in proposed debt financing; 51 % of the total Project cost. In addition to these actions, as part of the May 9, 2017 budget study session, staff introduced the concept of refunding the 2007 COPs to achieve annual cost savings without extending the term of the existing debt. In order to accomplish the refinancing of the 2007 COPs and the financing of the Project, the Costa Mesa Financing Authority (the "Financing Authority") and the City have determined that it is in the best interest of the City and the residents of the City to authorize the preparation, sale and delivery of the Costa Mesa Financing Authority 2017 Lease Revenue Bonds (the "Bonds"). In connection with the issuance of the Bonds, the City and the Financing Authority desire to enter into certain agreements and to authorize an offering document and approve certain related actions, all as further described herein. The issuance of the Bonds will be at a lower interest cost than the 2007 COPs, which will reduce debt service payments and generate significant present value savings, as more particularly described below. In addition, the City expects to receive approximately $18.5 million for the Project from the sale of the proposed Bonds. For this action item, a Resolution of the City Council and a Resolution of the Financing Authority will authorize the issuance of the Bonds, approve the form of certain documents to effectuate such issuance and authorize certain actions in connection therewith. The refunding of the 2007 COPs and the funding of the Project from proceeds of the proposed Bonds are necessary components of the financing plan for the Lions Park improvement projects being undertaken by the City. If the City Council and Financing Authority adopt their respective Resolutions, then the Bonds issued pursuant thereto will provide funds to allow the Lions Park improvement projects to continue as planned. 4 In addition, in connection with the delivery of the 2007 COPs, and the prior delivery of the 2003 COPs, certain underlying lease documents were recorded with the Orange County Recorder. Such lease documents were entered into between the City and the Costa Mesa Public Financing Authority (the "Public Financing Authority"). Upon the prepayment of the 2007 COPs, such lease documents may now be terminated. The Resolution of the Costa Mesa Public Financing Authority approves the form of documents that will effect such lease terminations. DISCUSSION: The proposed Bonds are intended to refinance the debt service associated with the 2007 COPs and to finance the Project. The issuance of the Bonds is expected (based on market rates as of July 31, 2017) to reduce debt service payments in the first year by approximately $500,000 and to generate approximately $1.7 million in net present value savings. In addition, the City expects to receive approximately $18.5 million for the Project from the sale of the proposed Bonds. To facilitate the issuance of the proposed Bonds, the City and the Financing Authority desire to enter into a Ground Lease (the "Ground Lease," which is attached hereto as Attachment 3), pursuant to which the City will lease certain real property (consisting of the City's Civic Center Complex and certain other assets that are described in the Ground Lease (collectively, the "Leased Assets")) to the Financing Authority, and a Lease Agreement (the "Lease Agreement," which is attached hereto as Attachment 4), pursuant to which the City will sublease the Leased Assets back from the Financing Authority in exchange for Base Rental Payments (as such term is defined in the Lease Agreement). Such Base Rental Payments are pledged as security for the Bonds by the Financing Authority pursuant to an Indenture by and among U.S. Bank National Association (the "Trustee"), the City and the Authority (the "Indenture," which is attached hereto as Attachment 5). The proposed Bonds are secured by the Base Rental Payments and certain additional amounts on deposit in funds and accounts created under the Indenture. The City's obligation to make Base Rental Payments under the Lease Agreement is a General Fund obligation, but is subject to certain limitations set forth therein, including abatement in the event of damage to, destruction of or condemnation of the Leased Assets. The Lease Agreement also includes a covenant of the City to budget sufficient moneys each year from the General Fund to make the Base Rental Payments. In addition to authorizing the issuance of the Bonds and approving the forms of proposed documents that are described herein, the Resolutions of the City Council and Financing Authority authorize officials of the City and Financing Authority to take actions that deemed necessary and advisable to effectuate the transactions contemplated by the Resolutions, including the purchase of a municipal bond insurance policy and/or a reserve surety policy for the Bonds, as well as the execution of certain certificates and documents required under the proposed Bond Purchase Agreement (as such term is defined below) in connection with the issuance of the Bonds. As discussed above, the approval and adoption of the attached Resolutions of the City Council and Financing Authority will allow the City and the Financing Authority to move forward with the issuance of the Bonds in order to refinance the 2007 COPs and finance the Project, each of which represents a necessary component of the financing plan for the Lions Park improvements being undertaken by the City. As such, the approval and adoption of the Resolutions will allow the Lions Park projects to proceed as currently scheduled. 9 Upon the refunding of the 2007 COPs, the recorded lease documents related to the 2007 COPs and the 2003 COPs, which were previously paid off, can be terminated. SUMMARY OF DOCUMENTS: The City's Finance staff, together with other members of the financing group for the proposed Bonds, including the City's municipal advisor, Fieldman, Rolapp & Associates, Inc., and the City's bond counsel, Stradling Yocca Carlson & Rauth ("Bond Counsel"), have prepared the attached documents for consideration and approval by the City Council, the Financing Authority and the Public Financing Authority. The attached documents are set forth below. For approval by the City Council: • Escrow Agreement. The proposed Escrow Agreement (2007 Certificates) (the "Escrow Agreement," which is attached hereto as Attachment 7) will be executed by the City and the Trustee, as escrow agent (in such capacity, the "Escrow Agent"), and sets forth the specific instructions for the refunding and prepayment of the 2007 COPs. The Financing Authority is not a party to the Escrow Agreement; accordingly, the Escrow Agreement is submitted only to the City Council for authorization under the City Council Resolution. • Continuing Disclosure Certificate. Pursuant to the proposed Continuing Disclosure Certificate (the "CDC," which is attached hereto as Attachment 10) to be executed by the City, the City covenants to report certain information on an ongoing basis for the benefit of owners of the Bonds, as required by Rule 15c2- 12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. The CDC also requires the City to report certain events which are significant to Bond owners when they occur (such as changes in the rating of the Bonds or redemptions of the Bonds). The City currently provides such information for other of its debt issuances. The Financing Authority is not a party to the CDC; accordingly, the CDC is submitted only to the City Council for authorization under the City Council Resolution. For approval by the City Council and the Costa Mesa Financing Authority: • Ground Lease. As discussed above, City will lease the Leased Assets to the Financing Authority pursuant to the proposed Ground Lease. (Attachment 3) • Lease Agreement. Also as discussed above, the Leased Assets will be leased back to the City under the Lease Agreement (Attachment 4), and the City will make Base Rental Payments to the Financing Authority in exchange therefor. The Base Rental Payments will be pledged to the payment of debt service on the proposed Bonds as described in the Indenture. The Lease Agreement also includes important covenants of the City, including a covenant to budget sufficient moneys each year to make the Base Rental Payments and a covenant to maintain insurance for the Leased Assets, and the terms under which Lease Payments will be abated in the event of damage to, destruction of, or condemnation of the Lease Assets. Id • Indenture. The proposed Bonds will be issued pursuant to the Indenture (Attachment 5). The Indenture sets forth the terms of the Bonds, including the pledge of Base Rental Payments under the Lease Agreement, the payment terms and the terms by which the Bonds can be redeemed prior to maturity, contains instructions to the Trustee with respect to the application of Bond proceeds and includes various additional provisions relating to the Bonds, the Trustee and any bond insurance or reserve policy purchased in connection with the Bonds. • Preliminary Official Statement. The proposed Preliminary Official Statement (the "POS," which is attached hereto as Attachment 6) is the offering document that will be presented to potential investors of the Bonds. Stifel, Nicolaus & Company, Incorporated (the "Underwriter") uses the POS as a marketing document. The POS describes the terms of and security for the Bonds (under the Indenture and the Lease Agreement) and the refunding plan for the 2007 COPs and contains information about the City's finances. The POS is intended to present all material information about the Bond issuance and the City's General Fund finances in order to enable investors to assess whether to purchase the Bonds. As the obligor of Bonds, the City will be subject to federal securities law anti- fraud rules and will be required to certify that the information in the POS is complete and is not misleading. To support these certifications, the City will receive opinions and certificates of other parties. Following the printing of the POS, a final Official Statement will be prepared, reflecting the pricing of the Bonds and any minor updates. • Bond Purchase Agreement. The proposed Bond Purchase Agreement (the "Bond Purchase Agreement," which is attached hereto as Attachment 8), among the City, the Financing Authority and the Underwriter, sets forth the terms pursuant to which the Underwriter will purchase the Bonds from the Financing Authority for delivery to investors. The Bond Purchase Agreement contains standard closing requirements. Bond Counsel will prepare closing documents, certificates and opinions relating to the Bond issuance based on the requirements in the Bond Purchase Agreement. For approval by the Costa Mesa Financing Authority: • Assignment Agreement. Under the proposed Assignment Agreement (the "Assignment Agreement," which is attached hereto as Attachment 9) between the Financing Authority and the Trustee, the Financing Authority will assign its right to receive Base Rental Payments to the Trustee. The City is not a party to the Assignment Agreement; accordingly, the Assignment Agreement is submitted only to the Financing Authority for authorization under the Financing Authority Resolution. For approval by the Costa Mesa Public Financing Authority: • 2003/2007 COP Lease Terminations. Pursuant to the proposed Termination of Site Lease, Termination of Lease/Purchase Agreement, Termination of First Amendment to Site Lease and Termination of First Amendment to Lease/Purchase Agreement, which are attached hereto as Attachments 12 through 15, respectively, the Public Financing Authority will cause the recorded lease documents relating to the 2003 and 2007 COPs to be terminated. The forms of such documents are submitted only to the Board of the Public Financing Authority under the Public Financing Authority Resolution; however, the City Resolution also authorizes the City to prepare and execute such documents as necessary. 5 ALTERNATIVE CONSIDERED: Staff recommends that the City Council and the Financing Authority adopt the respective Resolutions authorizing the issuance of the Bonds and approving certain documents and actions in connection therewith. As discussed herein, the City has determined that the issuance of the Bonds offers the most cost-effective option for accomplishing the City's financing goals and allows the proceedings for securing necessary funds for the Lions Park improvements to continue on schedule. Because the 2003 COPs have been paid off and the issuance of the Bonds will cause the 2007 COPs to be paid off, the Public Financing Authority adopts the Resolution approving the forms of documents that will terminate the recorded lease documents related to such obligations. FISCAL IMPACT: The financing plan assumes the issuance of the Bonds in the principal amount of approximately $28.6 million at a true interest cost of less than 3.5% (preliminary and subject to change depending on the actual rates at Bond pricing). The total annual payment would be about $2.9 million per year through 2026 at which time it would decrease to about $1.14 million through 2042. A portion of the Bonds, $12.6 million, will refund the outstanding 2007 COPs (maintaining their existing final maturity of October 1, 2026). The annual payment for this portion of the debt is about $1.8 million; an average annual General Fund savings of $500,000. The refunding component of the financing is structured proportionately to the debt service with respect to the 2007 COPs and does not extend the existing term thereof. The other portion of the bonds will provide funding for a portion of the Lions Park project in the amount of approximately $18.5 million. The new money component of the financing has a 25 - year term and is structured with level debt service, with the annual debt service payment of $1.14 million; an average annual General Fund savings of $111,000 compared to the annual debt service on the 2003 COPs, which were previously prepaid. If issued pursuant to the Resolutions, the final maturity of the Bonds would be October 1, 2042 with a ten-year call provision. The issuance of the Bonds is expected (based on market rates as of July 31, 2017) to reduce debt service payments in the first year by approximately $500,000 and to generate approximately $1.7 million in net present value savings. LEGAL REVIEW: The City Attorney and Bond Counsel have reviewed this agenda report and the City Council, Financing Authority and Public Financing Authority Resolutions, and concur with the recommended actions by the City Council, the Financing Authority and the Public Financing Authority. X CONCLUSION & NEXT STEPS: The City Manager/Executive Director and counsel recommend that the City Council, Financing Authority and Public Financing Authority each adopt their respective Resolutions authorizing the issuance of the Bonds, approving the form of certain documents in connection therewith and authorizing certain actions in connection therewith, including the termination of recorded lease documents related to the 2003 and 2007 COPs. The pricing and sale of the Bonds is tentatively set for October 4, 2017. Bond closing and receipt of funds is tentatively set for October 18, 2017. Thomas R. Hatch City Manager Stephen Dunivent Interim Finance Director Attachments: Thomas P. Duarte City Attorney NAME APPROVAL BY: 1. Resolution No 17- City Council 2. Costa Mesa Financing Authority Resolution No. 17- Costa Mesa Financing Authority Board 3. Ground Lease City Council and Costa Mesa Financing Authority Board 4. 5. 6. Lease Agreement _ Indenture Preliminary Official Statement City Council and Costa Mesa Financing Authority Board City Council and Costa Mesa Financing Authority Board City Council and Costa Mesa Financing Authority Board 7. Proposed Escrow Agreement City Council 8. Proposed Bond Purchase Agreement City Council and Costa Mesa Financing Authority Board Costa Mesa Financing Authority Board 9. 10. Proposed Assignment Agreement Proposed Continuing Disclosure Certificate City Council Costa Mesa Public Financing Authority Board 11. Costa Mesa Public Financing Authority Resolution No. 17- 12. Proposed Termination of Site Lease (related to 2003 COPs) Costa Mesa Public Financing Authority Board Costa Mesa Public Financing AuthorityBoard 13. Proposed Termination of Lease/Purchase Agreement (related to 2003 COPs) 14. _Proposed Termination of First Amendment to Costa Mesa Public Financing Authority Board Site Lease related to 2007 COPs 15. Proposed Termination of First Amendment to Costa Mesa Public Financing Authority Board Lease Purchase Agreement (related to 2007 COPs) 7 Attachment 1 RESOLUTION NO. 17- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF COSTA MESA, CALIFORNIA, AUTHORIZING THE EXECUTION AND DELIVERY OF A GROUND LEASE, LEASE AGREEMENT, INDENTURE, ESCROW AGREEMENT, BOND PURCHASE CONTRACT AND CONTINUING DISCLOSURE CERTIFICATE IN CONNECTION WITH THE ISSUANCE OF COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS, APPROVING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $33,500,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the City of Costa Mesa, California (the "City"), is a general law city that is organized and existing under the laws of the State of California; and WHEREAS, the City also previously caused the Costa Mesa Public Financing Authority (the "PFA") to issue the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates"), the proceeds of which financed the acquisition and/or construction of various public capital improvements of the City (the "2007 Project"); and WHEREAS, the City desires to finance the acquisition and/or construction of various additional "public capital improvements" within the meaning of the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code (the "Act"), all of which are or shall be located within the boundaries of the City (the "2017 Project"); and WHEREAS, the Costa Mesa Financing Authority (the "Authority") and the City have determined that it would be in the best interests of the City and residents of the City to authorize the preparation, sale and delivery of the "Costa Mesa Financing Authority 2017 Lease Revenue Bonds" (the "Bonds") for the purposes of refinancing the 2007 Project and financing the 2017 Project; and WHEREAS, in order to facilitate the issuance of the Bonds, the City and the Authority desire to enter into a Ground Lease (the "Ground Lease") pursuant to which the City will lease certain real property (which real property shall consist of the City's Civic Center Complex and certain other assets that are described in the Ground Lease (collectively, the "Leased Assets")) to the Authority, and a Lease Agreement (the "Lease Agreement"), pursuant to which the City will lease the Leased Assets back from the Authority, and pay certain Base Rental Payments (as such term is defined in the Lease Agreement), which are pledged to the owners of the Bonds by the Authority pursuant to an Indenture by and among U.S. Bank National Association (the "Trustee"), the City and the Authority (the "Indenture"); and WHEREAS, in order to effect the refunding of the 2007 Certificates, the City and The Bank of New York Mellon Trust Company, N.A., as escrow agent, desire to enter into an Escrow Agreement (2007 Certificates) (the "Escrow Agreement"); and WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to refinance the 2007 Project and to finance the 2017 Project through the offering and sale of the Bonds; and WHEREAS, the City and the Authority desire to undertake a negotiated sale of the Bonds to Stifel, Nicolaus & Company, Incorporated, as the underwriter of the Bonds (the "Underwriter") pursuant to a purchase contract by and among the City, the Authority and the Underwriter (the "Bond Purchase Contract"); and WHEREAS, the Bonds will be issued pursuant to the Act; and WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Bonds, the Underwriter must have reasonably determined that the City has undertaken in a written agreement or contract for the benefit of the holders of the Bonds to provide disclosure of certain financial information and certain events on an ongoing basis; and WHEREAS, in order to cause such requirement to be satisfied, the City desires to execute and deliver a Continuing Disclosure Certificate (the "Continuing Disclosure Certificate"); and WHEREAS, a form of the Preliminary Official Statement (the "Preliminary Official Statement") has been prepared; and WHEREAS, the City is a member of the Authority and the 2007 Project and the 2017 Project are located within the boundaries of the City; and WHEREAS, the City has, prior to the consideration of this Resolution, held a public hearing on the refinancing of the 2007 Project and the financing of the 2017 Project from the proceeds of the issuance of the Bonds in accordance with Section 6586.5 of the Act, which hearing was held at 77 Fair Drive, Costa Mesa, California 92626 on the date of this Resolution; and WHEREAS, in accordance with Section 6586.5 of the Act, notice of such hearing was published once at least five days prior to the hearing in the Daily Pilot, a newspaper of general circulation in the City; and WHEREAS, the City Council has been presented with the form of each document that is referred to herein relating to the refinancing and financing that are contemplated hereby, and the City Council has examined and approved each document and desires to authorize and direct the execution of such documents and the consummation of such refinancing; and WHEREAS, all acts, conditions and things that are required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the refinancing and financing that are authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such refinancing and financing for the purpose, in the manner and upon the terms herein provided. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF COSTA MESA DOES HEREBY RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS: SECTION 1. Recitals and Findings. Each of the above recitals is true and correct. Following a duly noticed public hearing, the City Council hereby approves the refinancing and financing that are described in this Resolution and further finds and determines that there are significant public benefits to the citizens of the City through the approval of the issuance of the Bonds pursuant to the Act and otherwise hereunder within the meaning of Section 6586(a) through (d), inclusive, of the Act, in that the issuance of the Bonds and related transactions will result in demonstrable savings in effective interest rate to the City. SECTION 2. Approval of Lease Documents. The forms of Ground Lease and Lease Agreement presented at this meeting are hereby approved, and the Mayor, the City Manager, the Finance Director of the City and the City Clerk or the designee of any of the foregoing (the "Authorized Officers"), are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Ground Lease and the Lease Agreement in substantially said forms, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, however, that the term of the Ground Lease and the Lease Agreement shall terminate no later than October 1, 2042 (provided that such term may be extended as provided therein) and that the true interest cost applicable to the interest components of the Base Rental Payments shall not exceed 3.75% per annum. SECTION 3. Approval of Indenture. The form of Indenture presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Indenture in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 4. Approval of Bond Purchase Contract. The form of Bond Purchase Contract presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Bond Purchase Contract in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, however, that the Underwriter's discount shall not exceed 0.50% of the principal amount of the Bonds. SECTION 5. Approval of Escrow Agreement. The form of Escrow Agreement presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Escrow Agreement in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve. SECTION 6. Approval of Preliminary Official Statement. The form of Preliminary Official Statement presented at this meeting, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. Each Authorized Officer is hereby authorized to certify on behalf of the City that the Preliminary Official Statement is deemed final as of its date within the meaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). The Authorized Officers are each hereby authorized and directed to furnish, or cause to be furnished, to prospective bidders for the Bonds a reasonable number of copies of the Preliminary Official Statement. SECTION 7. Authorization of Official Statement. The preparation and delivery of an Official Statement, and its use in connection with the offering and sale of the Bonds, is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are each hereby authorized and directed, for and in the name of and on behalf of the City, to execute the final Official Statement and any amendment or supplement thereto for and in the name and on behalf of the City. SECTION 8. Approval of Continuing Disclosure Certificate. The form of Continuing Disclosure Certificate presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Continuing Disclosure Certificate in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced to the execution and delivery thereof. SECTION 9. Authorization to Purchase Bond Insurance. The Authorized Officers are each hereby authorized to evaluate whether the purchase of municipal bond insurance and/or a debt service reserve policy for the Bonds will result in a net debt service savings with respect to the Bonds and, if so, to arrange for the purchase of such municipal bond insurance and/or debt service reserve policy. The Authorized Officers are each hereby authorized to solicit bids from municipal bond insurers, to select an insurer to provide municipal bond insurance with respect to the Bonds and/or a debt service reserve policy, if applicable, and to execute and negotiate any agreements that are necessary in connection with the procurement of such municipal bond insurance and/or debt service reserve policy, provided that such municipal bond insurance policy and/or debt service reserve policy provides debt service savings or other benefits to the proposed transaction, as determined by the Authorized Officers. The City's execution of an insurance commitment shall be conclusive evidence of such determination. Each of the above -referenced officers is hereby authorized to direct Stradling Yocca Carlson & Rauth, Bond Counsel to the City, and/or the City Attorney to make any necessary revisions to the legal documents to effectuate the procurement of municipal bond insurance and/or a debt service reserve fund policy. SECTION 10. Miscellaneous. The officers, employees and agents of the City are hereby authorized and directed, jointly and severally, to do any and all things which they may deem necessary or advisable in order to consummate the transactions that are authorized herein and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution, including but not limited to the execution of documents terminating the recorded leases and related agreements in connection with the City of Costa Mesa Refunding Certificates of Participation (Public Facilities Project) Series 2003 and the 2007 Certificates. All actions heretofore taken by the officers, employees and agents of the City with respect to the transactions that are described in this Resolution are hereby approved, confirmed and ratified. SECTION 11. Effective Date. This Resolution shall take effect from and after its date of adoption. PASSED, APPROVED, AND ADOPTED on September 19, 2017. Katrina Foley, Mayor ATTEST: Brenda Green City Clerk STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF COSTA MESA APPROVED AS TO FORM: Thomas Duarte, City Attorney I, BRENDA GREEN, City Clerk of the City of Costa Mesa, DO HEREBY CERTIFY that the foregoing Resolution No. 17-_ was duly passed and adopted by the City Council of the City of Costa Mesa at a regular meeting held on the 19th day of September, 2017 by the following roll call vote, to wit: AYES: BOARD MEMBERS: NOES: BOARD MEMBERS: ABSENT: BOARD MEMBERS: IN WITNESS WHEREOF, I have hereby set my hand and affixed the seal of the City of Costa Mesa this day of , 2017. BRENDA GREEN, CITY CLERK Attachment 2 RESOLUTION NO. 17- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA FINANCING AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY BY THE AUTHORITY OF A GROUND LEASE, LEASE AGREEMENT, INDENTURE, BOND PURCHASE CONTRACT AND ASSIGNMENT AGREEMENT IN CONNECTION WITH THE ISSUANCE OF THE COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS, AUTHORIZING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $33,500,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the City also previously caused the Costa Mesa Public Financing Authority to issue the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates"), the proceeds of which financed the acquisition and/or construction of various public capital improvements of the City (the "2007 Project"); and WHEREAS, the City desires to finance the acquisition and/or construction of various additional "public capital improvements" within the meaning of the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code (the "Act"), all of which are or shall be located within the boundaries of the City (the "2017 Project"); and WHEREAS, the Costa Mesa Financing Authority (the "Authority") and the City have determined that it would be in the best interests of the City and residents of the City to authorize the preparation, sale and delivery of the "Costa Mesa Financing Authority 2017 Lease Revenue Bonds" (the "Bonds") for the purposes of refinancing the 2007 Project and financing the 2017 Project; and WHEREAS, in order to facilitate the issuance of the Bonds, the City and the Authority desire to enter into a Ground Lease (the "Ground Lease") pursuant to which the City will lease certain real property (which real property shall consist of the City's Civic Center Complex and certain other assets that are described in the Ground Lease (the "Leased Assets")) to the Authority, and a Lease Agreement (the "Lease Agreement"), pursuant to which the City will sublease the Leased Assets back from the Authority, and pay certain Base Rental Payments (as such term is defined in the Lease Agreement), which are pledged to the owners of the Bonds by the Authority pursuant to an Indenture by and among U.S. Bank National Association (the "Trustee"), the City and the Authority (the "Indenture"); and WHEREAS, the Authority and the Trustee desire to enter into an Assignment Agreement (the "Assignment Agreement") in order to provide, among other things, that all rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee; and WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to refinance the 2007 Project and to finance the 2017 Project through the offering and sale of the Bonds; and WHEREAS, the City and the Authority desire to undertake a negotiated sale of the Bonds to Stifel, Nicolaus & Company, Incorporated, as the underwriter of the Bonds (the "Underwriter") pursuant to a purchase contract by and among the City, the Authority and the Underwriter (the "Bond Purchase Contract"); and WHEREAS, the Bonds will be issued pursuant to the Act; and WHEREAS, a form of the Preliminary Official Statement (the "Preliminary Official Statement") has been prepared; and WHEREAS, the City is a member of the Authority and the 2007 Project and the 2017 Project are located within the boundaries of the City; and WHEREAS, the City has, prior to the consideration of this Resolution, held a public hearing on the refinancing of the 2007 Project and the financing of the 2017 Project from the proceeds of the issuance of the Bonds in accordance with Section 6586.5 of the Act, which hearing was held at 77 Fair Drive, Costa Mesa, California 92626 on the date of this Resolution, and adopted its resolution approving the refinancing and making a finding of significant public benefit in accordance with the Act; and WHEREAS, in accordance with Section 6586.5 of the Act, notice of such hearing was published once at least five days prior to the hearing in the Daily Pilot, a newspaper of general circulation in the City; and WHEREAS, the Board of Directors of the Authority (the "Board of Directors") has been presented with the form of each document that is referred to herein, and the Board of Directors has examined and approved each document and desires to authorize and direct the execution of such documents and the consummation of such financing and refinancing; and WHEREAS, all acts, conditions and things that are required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the refinancings and financing that are authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Authority is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such refinancings and financing for the purpose, in the manner and upon the terms herein provided. NOW, THEREFORE, THE BOARD OF DIRECTORS OF THE COSTA MESA FINANCING AUTHORITY DOES HEREBY RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS: SECTION 1. Recitals and Findings. Each of the above recitals is true and correct and the Board of Directors so finds. The Board of Directors has determined and hereby finds that the Authority's assistance in refinancing the 2007 Project and financing the 2017 Project through the issuance of the Bonds will result in significant public benefits of the type described in Section 6586 (a) through (d), inclusive, of the Act, and that the components of the 2007 Project and the 2017 Project to be refinanced and financed, respectively, from proceeds of the Bonds were approved pursuant to all applicable requirements of the California Environmental Quality Act (Public Resources Code Section 2100 et seq.) and applicable guidelines, or that such components were exempt therefrom. SECTION 2. Approval of Lease Documents. The forms of the Lease Agreement and the Ground Lease presented at this meeting are hereby approved, and the Chairperson, Executive Director and Treasurer of the Authority, or the Chairperson's designee (the "Authorized Officers"), are each hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Lease Agreement and the Ground Lease, respectively, in substantially said forms, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, however, that the term of the Lease Agreement and the Ground Lease shall terminate no later than October 1, 2042 (provided that such term may be extended as provided therein) and the true interest cost applicable to the interest components of the Base Rental Payments shall not exceed 3.75% per annum. SECTION 3. Approval of Indenture. The form of Indenture presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Indenture in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 4. Approval of Bond Purchase Contract. The form of Bond Purchase Contract presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Bond Purchase Contract in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, however, that the Underwriter's discount shall not exceed 0.50% of the principal amount of the Bonds. SECTION 5. Approval of Assignment Agreement. The form of Assignment Agreement presented at this meeting is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Assignment Agreement in substantially said form, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 6. Approval of Preliminary Official Statement. The form of Preliminary Official Statement presented at this meeting, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the Authority that the Preliminary Official Statement is deemed final as of its date within the meaning of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). The Authorized Officers are each hereby authorized and directed to furnish, or cause to be furnished, to prospective bidders for the Bonds a reasonable number of copies of the Preliminary Official Statement. SECTION 7. Authorization of Official Statement. The preparation and delivery of an Official Statement, and its use in connection with the offering and sale of the Bonds, is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are each hereby authorized and directed, for and in the name of and on behalf of the Authority, to execute the final Official Statement and any amendment or supplement thereto for and in the name and on behalf of the Authority. SECTION 8. Authorization to Purchase Bond Insurance. The Authorized Officers are each hereby authorized to evaluate whether the purchase of municipal bond insurance and/or a debt service reserve policy for the Bonds will result in a net savings with respect to the Bonds and, if so, to arrange for the purchase of such municipal bond insurance and/or debt service reserve policy. The Authorized Officers are each hereby authorized to solicit bids from municipal bond insurers, to select an insurer to provide municipal bond insurance with respect to the Bonds and/or a debt service reserve policy, if applicable, and to execute and negotiate any agreements that are necessary in connection with the procurement of such municipal bond insurance and/or debt service reserve policy, provided that such municipal bond insurance policy and/or debt service reserve policy provides debt service savings or other benefits to the proposed transaction, as determined by the Authorized Officers. The Authority's execution of an insurance commitment shall be conclusive evidence of such determination. Each of the above -referenced officers is hereby authorized to direct Stradling Yocca Carlson & Rauth, Bond Counsel to the City, and/or the Authority's General Counsel to make any necessary revisions to the legal documents to effectuate the procurement of municipal bond insurance and/or a debt service reserve policy. SECTION 9. Miscellaneous. The officers, employees and agents of the Authority are hereby authorized and directed, jointly and severally, to do any and all things which they may deem necessary or advisable in order to consummate the transactions herein authorized and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. All actions heretofore taken by the officers, employees and agents of the Authority with respect to the transactions that are described in this Resolution are hereby approved, confirmed and ratified. SECTION 10. Effective Date. This Resolution shall take effect from and after its date of adoption. PASSED, APPROVED, AND ADOPTED on September 19, 2017. ATTEST: Brenda Green Secretary Katrina Foley, Chairperson APPROVED AS TO FORM: Costa Mesa Financing Authority Counsel STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF COSTA MESA ) I, BRENDA GREEN, Secretary of the Costa Mesa Financing Authority, DO HEREBY CERTIFY that the foregoing Resolution No. 17-_ was duly passed and adopted by the Board of Directors of the Costa Mesa Financing Authority at a regular meeting held on the 19th day of September, 2017 by the following roll call vote, to wit: AYES: BOARD MEMBERS: NOES: BOARD MEMBERS: ABSENT: BOARD MEMBERS: IN WITNESS WHEREOF, I have hereby set my hand and affixed the seal of the City of Costa Mesa this day of , 2017. BRENDA GREEN, SECRETARY RECORDING REQUESTED BY: Costa Mesa Financing Authority AND WHEN RECORDED RETURN TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attention: Vanessa Locklin, Esq. [Space above for Recorder's use.] Attachment 3 THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11921 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. GROUND LEASE by and between CITY OF COSTA MESA and COSTA MESA FINANCING AUTHORITY Dated as of October 1, 2017 Relating to COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS GROUND LEASE THIS GROUND LEASE (this "Ground Lease"), executed and entered into as of October 1, 2017, is by and between the CITY OF COSTA MESA (the "City"), a municipal corporation and general law city that is duly organized and existing under and by virtue of the Constitution and laws of the State of California, as lessor, and the COSTA MESA FINANCING AUTHORITY (the "Authority"), a joint exercise of powers entity that is duly organized and existing under the laws of the State of California, as lessee. RECITALS A. The City and the Authority desire to finance and refinance a portion of the costs of the acquisition, construction and installation of various public improvements (collectively, the "Project"). B. In order to finance and refinance the Project, the City will lease certain real property and the improvements located thereon (the "Property") to the Authority pursuant to this Ground Lease, and the City will sublease the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the "Lease Agreement"). C. The Property is more particularly described in Exhibit A hereto. D. The City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance and refinance the Project through the issuance by the Authority of bonds that are payable from the base rental payments (the "Base Rental Payments") to be made by the City under the Lease Agreement. E. The City and the Authority have determined that it would be in the best interests of the City and the Authority to provide for the issuance of such bonds payable from the Base Rental Payments pursuant to an Indenture, dated as of the date hereof, by and among the Authority, the City and U.S. Bank National Association, as trustee (the "Trustee"). F. All rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof (the "Assignment Agreement'). G. All acts, conditions and things that are required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Ground Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Ground Lease. In consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, or unless the context clearly otherwise requires, words and phrases that are defined in Article I of the Lease Agreement shall have the same meaning in this Ground Lease. ARTICLE II LEASE OF THE PROPERTY; RENTAL Section 2.01 Lease of Property. The City hereby leases to the Authority, and the Authority hereby leases from the City, for the benefit of the Owners of the Bonds, the Property, subject only to Permitted Encumbrances, to have and to hold for the term of this Ground Lease. Section 2.02 Rental. The Authority shall pay to the City as and for rental of the Property hereunder, the sum of $1.00, the receipt of which is hereby acknowledged. ARTICLE III QUIET ENJOYMENT The parties intend that the Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. It is further intended that, to the extent provided herein and in the Lease Agreement, if an event of default occurs under the Lease Agreement, the Authority, or its assignee, will have the right, for the then -remaining term of this Ground Lease: (a) to take possession of the Property; (b) if it deems it appropriate, to cause an appraisal of the Property and a study of the then reasonable use thereof to be undertaken; and (c) to relet the Property. Subject to any rights that the City may have under the Lease Agreement (in the absence of an event of default) to possession and enjoyment of the Property, the City hereby covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Property during the term hereof and will, at the request of the Authority and at the City's cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. ARTICLE IV SPECIAL COVENANTS AND PROVISIONS Section 4.01 Waste. The Authority agrees that at all times that it is in possession of the Property, it will not commit, suffer or permit any waste on the Property, and that it will not willfully or knowingly use or permit the use of the Property for any illegal purpose or act. Section 4.02 Further Assurances and Corrective Instruments. The City and the Authority agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby 2 leased or intended so to be or for carrying out the expressed intention of this Ground Lease, the Indenture and the Lease Agreement. Section 4.03 Waiver of Personal Liability. All liabilities under this Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint exercise of powers entity, and the City hereby releases each and every director, officer and employee of the Authority of and from any personal or individual liability under this Ground Lease. No director, officer or employee of the Authority shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority hereunder. All liabilities under this Ground Lease on the part of the City shall be solely liabilities of the City as a public corporation, and the Authority hereby releases each and every member, officer and employee of the City of and from any personal or individual liability under this Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City hereunder. Section 4.04 Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Property. Section 4.05 Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Property at any reasonable time to inspect the same. Section 4.06 Representations of the City. The City represents and warrants to the Authority and the Trustee as follows: (a) the City has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution of this Ground Lease; (b) except for Permitted Encumbrances, the Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Property for governmental purposes as contemplated by the City; (c) all taxes, assessments or impositions of any kind with respect to the Property, except current taxes, have been paid in full; and (d) the Property is necessary to the City in order for the City to perform its governmental functions. Section 4.07 Representations of the Authority. The Authority represents and warrants to the City and the Trustee that the Authority has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Ground Lease. ARTICLE V ASSIGNMENT, SUBLEASING, MORTGAGING AND SELLING Section 5.01 Assignment and Subleasing. This Ground Lease may be sold or assigned and the Property subleased, as a whole or in part, by the Authority without the necessity of obtaining the consent of the City, if an event of default occurs under the Lease Agreement. The Authority shall, within 30 days after such an assignment, sale or sublease, furnish or cause to be furnished to the City a true and correct copy of such assignment, sale or sublease, as the case may be. Section 5.02 Restrictions on City. The City agrees that, except with respect to Permitted Encumbrances, it will not mortgage, sell, encumber, assign, transfer or convey the Property or any portion thereof during the term of this Ground Lease. ARTICLE VI TERM; TERMINATION Section 6.01 Term. The term of this Ground Lease shall commence as of the date of commencement of the term of the Lease Agreement and shall remain in full force and effect from such date to and including October 1, 20[42], unless such term is extended or sooner terminated as hereinafter provided. Section 6.02 Extension; Early Termination. If, on October 1, 20[42], the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of this Ground Lease shall be automatically extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, except that the term of this Ground Lease shall in no event be extended more than ten years. If, prior to October 1, 20[42], all Bonds shall be fully paid, or provisions therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, the term of this Ground Lease shall end simultaneously therewith. ARTICLE VII MISCELLANEOUS Section 7.01 Binding Effect. This Ground Lease shall inure to the benefit of and shall be binding upon the City, the Authority and their respective successors and assigns. Section 7.02 Severability. In the event that any provision of this Ground Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 7.03 Amendments, Changes and Modifications. This Ground Lease may be amended, changed, modified, altered or terminated only in accordance with the provisions of the Lease Agreement. F Section 7.04 Assignment to Trustee. The Authority and City acknowledge that the Authority has assigned its right, title and interest in and to this Ground Lease (but none of its obligations and none of its rights to provide consents or approvals hereunder) to the Trustee pursuant to certain provisions of the Assignment Agreement. The City consents to such assignment. Section 7.05 Execution In Counterparts. This Ground Lease may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 7.06 Applicable Law. This Ground Lease shall be governed by and construed in accordance with the laws of the State of California. Section 7.07 Captions. The captions or headings in this Ground Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Ground Lease. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK] 5 IN WITNESS WHEREOF, the Authority and the City have caused this Ground Lease to be executed by their respective officers hereunto duly authorized, all as of the day and year first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA City Manager COSTA MESA FINANCING AUTHORITY S-1 Chairperson CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Property that is conveyed under the foregoing agreement to the Costa Mesa Financing Authority, a joint exercise of powers agency duly organized and existing under and by virtue of the Constitution and the laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the Board of Directors of the Costa Mesa Financing Authority, pursuant to authority conferred by a resolution of the Board of Directors adopted on September 19, 2017, and the grantee consents to recordation thereof by its duly authorized officer. Dated: November , 2017 COSTA MESA FINANCING AUTHORITY By: Chairperson ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA COUNTY OF ORANGE On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA COUNTY OF ORANGE On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC [TO COME] EXHIBIT A DESCRIPTION OF THE PROPERTY I_WI Attachment 4 Stradling Yocca Carlson & Rauth Draft of 8116117 LEASE AGREEMENT by and between CITY OF COSTA MESA and COSTA MESA FINANCING AUTHORITY Dated as of October 1, 2017 Relating to COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS Section 1.01 Definitions Section 2.01 Lease of Property Section 2.02 Term; Occupancy TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II LEASE OF PROPERTY; TERM ARTICLE III RENTAL PAYMENTS Page 2 4 4 Section 3.01 Base Rental Payments................................................................................................... 5 Section 3.02 Additional Rental Payments......................................................................................... 5 Section3.03 Fair Rental Value.......................................................................................................... 6 Section 3.04 Payment Provisions....................................................................................................... 6 Section 3.05 Appropriations Covenant.............................................................................................. 6 Section 3.06 Rental Abatement.......................................................................................................... 6 ARTICLE IV MAINTENANCE, ALTERATIONS AND ADDITIONS Section4.01 [Reserved]..................................................................................................................... 7 Section 4.02 Maintenance and Utilities............................................................................................. 7 Section 4.03 Additions to Property .................................................................................................... 7 Section 4.04 Installation of City's Equipment................................................................................... 7 ARTICLE V INSURANCE Section 5.01 Commercial General Liability and Property Damage Insurance; Workers' Compensation Insurance............................................................................................... 8 Section 5.02 Title Insurance.............................................................................................................. 9 Section 5.03 Additional Insurance Provision; Form of Policies........................................................ 9 Section 5.04 Self-Insurance............................................................................................................... 9 ARTICLE VI DEFAULTS AND REMEDIES Section 6.01 Defaults and Remedies...............................................................................................10 Section6.02 Waiver.........................................................................................................................13 ARTICLE VII EMINENT DOMAIN; PREPAYMENT Section7.01 Eminent Domain......................................................................................................... 13 Section7.02 Prepayment................................................................................................................. 13 I Section 8.01 Section 8.02 Section 8.03 Section 8.04 Section 8.05 Section 8.06 Section 8.07 Section 8.08 Section 8.09 Section 8.10 Section 8.11 TABLE OF CONTENTS (continued) Page ARTICLE VIII COVENANTS Rightof Entry.............................................................................................................14 Law Governing...........................................................................................................18 Liens............................................................................................................................14 Section10.02 QuietEnjoyment.........................................................................................................14 AuthorityNot Liable...................................................................................................15 Validity and Severability............................................................................................19 Assignment and Subleasing........................................................................................15 Section10.04 Titleto Property ..........................................................................................................16 Authority's Purpose....................................................................................................16 Taxes...........................................................................................................................19 Representations of the City.........................................................................................16 Section 10.06 Representation of the Authority..................................................................................16 20 Environmental Compliance........................................................................................16 Amendments............................................................................................................... Covenant against Condemnation................................................................................17 Section10.08 ARTICLE IX NO CONSEQUENTIAL DAMAGES; USE OF THE PROPERTY; SUBSTITUTION OR RELEASE Section 9.01 No Consequential Damages........................................................................................17 Section9.02 Use of the Property .....................................................................................................17 Section 9.03 Substitution or Release of the Property.......................................................................18 ARTICLE X MISCELLANEOUS Section10.01 Law Governing...........................................................................................................18 Section10.02 Notices........................................................................................................................18 Section 10.03 Validity and Severability............................................................................................19 Section10.04 Net -Net -Net Lease......................................................................................................19 Section10.05 Taxes...........................................................................................................................19 Section 10.06 Section Headings........................................................................................................ 20 Section10.07 Amendments............................................................................................................... 20 Section10.08 Assignment................................................................................................................. 21 Section10.09 Execution.................................................................................................................... 21 Signatures................................................................................................................................... S-1 EXHIBIT A DESCRIPTION OF THE PROPERTY ...... EXHIBIT B BASE RENTAL PAYMENT SCHEDULE ii A-1 B-1 LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease Agreement"), executed and entered into as of October 1, 2017, is by and between the CITY OF COSTA MESA (the "City"), a municipal corporation and general law city that is duly organized and existing under and by virtue of the Constitution and laws of the State of California, as lessee, and the COSTA MESA FINANCING AUTHORITY (the "Authority"), a joint exercise of powers entity that is duly organized and existing under and by virtue of the laws of the State of California, as lessor. RECITALS A. The City and the Authority desire to finance and refinance a portion of the costs of the acquisition, construction and installation of various public improvements (collectively, the "Project"). B. In order to finance and refinance the Project, the City will lease certain real property and the improvements located thereon (the "Property") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to this Lease Agreement. C. The City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance and refinance the Project through the issuance by the Authority of bonds that are payable from the base rental payments (the "Base Rental Payments") to be made by the City under this Lease Agreement. D. The City and the Authority have determined that it would be in the best interests of the City and the Authority to provide for the issuance of such bonds payable from the Base Rental Payments pursuant to an Indenture, dated as of the date hereof, by and among the Authority, the City and U.S. Bank National Association, as trustee (the "Trustee"). E. All rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof. F. All acts, conditions and things that are required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease Agreement. In consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Lease Agreement, have the meanings herein specified, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms that are not otherwise defined herein shall have the meanings assigned to such terms in the Indenture. "Additional Bonds" means bonds other than the Series 2017 Bonds issued under the Indenture in accordance with the provisions thereof. "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.02 hereof. "Authority" means the Costa Mesa Financing Authority, a joint exercise of powers authority that is duly organized and existing under the laws of the State of California. "Base Rental Deposit Date" means the second day next preceding each Interest Payment Date. "Base Rental Payments" means all amounts payable to the Authority from the City as Base Rental Payments pursuant to Section 3.01 hereof. "Base Rental Payment Schedule" means the schedule of Base Rental Payments payable to the Authority from the City pursuant to Section 3.01 hereof and attached hereto as Exhibit B. "Bonds" means the Series 2017 Bonds and any Additional Bonds. "City" means the City of Costa Mesa, a municipal corporation and general law city that is duly organized and existing under and by virtue of the Constitution and laws of the State of California. "Delivery Date" means August _, 2017. "Final Termination Date" means October 1, 20[42], unless extended or sooner terminated as provided in Section 2.02 hereof. "Ground Lease" means the Ground Lease, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with to the provisions thereof and hereof. "Hazardous Materials" means flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents, cyanide, radon, petroleum products, asbestos or any asbestos containing materials, methane, radioactive materials, pollutants, hazardous materials, hazardous wastes, hazardous, toxic or regulated substances or related materials, as defined in CERCLA, RCRA, CWA, CAA, TSCA and Title III, and the regulations promulgated pursuant thereto, and in all other federal, state or local environmental laws and regulations. 2 "Indenture" means the Indenture, dated as of the date hereof, by and among the Authority, the City and the Trustee, as originally executed and as it may from time to time be amended or supplemented in accordance with the provisions thereof. "Joint Powers Agreement" means the Joint Exercise of Powers Agreement, dated as of July 1, 2017, by and between the City and the Costa Mesa Housing Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof, which agreement establishes the Authority. "Lease Agreement" means this Lease Agreement, as originally executed and as it may from time to time be amended in accordance with the provisions hereof. "Net Insurance Proceeds" means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. "Permitted Encumbrances" means, with respect to the Property, as of any particular time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of Article V hereof, permit to remain unpaid; (b) the Assignment Agreement; (c) this Lease Agreement; (d) the Ground Lease; (e) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Property for the purposes for which it was acquired or is held by the City; (f) easements, rights of way, mineral rights, drilling rights and other rights (including but not limited to rights in cellular telephone network infrastructure on the Property), reservations, covenants, conditions or restrictions which exist of record as of the Delivery Date which the City certifies in writing will not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture and the Assignment Agreement and to which the Authority and the City consent in writing; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Delivery Date which the City certifies in writing do not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture and the Assignment Agreement and to which the Authority and the City consent in writing. ["Property" means the 2042 Termination Parcels and, until the Termination Date applicable to the 2026 Termination Parcels, the 2026 Termination Parcels.] "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the twelve-month period commencing on October I of each year during the term of the Lease Agreement; provided that the first Rental Period shall be the period from the Delivery Date through September 30, 2017. "Series 2017 Bonds" means the Costa Mesa Financing Authority 2017 Lease Revenue Bonds issued under the Indenture. "Termination Date" means (i) October 1, 20[26], with respect to the [2026 Termination Parcels], and (ii) October 1, 20[42], with respect to the [2042 Termination Parcels], unless extended or sooner terminated as provided in Section 2.02 hereof. "Trustee" means the trustee appointed under the Indenture and referred to therein as the Trustee. "[2026 Termination Parcels]" means the real property described in Exhibit A-1 hereto and the improvements located thereon. "[2042 Termination Parcels]" means the real property described in Exhibit A-2 hereto and the improvements located thereon. ARTICLE II LEASE OF PROPERTY; TERM Section 2.01 Lease of Property. (a) The Authority hereby leases to the City and the City hereby leases from the Authority the Property, on the terms and conditions hereinafter set forth, subject to all Permitted Encumbrances. (b) The leasing of the Property by the City to the Authority pursuant to the Ground Lease shall not effect or result in a merger of the City's leasehold estate pursuant to this Lease Agreement and its fee estate as lessor under the Ground Lease, and the Authority shall continue to have a leasehold estate in the Property pursuant to the Ground Lease throughout the term thereof and hereof. The leasehold interest granted by the City to the Authority pursuant to the Ground Lease is and shall be independent of this Lease Agreement; this Lease Agreement shall not be an assignment or surrender of the leasehold interest granted to the Authority under the Ground Lease. Section 2.02 Term; Occupancy. The term of this Lease Agreement shall commence on the Delivery Date and shall end on the applicable Termination Date, unless such term is extended or sooner terminated as hereinafter provided. If on the applicable Termination Date the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments shall remain due and payable or shall have been abated at any time and for any reason remain due and owing, then the term of this Lease Agreement shall be extended until the date upon which: (a) all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture; or (b) the Indenture shall be discharged by its terms and all Rental Payments shall have been paid in full. Notwithstanding the foregoing, the term of this Lease Agreement shall in no event be extended more than ten years beyond the applicable Termination Date, such extended date being the "Maximum Lease Term." If prior to the Final Termination Date, all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, the Indenture shall be discharged by its terms and all Rental Payments shall have been paid in full, and the term of this Lease Agreement shall end simultaneously therewith. .19 ARTICLE III RENTAL PAYMENTS Section 3.01 Base Rental Payments. (a) Subject to the provisions hereof relating to a revision of the Base Rental Payment Schedule pursuant to subsection (b) of this Section, the City shall pay to the Authority, as Base Rental Payments (subject to the provisions of Section 3.06 and Article VII hereof) the amount at the times specified in the Base Rental Payment Schedule, a portion of which Base Rental Payments shall constitute principal, and a portion of which shall constitute interest. Rental Payments, including Base Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or of the State of California, or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. (b) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of this Lease Agreement (as so extended pursuant to Section 2.02 hereof). Upon such extension, the Base Rental Payments shall be established so that they will be sufficient to pay all extended and unpaid Base Rental Payments; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Property. Section 3.02 Additional Rental Payments. The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (a) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; (b) all reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees; (c) insurance premiums for all insurance required pursuant to Article V hereof, (d) any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with Section 148(f) of the Code; and 5 (e) all other payments required to be paid by the City under the provisions of this Lease Agreement or the Indenture. Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Section 3.03 Fair Rental Value. The parties hereto have agreed and determined that the annual fair rental value of the Property is not less than the maximum annual Rental Payments due in any year. In making such determination of fair rental value, consideration has been given to the uses and purposes that may be served by the Property and the benefits therefrom which will accrue to the City and the general public. Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period. Section 3.04 Payment Provisions. Each installment of Base Rental Payments payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the principal office of the Trustee in Los Angeles, California, or such other place or entity as the Authority or Trustee shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment which shall not be paid by the City when due and payable under the terms of this Lease Agreement shall bear interest from the date when the same is due hereunder until the same shall be paid at the rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due hereunder or refunded at the time of such determination. Amounts required to be deposited by the City with the Trustee pursuant to this Section on any date shall be reduced to the extent of available amounts on deposit in the Base Rental Payment Fund, the Interest Fund or the Principal Fund. Section 3.05 Appropriations Covenant. The City covenants to take such action as may be necessary to include all Rental Payments due hereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City will deliver to the Authority and the Trustee a Certificate of the City stating that its final annual budget includes all Base Rental Payments due in such fiscal year within ten days after the filing or adoption thereof. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. Section 3.06 Rental Abatement. Except as otherwise specifically provided in this Section, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property, Rental Payments shall be abated proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other 0 rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall continue in full force and effect. The amount of such abatement shall be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall calculate such abatement and shall provide the Trustee with a certificate setting forth such calculation and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of this Lease Agreement shall be extended as provided in Section 2.02 hereof, except that the term shall in no event be extended beyond the Maximum Lease Term. Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments in any of the funds and accounts established under the Indenture, Rental Payments shall not be abated as provided above but, rather, shall be payable by the City as a special obligation payable solely from said funds and accounts. ARTICLE IV MAINTENANCE, ALTERATIONS AND ADDITIONS Section 4.01 [Reserved]. Section 4.02 Maintenance and Utilities. Throughout the term of this Lease Agreement, as part of the consideration for rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Property, which may include, without limitation, janitor service, security, power gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Property. Section 4.03 Additions to Property. Subject to Section 8.02 hereof, the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is at least equal to the value of the Property immediately prior to the making of such additions, modifications and improvements. Section 4.04 Installation of City's Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any 7 interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Property resulting from the installation, modification or removal of any such items. Nothing in this Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this Section under a conditional sale or lease purchase contract, or subject to a vendor's lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Property. ARTICLE V INSURANCE Section 5.01 Commercial General Liability and Property Damage Insurance; Workers' Compensation Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such commercial general liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City, and may be maintained in whole or in part in the form of self-insurance by the City, provided that such self-insurance complies with the provisions of Section 5.04 hereof. The Net Insurance Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Insurance Proceeds of such insurance shall have been paid. (b) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, workers' compensation insurance issued by a responsible carrier authorized under the laws of the State of California to insure employers against liability for compensation under the California Labor Code, or any act enacted as an amendment or supplement thereto or in lieu thereof, such workers' compensation insurance to cover all persons employed by the City in connection with the Property and to cover full liability for compensation under any such act; provided, however, that the City's obligations under this subsection may be satisfied by self-insurance, provided that such self- insurance complies with the provisions of Section 5.04 hereof. (c) The City shall maintain or cause to be maintained, fire, lightning and special extended coverage insurance (which shall include coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding principal amount of the Bonds. The City has an insurance policy which provides replacement cost coverage. All insurance required to be maintained pursuant to this subsection may be subject to a deductible in an amount not to exceed $500,000. The City's obligations under this subsection may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of Section 5.04 hereof. (d) The City shall maintain rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to subsection (c) of this Section in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The City shall not be permitted to self -insure its obligation under this subsection. (e) The insurance required by this Section shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of a professionally certified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. Section 5.02 Title Insurance. The City shall provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Series 2017 Bonds. Such policy or policies shall insure: (a) the fee interest of the City in the Property; (b) the Authority's ground leasehold estate in the Property under the Ground Lease; and (c) the City's leasehold estate hereunder in the Property, subject only to Permitted Encumbrances. All Net Insurance Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in Section 5.04 of the Indenture. So long as any of the Bonds remain Outstanding, each policy of title insurance obtained pursuant to the Indenture or this Lease Agreement or required thereby or hereby shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Bond Owners. Section 5.03 Additional Insurance Provision; Form of Policies. The City shall pay or cause to be paid when due the premiums for all insurance policies required by Section 5.01 hereof, and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall provide that the Trustee shall be given 30 days' notice of the expiration thereof or any intended cancellation thereof. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee. The City shall cause to be delivered to the Trustee on or before October 1 each year, commencing October 1, 2017, a Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of this Article. The Trustee shall be entitled to rely upon said Certificate of the City as to the City's compliance with this Article. The Trustee shall not be responsible for the sufficiency of coverage or amounts of such policies. Section 5.04 Self -Insurance. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall be deemed to be self-insurance for purposes hereof. Any self-insurance maintained by the City pursuant to this Article shall comply with the following terms: (a) the self-insurance program and any self-insured retentions maintained by the City shall be approved in writing by a professionally certified risk manager or by an independent insurance consultant; (b) the self-insurance program shall include an actuarially sound claims reserve fund out of which each self-insured claim shall be paid, the adequacy of each such fund shall be 0 evaluated on an annual basis by a professionally certified risk manager or by an independent insurance consultant and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of a professionally certified risk manager or such independent insurance consultant, as applicable; and (c) in the event that the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by a professionally certified risk manager or by an independent insurance consultant, shall be maintained. ARTICLE VI DEFAULTS AND REMEDIES Section 6.01 Defaults and Remedies. (a) (i) If the City shall fail: (A) to pay any Rental Payment payable hereunder when the same becomes due and payable, time being expressly declared to be of the essence in this Lease Agreement; or (B) to keep, observe or perform any other term, covenant or condition contained herein or in the Indenture to be kept or performed by the City; or (ii) upon the happening of any of the events specified in this subsection or in subsection (b) of this Section, the City shall be deemed to be in default hereunder and it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement. The City shall in no event be in default in the observance or performance of any covenant, condition or agreement in this Lease Agreement on its part to be observed or performed, other than as referred to in clause (i)(A) or (ii) of the preceding sentence, unless the City shall have failed, for a period of 30 days or such additional time as is reasonably required, to correct any such default after notice by the Authority to the City properly specifying wherein the City has failed to perform any such covenant, condition or agreement. Upon any such default, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (1) To terminate this Lease Agreement in the manner hereinafter provided on account of default by the City, notwithstanding any re-entry or re -letting of the Property as hereinafter provided for in subparagraph (2) hereof, and to re-enter the Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of default by the City, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. Neither notice to pay Rental Payments or to deliver up possession of the Property given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority's interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of default by the City shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease Agreement. The City covenants and agrees that no 10 surrender of the Property or of the remainder of the term hereof or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (2) Without terminating this Lease Agreement: (x) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions hereof to be kept or performed by the City, regardless of whether or not the City has abandoned the Property; or (y) to exercise any and all rights of entry and re-entry upon the Property. In the event that the Authority does not elect to terminate this Lease Agreement in the manner provided for in subparagraph (1) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, if the Property is not re -let, to pay the full amount of the Rental Payments to the end of the term of this Lease Agreement or, in the event that the Property is re -let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and/or Rental Payment deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of Rental Payments hereunder, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments herein specified, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property. Should the Authority elect to re-enter as herein provided, the City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re -let the Property, or any part thereof, from time to time, either in the Authority's name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re- entry upon and re -letting of the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re - let the Property in the event of such re-entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such re -letting shall constitute a surrender or termination of this Lease Agreement irrespective of the use or the term for which such re -letting is made or the terms and conditions of such re -letting, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in subparagraph (1) hereof. The City further agrees to pay the Authority the cost of any alterations or additions to the Property necessary to place the Property in condition for re -letting immediately upon notice to the City of the completion and installation of such additions or alterations. The City hereby waives any and all claims for damages caused or which may be caused by the Authority in re-entering and taking possession of the Property as herein provided and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Property. (b) I£ (i) the City's interest in this Lease Agreement or any part thereof is assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Authority and, as hereinafter provided for; or (ii) the City or any assignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject 11 or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of the City's debts or obligations, or offers to the City's creditors to elect a composition or extension of time to pay the City's debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of the City's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the City, or if a receiver of the business or of the property or assets of the City shall be appointed by any court, except a receiver appointed at the instance or request of the Authority, or if the City shall make a general assignment for the benefit of the City's creditors; or (iii) the City shall abandon or vacate the Property, then the City shall be deemed to be in default hereunder. (c) In addition to the other remedies set forth in this Section, upon the occurrence of an event of default, the Authority and its assignee shall be entitled to proceed to protect and enforce the rights vested in the Authority and its assignee by the Lease Agreement or by law. The provisions of the Lease Agreement and the duties of the City and of its city council, officers or employees shall be enforceable by the Authority or its assignee by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority and its assignee shall have the right to bring the following actions: (i) Accounting. By action or suit in equity to require the City and its city council, officers and employees and its assigns to account as the trustee of an express trust. (ii) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Authority or its assignee. (iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority's or its assignee's rights against the City (and its city council, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided herein. Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege hereunder shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term "re -let" or "re -letting" as used in this Section shall include, but not be limited to, re -letting by means of the operation by the Authority of the Property. If any statute or rule of law validly shall limit the remedies given to the Authority hereunder, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. In the event that the Authority shall prevail in any action brought to enforce any of the terms and provisions of this Lease Agreement, the City agrees to pay a reasonable amount as and for attorney's fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority hereunder. Notwithstanding anything to the contrary contained in this Lease Agreement, the Authority shall have no right upon a default hereunder by the City to accelerate Rental Payments. 12 (d) Notwithstanding anything to the contrary contained in this Lease Agreement, the termination of this Lease Agreement by the Authority and its assignees on account of a default by the City under this Section shall not effect or result in a termination of the Ground Lease. Section 6.02 Waiver. Failure of the Authority to take advantage of any default on the part of the City shall not be, or be construed as, a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the City of any term, covenant or condition hereof, or to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of any other default or of the same default subsequently occurring. The acceptance of Rental Payments hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease Agreement. ARTICLE VII EMINENT DOMAIN; PREPAYMENT Section 7.01 Eminent Domain. If all of the Property (or portions thereof such that the remainder is not usable for public purposes by the City) shall be taken under the power of eminent domain, the term hereof shall cease as of the day that possession shall be so taken. If less than all of the Property shall be taken under the power of eminent domain and the remainder is usable for public purposes by the City at the time of such taking, then the Lease Agreement shall continue in full force and effect as to such remainder, and the parties waive the benefits of any law to the contrary, and in such event there shall be a partial abatement of the Rental Payments in accordance with the provisions of Section 3.06 hereof. So long as any Bonds shall be Outstanding, any award made in eminent domain proceedings for the taking of the Property, or any portion thereof, shall be paid to the Trustee and applied to the redemption of Bonds as provided in subsection (a) of Section 4.01 of the Indenture, in the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued and in Section 5.03 of the Indenture. Any such award made after all of the Bonds, and all other amounts due under the Indenture and hereunder, have been fully paid, shall be paid to the Authority and to the City as their respective interests may appear. Section 7.02 Prepayment. (a) The City may prepay all or a portion of the Base Rental Payments attributable to the Series 2017 Bonds which are payable after October 1, 20 from any source of available funds, on any date on or after 1, 20_, by paying: (i) all or a portion, as selected by the City, of the principal components of such Base Rental Payments; and (ii) the accrued but unpaid interest component of such Base Rental Payments to be prepaid to the date of such prepayment. (b) The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments attributable to the Series 2017 Bonds by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Indenture in an amount that is sufficient to make such Base Rental Payments when due or to make such Base Rental Payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to subsection (a) of this Section, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. 13 (c) If less than all of the Base Rental Payments attributable to the Series 2017 Bonds are prepaid pursuant to this Section then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the principal and interest components of such Base Rental Payments shall be recalculated by the City and transmitted to the Trustee in order to take such prepayment into account. The City agrees that if, following a partial prepayment of such Base Rental Payments, the Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. (d) If all of the Base Rental Payments are prepaid in accordance with the provisions of this Lease Agreement then, as of the date of such prepayment pursuant to subsection (a) of this Section and, if applicable, the corresponding provisions hereof relating to the prepayment of Base Rental Payments attributable to Additional Bonds, or deposit pursuant to subsection (b) of this Section and, if applicable, such corresponding provisions, and payment of all other amounts owed under this Lease Agreement, the term of this Lease Agreement shall be terminated. (e) Prepayments of Base Rental Payments attributable to the Series 2017 Bonds made pursuant to this Section shall be applied to the redemption of the Series 2017 Bonds as directed by the City and as provided in Section 4.01 of the Indenture. ARTICLE VIII COVENANTS Section 8.01 Right of Entry. The Authority and its assignees shall have the right to enter upon and to examine and inspect the Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority's rights or obligations under this Lease Agreement, and for all other lawful purposes. Section 8.02 Liens. In the event that the City shall at any time during the term of this Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Property and which may be secured by a mechanic's, materialmen's or other lien against the Property or the Authority's interest therein, and will cause each such lien to be fully discharged and released at the time that the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contestment is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Section 8.03 Quiet Enjoyment. The parties hereto mutually covenant that the City, by keeping and performing the covenants and agreements that are contained herein, shall at all times during the term of this Lease Agreement peaceably and quietly have, hold and enjoy the Property without suit, trouble or hindrance from the Authority. 14 Section 8.04 Authority Not Liable. The Authority and its directors, officers, agents and employees shall not be liable to the City or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Property. To the extent permitted by law, the City shall, at its expense, indemnify and hold the Authority and the Trustee and all directors, members, officers, agents and employees thereof harmless against and from any and all claims by or on behalf of any person, firm, corporation or governmental authority arising from the acquisition, construction, occupation, use, operation, maintenance, possession, conduct or management of or from any work done in or about the Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restrictions, laws, ordinances, or regulations affecting the Property or the occupancy or use thereof, but excepting the negligence or willful misconduct of the persons or entity seeking indemnity. The City also covenants and agrees, at its expense, to pay and indemnify and save the Authority and the Trustee and all directors, officers and employees thereof harmless against and from any and all claims arising from: (a) any condition of the Property and the adjoining sidewalks and passageways; (b) any breach or default on the part of the City in the performance of any covenant or agreement to be performed by the City pursuant to this Lease Agreement; (c) any act or negligence of licensees in connection with their use, occupancy or operation of the Property; or (d) any accident, injury or damage whatsoever caused to any person, firm or corporation in or about the Property or upon or under the sidewalks and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any claim referred to in this Section, but excepting the negligence or willful misconduct of the person or entity seeking indemnity. In the event that any action or proceeding is brought against the Authority or the Trustee or any director, member, officer or employee thereof by reason of any such claim, the City, upon notice from the Authority or the Trustee or such director, member, officer employee thereof, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to the Authority or the Trustee or such director, member, officer or employee thereof. Section 8.05 Assignment and Subleasing. Neither this Lease Agreement nor any interest of the City hereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation by law or otherwise. The Property may not be subleased in whole or in part by the City without the prior written consent of the Authority. Any such sublease shall be subject to all of the following conditions: (a) this Lease Agreement and the obligation of the City to make all Rental Payments hereunder shall remain the primary obligation of the City; (b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) no such sublease by the City shall cause the Property to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the Constitution and laws of the State of California; (d) any sublease of the Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under the Lease Agreement, including the right to re-enter and re -let the Property or terminate the Lease Agreement upon a default by the City; and 15 (e) the City shall furnish the Authority and the Trustee with an Opinion of Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Section 8.06 Title to Property. Upon the termination or expiration of this Lease Agreement (other than as provided in Sections 6.01 and 7.01 hereof), and the first date upon which the Bonds are no longer Outstanding, all right, title and interest in and to the Property shall vest in the City. Upon any such termination or expiration, the Authority shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Section 8.07 Authority's Purpose. The Authority covenants that, prior to the discharge of this Lease Agreement and the Bonds, it will not engage in any activities that are inconsistent with the purposes for which the Authority is organized, as set forth in the Joint Powers Agreement. Section 8.08 Representations of the City. The City represents and warrants to the Authority that: (a) the City has the full power and authority to enter into, to execute and to deliver this Lease Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement and the Indenture; and (b) the Property will be used in the performance of essential governmental functions. Section 8.09 Representation of the Authority. The Authority represents and warrants to the City that the Authority has the full power and authority to enter into, to execute and to deliver this Lease Agreement, the Assignment Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement, the Assignment Agreement and the Indenture. Section 8.10 Environmental Compliance. (a) The City will not use or permit the Property or any part thereof to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the Property or conduct lawful activities of the City on the Property and then, only in compliance with all federal, state and local laws and regulations, now or later in effect, with respect to Hazardous Materials, nor will it permit, as a result of any intentional or unintentional act or omission on its part or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation, disposal or use of Hazardous Materials or the release or threat of release of Hazardous Materials on, from or beneath the Property or onto any other property excluding, however, those Hazardous Materials in those amounts ordinarily found in the inventory of a municipal government, the use, storage, treatment, transportation and disposal of which is in compliance with all environmental regulations. (b) The City will comply with, and will cause all tenants, subtenants, licensees, guests, invitees, contractors, employees and agents on the Property to comply with, all environmental regulations, and will keep the Property free and clear of any liens imposed pursuant thereto; provided, however, that notwithstanding that a portion of the foregoing covenant is limited to the City's use of its best efforts, the City will remain solely responsible for ensuring such compliance and such limitation will not diminish or affect in any way the City's environmental compliance obligations as provided in the Lease Agreement. Upon receipt of any notice from any person with regard to the release of Hazardous Materials on, from or beneath the Property, the City will give prompt written notice thereof 16 to the Trustee prior to the expiration of any period in which to respond to such notice under any environmental regulation. (c) The City will, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Series 2017 Bond Owners, their partners, depositors and each of their respective employees, agents, officers, directors, trustees, successors and assigns, from and against any claims, demands, penalties, fines, attorneys' fees (including, without limitation, attorneys' fees and expenses incurred to enforce the indemnification contained in this Section 8.10), consultants' fees, investigation and laboratory fees, liabilities, settlements, court costs, damages, losses, costs or expenses of whatever kind or nature, known or unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to: (i) the disposal, release, threat of release, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Property; (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials; (iii) any lawsuit brought or threatened, settlement reached or governmental order relating to Hazardous Materials on, from or beneath the Property; (iv) any violation of environmental regulations or Sections 8.10(a) or (b) by the City or any of its agents, tenants, employees, contractors, licensees, guests, subtenants or invitees; and (v) the imposition of any governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is strictly liable under any environmental regulation, its obligation to the Series 2017 Bond Owners and the other indemnitees under the foregoing indemnification will likewise be without regard to fault on its part with respect to the violation of any environmental regulation which results in liability to any indemnitee. The foregoing obligations and liabilities under will survive the payment and satisfaction of all Series 2017 Bonds, and with regard to the Trustee the resignation and removal of the Trustee. Section 8.11 Covenant against Condemnation. The City hereby covenants and agrees, to the extent that it may lawfully do so, that so long as any of the Series 2017 Bonds remain Outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Property. The City further covenants and agrees, to the extent that it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City should fail or refuse to abide by such covenant and condemns the Property, then the appraised value of the Property will not be less than: (a) if such Series 2017 Bonds are then subject to redemption, the principal and interest components of the Series 2017 Bonds outstanding through the date of their redemption; or (ii) if such Series 2017 Bonds are not then subject to redemption, the amount necessary to defease such Series 2017 Bonds to the first available redemption date in accordance with the Indenture. ARTICLE IX NO CONSEQUENTIAL DAMAGES; USE OF THE PROPERTY; SUBSTITUTION OR RELEASE Section 9.01 No Consequential Damages. In no event shall the Authority or the Trustee be liable for any incidental, indirect, special or consequential damage in connection with or arising out of this Lease Agreement or the City's use of the Property. Section 9.02 Use of the Property. The City will not use, operate or maintain the Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or 17 judicial body exercising any power or jurisdiction over the Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner which does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Property or its interest or rights under this Lease Agreement. Section 9.03 Substitution or Release of the Property. The City shall have the right to substitute alternate real property for any portion of the Property or to release a portion of the Property from this Lease Agreement. All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution or release of Property pursuant to this subsection, there shall be no reduction in or abatement of the Base Rental Payments due from the City hereunder as a result of such substitution or release. Any such substitution or release of any portion of the Property shall be subject to the following specific conditions, which are hereby made conditions precedent to such substitution or release: (a) The City shall have delivered a certificate to the Trustee setting forth its findings that the Property, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period; and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds; (b) the City shall have obtained or caused to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in the amount at least equal to the aggregate principal amount of any Outstanding Bonds of the type and with the endorsements described in Section 5.02 hereof, (c) the City shall have provided the Trustee with an Opinion of Counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes; (d) the City, the Authority and the Trustee shall have executed, and the City shall have caused to be recorded with the Orange County Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained herein and in the Ground Lease; and (e) the City shall have provided notice of such substitution to each rating agency then rating the Bonds. ARTICLE X MISCELLANEOUS Section 10.01 Law Governing. THIS LEASE AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE PROVISIONS HEREOF AND BY THE LAWS OF THE STATE OF CALIFORNIA AS THE SAME FROM TIME TO TIME EXIST. Section 10.02 Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: 18 If to the City: City of Costa Mesa 77 Fair Drive Costa Mesa, CA 92626 Attention: City Manager If to the Authority: Costa Mesa Financing Authority c/o City of Costa Mesa 77 Fair Drive Costa Mesa, CA 9226 Attention: Executive Director Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed: (a) if personally served or delivered, upon delivery; (b) if given by electronic communication, whether by telex, telegram or telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment; (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail; (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier; or (e) if given by any other means, upon delivery at the address specified in this Section. Section 10.03 Validity and Severability. If for any reason this Lease Agreement shall be held by a court of competent jurisdiction to be void, voidable or unenforceable by the Authority or by the City, or if for any reason it is held by such a court that any of the covenants and conditions of the City hereunder, including the covenant to pay Rental Payments, is unenforceable for the full term hereof, then and in such event this Lease Agreement is and shall be deemed to be a Lease Agreement under which the Rental Payments are to be paid by the City annually in consideration of the right of the City to possess, occupy and use the Property, and all of the terms, provisions and conditions of this Lease Agreement, except to the extent that such terms, provisions and conditions are contrary to or inconsistent with such holding, shall remain in full force and effect. Section 10.04 Net -Net -Net Lease. This Lease Agreement shall be deemed and construed to be a "net -net -net lease" and the City hereby agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever and notwithstanding any dispute between the City and the Authority. Section 10.05 Taxes. The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the term of this Lease Agreement as and when the same become due. The City or any sublessee may, at the City's or such sublessee's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority or the Trustee shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Property will be materially endangered or the Property, or any part 19 thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the Trustee. Section 10.06 Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Lease Agreement. Section 10.07 Amendments. (a) This Lease Agreement and the Ground Lease may be amended and the rights and obligations of the Authority and the City hereunder and thereunder may be amended at any time by an amendment hereto or thereto which shall become binding upon execution and delivery by the Authority and the City, but only with the prior written consent of the Owners of a majority of the principal amount of the Bonds then Outstanding pursuant to the Indenture, provided that no such amendment shall: (i) extend the payment date of any Base Rental Payments, reduce the interest component or principal component of any Base Rental Payments or change the prepayment terms and provisions, without the prior written consent of the Owner of each Bond so affected; or (ii) reduce the percentage of the principal amount of the Bonds the consent of the Owners of which is required for the execution of any amendment of this Lease Agreement or the Ground Lease. (b) This Lease Agreement and the Ground Lease and the rights and obligations of the Authority and the City hereunder and thereunder may also be amended at any time by an amendment hereto or thereto which shall become binding upon execution by the Authority and the City, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed herein or therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved herein or therein to or conferred herein or therein on the Authority or the City, and which in either case shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or therein or in regard to questions arising hereunder or thereunder which the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and which shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest on the Bonds; (iv) to provide for the substitution or release of all or a portion of the Property in accordance with the provisions of Section 9.03 hereof, (v) to provide for the issuance of Additional Bonds in accordance with Article III of the Indenture; or 20 (vi) to make such other changes herein or therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and which shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel. Section 10.08 Assignment. The City and the Authority hereby acknowledge the assignment of this Lease Agreement (except for the Authority's obligations and its rights to give consents or approvals hereunder), and the Base Rental Payments payable hereunder, to the Trustee pursuant to the Assignment Agreement. To the extent that this Lease Agreement confers upon or gives or grants the Trustee any right, remedy or claim under or by reason of this Lease Agreement, the Trustee 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 10.09 Execution. This Lease Agreement 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 Agreement. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK] 21 IN WITNESS WHEREOF, the Authority and the City have caused this Lease Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA City Manager COSTA MESA FINANCING AUTHORITY am S-1 Chairperson [TO COME] EXHIBIT A-1 DESCRIPTION OF THE 2026 TERMINATION PARCELS A-1-1 [TO COME] EXHIBIT A-2 DESCRIPTION OF THE 2042 TERMINATION PARCELS A-2-1 EXHIBIT B BASE RENTAL PAYMENT SCHEDULE Date (Second Day Prior to) Principal Component 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 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 10/1/2036 4/1/2037 10/1/2037 4/1/2038 10/1/2038 WE Interest Component Total Base Rental Date (Second Day Prior to) Principal Component Interest Component Total Base Rental 4/1/2039 10/1/2039 4/1/2040 10/1/2040 4/1/2041 10/1/2041 4/1/2042 10/1/2042 AttnrhmPnt 5 Stradling Yocca Carlson & Rauth Draft of 8116117 INDENTURE by and among COSTA MESA FINANCING AUTHORITY and CITY OF COSTA MESA and U.S. BANK NATIONAL ASSOCIATION, as Trustee Dated as of October 1, 2017 Relating to COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; EQUAL SECURITY Section1.01 Definitions.....................................................................................................................2 Section1.02 Equal Security............................................................................................................. 11 ARTICLE II THE BONDS Section 2.01 Authorization of Bonds............................................................................................... 11 Section 2.02 Terms of Series 2017 Bonds....................................................................................... 11 Section 2.03 Form of Series 2017 Bonds......................................................................................... 12 Section 2.04 Transfer and Exchange of Bonds................................................................................ 13 Section 2.05 Registration Books......................................................................................................13 Section 2.06 Execution of Bonds.....................................................................................................13 Section 2.07 Authentication of Bonds.............................................................................................13 Section 2.08 Temporary Bonds........................................................................................................13 19 Section 2.09 Bonds Mutilated, Lost, Destroyed or Stolen...............................................................14 Section 2.10 Book -Entry Bonds...................................................................................................... 14 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01 Issuance of Series 2017 Bonds.................................................................................... 16 Section 3.02 Application of Proceeds of the Series 2017 Bonds.....................................................16 Partial Redemption of Bonds .......... Section3.03 [Reserved]...................................................................................................................16 Section 5.05 Section 3.04 Costs of Issuance Fund...............................................................................................16 Investment of Moneys .......................... Section 3.05 Construction Fund.......................................................................................................16 Section 3.06 Conditions for the Issuance of Additional Bonds.......................................................17 Section 3.07 Procedure for the Issuance of Additional Bonds........................................................18 Section 3.08 Additional Bonds........................................................................................................ 19 ARTICLE IV REDEMPTION OF BONDS Section 4.01 Redemption of Series 2017 Bonds.. Section 4.02 Notice of Redemption ..................... Section 4.03 Selection of Bonds for Redemption Section 4.04 Partial Redemption of Bonds .......... Section 4.05 Effect of Notice of Redemption...... ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01 Pledge; Special Obligations ................. Section 5.02 Flow of Funds ...................................... Section 5.03 Application of Net Insurance Proceeds Section 5.04 Title Insurance ..................................... Section 5.05 Rebate Fund ......................................... Section 5.06 Investment of Moneys .......................... I 19 20 21 21 21 21 22 23 24 24 26 TABLE OF CONTENTS (continued) Page ARTICLE VI COVENANTS Section 6.01 Compliance with Agreements..................................................................................... 27 Section 6.02 Compliance with Ground Lease and Lease Agreement .............................................. 27 Section 6.03 Observance of Laws and Regulations......................................................................... 27 Section6.04 Other Liens.................................................................................................................. 27 Section 6.05 Prosecution and Defense of Suits............................................................................... 28 Section 6.06 Accounting Records and Statements........................................................................... 28 Section 6.07 Recordation and Filing................................................................................................ 28 Section 6.08 Tax Covenants............................................................................................................ 28 Section 6.09 Continuing Disclosure................................................................................................ 29 Section 6.10 Further Assurances...................................................................................................... 29 ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01 Action on Default........................................................................................................ 29 Section 7.02 Other Remedies of the Trustee.................................................................................... 30 Section7.03 Non-Waiver................................................................................................................. 30 Section 7.04 Remedies Not Exclusive............................................................................................. 30 Section 7.05 No Liability by the Authority to the Owners.............................................................. 31 Section 7.06 No Liability by the City to the Owners....................................................................... 31 Section 7.07 No Liability of the Trustee to the Owners.................................................................. 31 Section 7.08 Application of Amounts After Default....................................................................... 31 Section 7.09 Trustee May Enforce Claims Without Possession of Bonds ...................................... 31 Section 7.10 Limitation on Suits...................................................................................................... 32 ARTICLE VIII THE TRUSTEE Section 8.01 Employment of the Trustee ................................. Section 8.02 Duties, Removal and Resignation of the Trustee Section 8.03 Compensation of the Trustee .............................. Section 8.04 Protection of the Trustee ..................................... ARTICLE IX MODIFICATION OR AMENDMENTS Section 9.01 Modifications and Amendments Permitted ............. Section 9.02 Effect of Supplemental Indenture ........................... Section 9.03 Endorsement of Bonds; Preparation of New Bonds Section 9.04 Amendment of Particular Bonds ............................. ARTICLE X DEFEASANCE Section 10.01 Discharge of Indenture ........................................ Section 10.02 Bonds Deemed To Have Been Paid .................... Section 10.03 Payment of Bonds After Discharge of Indenture ii 32 32 33 34 36 38 38 38 38 39 39 TABLE OF CONTENTS (continued) Page ARTICLE XI MISCELLANEOUS Section 11.01 Benefits of Indenture Limited to Parties..................................................................... 40 Section 11.02 Successor Deemed Included in all References to Predecessor ................................... 40 Section 11.03 Execution of Documents by Owners.......................................................................... 40 Section 11.04 Waiver of Personal Liability.......................................................................................40 Section 11.05 Destruction of Bonds.................................................................................................. 40 Section 11.06 Funds and Accounts.................................................................................................... 41 Section 11.07 Article and Section Headings Gender and References ............................................... 41 Section 11.08 Partial Invalidity..........................................................................................................41 Section 11.09 Disqualified Bonds......................................................................................................41 Section 11.10 Money Held for Particular Bonds............................................................................... 42 Section 11.11 Payment on Non -Business Days................................................................................. 42 Section 11.12 California Law............................................................................................................ 42 Section11.13 Notices........................................................................................................................ 42 Section 11.14 Notice to Rating Agencies.......................................................................................... 43 Section 11.15 Execution in Counterparts...........................................................................................43 Signatures................................................................................................................................... S-1 EXHIBIT A FORM OF SERIES 2017 BOND ..... EXHIBIT B DESCRIPTION OF THE PROJECT ui A-1 B-1 INDENTURE THIS INDENTURE (this "Indenture"), executed and entered into as of October 1, 2017, is by and among the COSTA MESA FINANCING AUTHORITY, a joint exercise of powers entity that is duly organized and existing under the laws of the State of California (the "Authority"), the CITY OF COSTA MESA, a municipal corporation and general law city that is duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association that is duly organized and existing under and by virtue of the laws of the United States, as Trustee (the "Trustee"). RECITALS A. The City and the Authority desire to finance the construction of various public improvements within the City, and such other projects identified in the City's capital improvement plan or as approved by an Opinion of Counsel to the effect that such other projects or improvements will not adversely affect the exclusion of interest on any tax-exempt Bonds from gross income for federal income tax purposes (as set forth in Exhibit B, the "2017 Project"). B. The City and the Authority desire to refinance a portion of the costs of the acquisition, construction and installation of various public improvements of the City that were originally financed from the proceeds of the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (as set forth in Exhibit B, the "Refunding Project"). C. The 2017 Project and the Refunding Project are collectively referred to herein as the "Project." D. In order to finance the 2017 Project and refinance the Refunding Project, the City will lease certain real property and the improvements located thereon (the "Property") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the "Lease Agreement"). E. The City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance the 2017 Project and refinance the Refunding Project through the issuance by the Authority of bonds that are payable from the base rental payments (the "Base Rental Payments") to be made by the City under the Lease Agreement. F. All rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof. G. The Authority and the City desire to provide for the issuance by the Authority of Costa Mesa Financing Authority 2017 Lease Revenue Bonds (the "Series 2017 Bonds"), in the aggregate principal amount of $ , in order to finance the 2017 Project and refinance the Refunding Project. H. The Series 2017 Bonds will be payable equally and ratably from the Base Rental Payments. I. The Authority and the City desire to provide for the issuance of additional bonds (the "Additional Bonds") payable from the Base Rental Payments on a parity with the Series 2017 Bonds (the Series 2017 Bonds and any such Additional Bonds being collectively referred to as the "Bonds"). J. In order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Authority and the City have authorized the execution and delivery of this Indenture. K. The Authority and the City have determined that all acts and proceedings that are required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture has been in all respects duly authorized. In consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties do hereby agree as follows: ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes hereof and of any amendment hereof or supplement hereto and of the Bonds and of any certificate, opinion, request or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein. Capitalized terms that are not otherwise defined herein shall have the meanings assigned to such terms in the Lease Agreement. "Additional Bonds" means Bonds other than the Series 2017 Bonds issued hereunder in accordance with the provisions of Sections 3.06 and 3.07 hereof. "Act" means the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code. "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.02 of the Lease Agreement. "Assignment Agreement" means the Assignment Agreement, dated as of the date hereof, by and between the Authority and the Trustee. "Authority" means the Costa Mesa Financing Authority, a joint exercise of powers entity that is duly organized and existing under and by virtue of the laws of the State of California. "Authorized Authority Representative" means the Chairperson, Vice Chairperson, Executive Director, Treasurer and Secretary of the Authority, or any other person authorized by the Board of Directors of the Authority to act on behalf of the Authority under or with respect to this Indenture. 2 "Authorized City Representative" means the Mayor of the City, the Mayor Pro Tem of the City, the City Manager of the City, the Director of Finance of the City or the City Clerk, or any other person authorized by the City Council of the City to act on behalf of the City under or with respect to this Indenture. "Authorized Denominations" means $5,000 or any integral multiple thereof. "Base Rental Payment Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Base Rental Payments" means all amounts payable to the Authority by the City as Base Rental Payments pursuant to Section 3.01 of the Lease Agreement. "Beneficial Owner" means, whenever used with respect to a Book -Entry Bond, the person whose name is recorded as the beneficial owner of such Book -Entry Bond or a portion of such Book -Entry Bond by a Participant on the records of such Participant or such person's subrogee. "Bonds" means the Series 2017 Bonds and any Additional Bonds issued hereunder. "Book -Entry Bonds" means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.10 hereof. "Business Day" means a day which is not: (a) a Saturday, Sunday or legal holiday; (b) a day on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close; or (c) a day on which the New York Stock Exchange is closed. "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book -Entry Bonds. "City" means the City of Costa Mesa, a municipal corporation and general law city that is duly organized and existing under and by virtue of the Constitution and laws of the State of California. "Closing Date" means August _, 2017. "Code" means the Internal Revenue Code of 1986, as amended. "Construction Fund" means the fund by that name established in accordance with Section 3.05 hereof. "Continuing Disclosure Certificate" means the Continuing Disclosure Certificate, dated as of the date hereof, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Costs of Issuance" means all of the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with this Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, market study fees, legal fees, municipal advisor and other consultant fees, printing fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. "Costs of Issuance Fund" means the fund by that name established in accordance with Section 3.04 hereof. "DTC" means The Depository Trust Company, a limited -purpose trust company organized under the laws of the State of New York, and its successors as securities depository for any Series of Book -Entry Bonds, including any such successor appointed pursuant to Section 2.10 hereof. "Escrow Agent" means The Bank of New York Mellon Trust Company, N.A. "Escrow Agreement (2007 Certificates)" means the Escrow Agreement (2007 Certificates), dated as of the date hereof, by and between the City and the Escrow Agent. "Federal Securities" means: (a) non -callable direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), fully and unconditionally guaranteed as to timely payment; and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America, provided that such securities are eligible for defeasance under the then -existing criteria of S&P. "Ground Lease" means the Ground Lease, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement. "Indenture" means this Indenture, as originally executed and as it may be amended or supplemented from time to time by any Supplemental Indenture. "Information Services" means the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. "Interest Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Interest Payment Date" means April 1 and October 1 of each year, commencing on April 1, 2018. "Lease Agreement" means the Lease Agreement, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may be from time to time amended in accordance with the provisions thereof. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer 4 perform the function of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. "Net Insurance Proceeds Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or the agency of the Trustee at which, at any particular time, its corporate trust agency shall be conducted as specified to the Authority and the City by the Trustee in writing. "Opinion of Counsel" means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority or the City and which written opinion, if to be delivered to the Trustee, is satisfactory to the Trustee. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09 hereof) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.01 hereof; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. "Owner" means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the book -entry system of maintaining records with respect to Book -Entry Bonds. "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Certificate. "Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Trustee is entitled to rely upon the investment direction of the City as a determination that such investment is a legal investment): (a) 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, and CATS and TIGRS) or obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. 5 (b) Bonds, debentures, notes or other evidence 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 have been stripped by the agency itself): (i) U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership (ii) Farmers Home Administration (FmHA) Certificates of beneficial ownership (iii) Federal Financing Bank (iv) Federal Housing Administration Debentures (FHA) (v) General Services Administration Participation certificates (vi) Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA — guaranteed mortgage-backed bonds GNMA — guaranteed pass-through obligations (vii) U.S. Maritime Administration Guaranteed Title XI financing (viii) U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures — U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds — U.S. government guaranteed public housing notes and bonds. (c) Bonds, debentures, notes or other evidence 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 have been stripped by the agency itself): (i) Federal Home Loan Bank Syste Senior debt obligations (ii) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations (iii) Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage-backed securities and senior debt obligations (iv) Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations (v) Resolution Funding Corp. (REFCORP) obligations rel (vi) Farm Credit System Consolidated systemwide bonds and notes. (d) Money market mutual funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2, including funds for which the Trustee and its affiliates provide investment advisory, custodial transfer agency and other management services, and receive and retain a fee for such services provided to the fund. (e) Certificates of deposit (including those placed by a third party pursuant to a separate agreement between the Authority and the Trustee) secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks or mutual savings banks 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 bondholders must have a perfected first security interest in the collateral. (f) Bank deposit products, certificates of deposit (including those placed by a third party pursuant to a separate agreement between the Authority and the Trustee), savings accounts, deposit accounts, including time deposits, trust funds, trust accounts, overnight bank deposits, interest bearing accounts, interest bearing money market accounts, banker's acceptances, money market deposits which are fully insured by FDIC, including BIF and SAIF, including those of the Trustee and its affiliates. (g) Investment agreements, including guaranteed investment contracts. (h) Commercial paper rated, at the time of purchase, "Prime -1" by Moody's and "A-1" or better by S&P. (i) Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest long-term rating categories assigned by such agencies. 0) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime -1" or "A3" or better by Moody's and "A-1+" or better by S&P. (k) Repurchase agreements or reverse repurchase agreements (Repos) that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer/lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. Repos must satisfy the following criteria: (1) Repos must be among the City, the Trustee and a dealer bank or securities firm (i) Primary dealers on the Federal Reserve reporting dealer list which are rated "A" or better by S&P and Moody's, or (ii) Banks rated "A" or above by S&P and Moody's. (b) The written repo contract must include the following: 7 (i) Securities which are acceptable for transfer are: (a) Direct U.S. Governments (b) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) (ii) The term of the repo may be up to 30 days (iii) The collateral must be delivered to the City or the Trustee (if Trustee is not supplying the collateral) or third party acting as agent for the Trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). (iv) Valuation of Collateral (a) The securities must be valued weekly, marked -to -market at current market pricel�us accrued interest (b) The value of collateral must be equal to 104% of the amount of cash transferred by the City or the Trustee, on behalf of the City, to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by District or the Trustee, on behalf of the City, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. (c) Legal opinion which must be delivered to the City and the Trustee. Repos must also meet guidelines under state law for legal investment of public funds. (1) The Local Agency Investment Fund of the State, created pursuant to Section 16429.1 of the California Governmental Code, to the extent that the Trustee is authorized to register such investment in its own name. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. hereof. "Principal Fund" means the fund by that name established in accordance with Section 5.02 "Project" has the meaning set forth in the Recitals hereof. "Project Costs" means all costs of acquiring, constructing and installing the 2017 Project, including, but not limited to: (a) all costs which the Authority or the City shall be required to pay to a seller or any other person under the terms of any contract or contracts for the purchase of the 2017 Project; (b) all costs which the Authority or the City shall be required to pay a contractor or any other person for the acquisition, construction and installation of the 2017 Project; (c) obligations of the Authority or the City incurred for services (including obligations payable to the Authority or the City for actual out-of-pocket expenses of the Authority or the City) in connection with the acquisition, construction and installation of the 2017 Project, including reimbursement to the Authority or the City for all advances and payments made in connection with the 2017 Project prior to or after delivery of the Bonds; (d) the actual out-of-pocket costs of the Authority or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the 2017 Project, including administrative expenses under the Lease Agreement and hereunder relating to the acquisition, construction and installation of the 2017 Project; and (e) any sums required to reimburse the Authority or the City for advances made by the Authority or the City for any of the above items or for any other costs incurred and for work done by the Authority or the City which are properly chargeable to the 2017 Project. "Rebate Fund" means the fund by that name established in accordance with Section 5.05 hereof. "Rebate Requirement" has the meaning ascribed thereto in the Tax Certificate. "Record Date" means the fifteenth day of the month next preceding an Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Redemption Price" means the aggregate amount of principal of, accrued interest to the date of redemption on and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Refunding Project" has the meaning set forth in the Recitals hereof. "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05 hereof. "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the period from the Closing Date through September 30, 2017 and, thereafter, the twelve-month period commencing on October 1 of each year during the term of the Lease Agreement. "Representation Letter" means the Letter of Representations from the Authority to DTC, or any successor securities depository for any Series of Book -Entry Bonds, in which the Authority makes E certain representations with respect to issues of its securities for deposit by DTC or such successor depository. "S&P" means S&P Global Ratings, a Standard & Poor's Financial Services LLC business, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. "Securities Depositories" means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. "Series" means the Series 2017 Bonds executed, authenticated and delivered on the Closing Date and identified pursuant to this Indenture and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. "Series 2017 Bonds" means the Costa Mesa Financing Authority 2017 Lease Revenue Bonds issued hereunder. "Supplemental Indenture" means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Certificate" means the Tax Certificate executed by the Authority and the City at the time of issuance of the Series 2017 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Trustee" means U.S. Bank National Association, a national banking association that is duly organized and existing under and by virtue of the laws of the United States, or any successor thereto as Trustee hereunder, appointed as provided herein. "2017 Costs of Issuance Account" means the account by that name within the Costs of Issuance Fund established pursuant to Section 3.04. "2017 Project" has the meaning set forth in the Recitals hereof. "Written Certificate of the Authority" and "Written Request of the Authority" mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Authority Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. "Written Certificate of the City" and "Written Request of the City" mean, respectively, a written certificate or written request signed in the name of the City by an Authorized City Representative. Any such certificate or request may, but need, not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. 10 Section 1.02 Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Authority or the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. ARTICLE II THE BONDS Section 2.01 Authorization of Bonds. The Authority hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture and applicable laws of the State of California for the purposes of financing the 2017 Project and refinancing the Refunding Project. The Bonds may consist of one or more Series of Bonds of varying denominations, dates, maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. Section 2.02 Terms of Series 2017 Bonds. (a) The Series 2017 Bonds shall be designated the "Costa Mesa Financing Authority 2017 Lease Revenue Bonds." Each Series of Additional Bonds shall bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. (b) The Series 2017 Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Series 2017 Bond shall have more than one maturity date. The Series 2017 Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on October 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: 11 Maturity Date Principal (October 1) Amount Interest Rate 20 $ % (c) Interest on the Series 2017 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless: (i) a Series 2017 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date; (ii) a Series 2017 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the dated date thereof, or (iii) interest on any Series 2017 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2017 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2017 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. (d) The principal and premium, if any, of the Series 2017 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (e) The Series 2017 Bonds shall be subject to redemption as provided in Article IV. Section 2.03 Form of Series 2017 Bonds. The Series 2017 Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. 12 Section 2.04 Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.05 Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the City; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. Section 2.06 Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the facsimile signature of an Authorized Officer of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers of the Authority before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers of the Authority, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. Section 2.07 Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.08 Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such authorized denominations as may be 13 determined by the Authority, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds of a Series, it will execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds of such Series may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of such Series in Authorized Denominations. Until so exchanged, the temporary Bonds of such Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. Section 2.09 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and Series in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or in accordance with the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and Series in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee. Any Bond of a Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.10 Book -Entry Bonds. (a) Prior to the issuance of a Series of Bonds, the Authority may provide that such Series of Bonds shall initially be issued as Book -Entry Bonds and, in such event, the Bonds of such Series for each maturity shall be in the form of a separate single fully registered Bond (which may be typewritten). The Series 2017 Bonds shall initially be issued as Book -Entry Bonds. Except as provided in subsection (c) of this Section, the registered Owner of all of the Book - Entry Bonds shall be Cede & Co., as nominee of DTC. Notwithstanding anything to the contrary contained in this Indenture, payment of interest with respect to any Book -Entry Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. on the Interest Payment Date at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. (b) The Trustee and the Authority may treat DTC (or its nominee) as the sole and exclusive Owner of Book -Entry Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to Book -Entry Bonds, selecting Book -Entry Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, registering the transfer of Book -Entry Bonds, obtaining any 14 consent or other action to be taken by Owners of Book -Entry Bonds and for all other purposes whatsoever, and neither the Trustee nor the Authority shall be affected by any notice to the contrary. Neither the Trustee nor the Authority shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in Book -Entry Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant, the payment by DTC or any Participant of any amount in respect of the principal, premium, if any, or interest with respect to Book -Entry Bonds, any notice which is permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of Book -Entry Bonds, or any consent given or other action taken by DTC as Owner of Book -Entry Bonds. The Trustee shall pay all principal, premium, if any and interest with respect to Book -Entry Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to the principal, premium, if any, and interest with respect to the Book -Entry Bonds to the extent of the sum or sums so paid. Except under the conditions of subsection (c) of this Section, no person other than DTC shall receive an executed Book -Entry Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions herein with respect to record dates, the term "Cede & Co." in this Indenture shall refer to such new nominee of DTC. (c) In the event that: (i) DTC, including any successor as securities depository for a Series of Bonds, determines not to continue to act as securities depository for such Series of Bonds; or (ii) the Authority determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the book - entry system with the incumbent securities depository for such Series of Bonds. If the Authority determines to replace the incumbent securities depository for such Series of Bonds with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate fully registered Bond of such Series for the aggregate outstanding principal amount of Bonds of such Series of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Authority, the Trustee and the successor securities depository for the Bonds of such Series as are not inconsistent with the terms of this Indenture. If the Authority fails to identify another qualified successor securities depository for such Series of Bonds to replace the incumbent securities depository, then the Bonds of such Series shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for such Series of Bonds, or its nominee, shall designate. In such event the Authority shall execute, and deliver to the Trustee, a sufficient quantity of Bonds of such Series to carry out the transfers and exchanges provided in Sections 2.04, 2.08 and 2.09 hereof. All such Bonds of such Series shall be in fully registered form in Authorized Denominations. (d) Notwithstanding any other provision of this Indenture to the contrary, so long as any Book -Entry Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Book -Entry Bond and all notices with respect to such Book -Entry Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book -Entry Bonds pursuant to this Indenture by the Authority, the City or the Trustee with respect to any consent or other action to be taken by Owners, the Authority, the City or the Trustee, as 15 the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01 Issuance of Series 2017 Bonds. The Authority may, at any time, execute the Series 2017 Bonds for issuance hereunder and deliver the same to the Trustee. The Trustee shall authenticate the Series 2017 Bonds and deliver the Series 2017 Bonds to the original purchaser thereof upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor. Section 3.02 Application of Proceeds of the Series 2017 Bonds. On the Closing Date, the proceeds of the sale of the Series 2017 Bonds received by the Trustee, $ , shall be deposited by the Trustee as follows: (a) The Trustee shall deposit the amount of $ in the 2017 Costs of Issuance Account. (b) The Trustee shall transfer the amount of $ to the Escrow Agent for deposit in the escrow fund that has been established under the Escrow Agreement (2007 Certificates). (c) The Trustee shall deposit the amount of $ in the Construction Fund. Section 3.03 [Reserved] Section 3.04 Costs of Issuance Fund. The Trustee shall establish and maintain a separate fund designated the "Costs of Issuance Fund," and within such fund the "2017 Costs of Issuance Account." On the Closing Date, there shall be deposited in the 2017 Costs of Issuance Account the amount specified in Section 3.02(a) hereof. There shall additionally be deposited in the Costs of Issuance Fund the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Authority stating: (a) the Person to whom payment is to be made; (b) the amount to be paid, together with payment instructions; (c) the purpose for which the obligation was incurred; (d) that such payment is a proper charge against the Costs of Issuance Fund; and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. Each such Written Request of the Authority 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 six month anniversary of the Closing Date, all amounts, if any, remaining in the 2017 Costs of Issuance Account shall be withdrawn therefrom by the Trustee and transferred to the Interest Fund, and the 2017 Costs of Issuance Account shall be closed. Section 3.05 Construction Fund. 16 (a) The Trustee shall establish and maintain a separate fund designated the "Construction Fund." On the Closing Date there shall be deposited in the Construction Fund the amount specified in Section 3.02(c) hereof. (b) The moneys in the Construction Fund shall be used and withdrawn by the Trustee from time to time to pay Project Costs upon submission of a Written Request of the City stating: (i) the Person to whom payment is to be made; (ii) the amount to be paid, together with payment instructions; (iii) the purpose for which the obligation was incurred; (iv) that such payment constitutes a Project Cost and is a proper charge against the Construction Fund; and (v) that such amounts have not been the subject of a prior disbursement from the Construction Fund, in each case together with a statement or invoice for each amount requested thereunder. Each such Written Request of the City 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. (c) Upon the filing of a Written Certificate of the City stating that the 2017 Project has been completed and that all Project Costs have been paid, the Trustee shall transfer and apply the amount, if any, remaining in the Construction Fund: (x) if such amount is equal to or greater than $50,000, to the Redemption Fund to be used to optionally redeem Bonds, provided that the amount so transferred shall not exceed the amount required to provide for the redemption of all Outstanding Bonds; and (y) if such amount is less than $50,000, to the Base Rental Payment Fund to be used for the purposes thereof. Section 3.06 Conditions for the Issuance of Additional Bonds. The Authority may at any time issue one or more Series of Additional Bonds (in addition to the Series 2017 Bonds) payable from Base Rental Payments as provided herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant hereto and shall have been provided for by a Supplemental Indenture which shall specify the following: (1) The application of the proceeds of the sale of such Additional Bonds; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that: (i) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on October 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on October 1; (ii) the Additional Bonds shall be payable as to interest semiannually on April 1 and October 1 of each year, except that the first installment of interest may be payable on either April 1 or October 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on April 1 and October 1; (iii) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination; and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be 17 established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; Bonds; (4) The redemption premiums and terms, if any, for such Additional (5) The form of such Additional Bonds; and (6) Such other provisions that are appropriate or deemed necessary by the Authority and are not inconsistent with the provisions hereof, (b) The Authority shall be in compliance with all agreements, conditions, covenants and terms contained herein, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; (c) The City shall be in compliance with all agreements, conditions, covenants and terms contained herein, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; and (d) The Ground Lease shall have been amended, to the extent necessary, and the Lease Agreement shall have been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment shall be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period shall be in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith (evidence of the satisfaction of such condition shall be made by a Written Certificate of the City). Nothing contained herein shall limit the issuance of any bonds or other obligations payable from Base Rental Payments if, after the issuance and delivery of such bonds or other obligations, none of the Bonds theretofore issued hereunder will be Outstanding. Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth herein, Additional Bonds may not be issued if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists, unless such default will be cured upon such issuance. Section 3.07 Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the Authority for issuance hereunder and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: (a) Certified copies of the Supplemental Indenture authorizing the issuance of such Additional Bonds, the amendment to the Lease Agreement required by Section 3.06 hereof and the amendment to the Ground Lease, if any, required by Section 3.06 hereof, together with satisfactory evidence that such amendment to the Lease Agreement and such amendment to the Ground Lease, if any, have been duly recorded; 18 (b) A Written Request of the Authority as to the delivery of such Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that: (i) the Indenture (including all Supplemental Indentures), the Lease Agreement (including the amendment thereto required by Section 3.06 hereof) and the Ground Lease (including any amendment thereto required by Section 3.06 hereof) have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of, the Authority and the City, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California); (ii) such Additional Bonds constitute valid and binding special obligations of the Authority payable solely from Base Rental Payments as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California); and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on the Bonds Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes; (d) a Written Certificate of the Authority that the requirements of Section 3.06 hereof have been met; (e) a Written Certificate of the City that the requirements of Section 3.06 hereof and Sections 5.01 and 5.02 of the Lease Agreement have been met, and a Written Certificate of the City as to the fair rental value of the Property, after giving effect to the execution and delivery of the Additional Bonds, and to the use of proceeds received therefrom; and (f) Such further documents as are required by the provisions hereof or by the provisions of the Supplemental Indenture authorizing the issuance of such Additional Bonds. Section 3.08 Additional Bonds. So long as any of the Bonds remain Outstanding, the Authority shall not issue any Additional Bonds or obligations payable from the Base Rental Payments, except pursuant to Sections 3.06 and 3.07 hereof. ARTICLE IV REDEMPTION OF BONDS Section 4.01 Redemption of Series 2017 Bonds. (a) Extraordinary Redemption. The Series 2017 Bonds shall be subject to redemption, in whole or in part, on any date as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to Sections 5.03 and 5.04 hereof, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. 19 (b) Optional Redemption. The Series 2017 Bonds maturing on or after October 1, 20_, shall be subject to optional redemption, in whole or in part, on _ 1, 20_ or any date thereafter, as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to subsection (a) of Section 7.02 of the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. (c) Mandatory Sinking Fund Redemption. The Series 2017 Bonds with stated maturities on October 1, 20_ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20_ and each October 1 thereafter, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (October 1) Amount 20 $ 20—* * Final Maturity. If, during the Fiscal Year immediately preceding one of the redemption dates specified above, the Authority purchases Series 2017 Bonds, at least 45 days prior to the redemption date, the Authority shall notify the Trustee as to the principal amount purchased and the amount of Series 2017 Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming mandatory sinking fund redemption payment for the Series 2017 Bonds so purchased. All Series 2017 Bonds purchased pursuant to this subsection shall be cancelled pursuant to Section 11.09. In the event of a redemption pursuant to Section 4.01(a) or (b) or in the event of the purchase of Series 2017 Bonds, the City shall provide the Trustee with a revised mandatory sinking fund schedule giving effect to the redemption so completed. Section 4.02 Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Such notice may state that such redemption is conditioned upon sufficient funds being on deposit on the redemption date to redeem the Bonds so called for redemption. Such notice of redemption may also state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds. Neither the failure to receive any notice so mailed, nor any defect in such 20 notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Section 4.03 Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption: (a) with respect to any optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority; (b) with respect to any redemption pursuant to Section 4.01(a) hereof and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable; and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.04 Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.05 Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01 Pledge; Special Obligations. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund are hereby pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds 21 in accordance with their terms, the provisions of this Indenture and the Act. Said pledge shall constitute a first lien on such assets. All obligations of the Authority under this Indenture shall be special obligations of the Authority, payable solely from Rental Payments and the other assets pledged therefor hereunder; provided, however, that all obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 5.02 Flow of Funds. (a) The Trustee shall establish and maintain separate funds designated the "Base Rental Payment Fund," the "Interest Fund," the "Principal Fund," the "Redemption Fund" and the "Net Insurance Proceeds Fund." All Base Rental Payments shall be paid directly by the City to the Trustee, and if received by the Authority at any time shall be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee shall be deposited by the Trustee in the Base Rental Payment Fund. (b) The Trustee shall transfer the amounts on deposit in the Base Rental Payment Fund, at the times and in the manner hereinafter provided, to the following respective funds: (i) Interest Fund. On the Business Day immediately preceding each Interest Payment Date, the Trustee shall transfer from the Base Rental Payment Fund to the Interest Fund the amount, if any, necessary to cause the amount on deposit in the Interest Fund to be equal to the interest due on the Bonds on such Interest Payment Date. (ii) Principal Fund. On the Business Day immediately preceding each October 1, commencing October 1, 20 , the Trustee shall transfer from the Base Rental Payment Fund to the Principal Fund the amount, if any, necessary to cause the amount on deposit in the Principal Fund to be equal to the principal amount of the Bonds due on such October 1 either as a result of the maturity thereof or mandatory sinking fund redemption payments required to be made with respect thereto. Moneys in the Principal Fund shall be used by the Trustee for the purpose of paying the principal of the Bonds when due and payable at their maturity dates or upon earlier mandatory sinking fund redemption. (iii) Redemption Fund. The Trustee, on the redemption date specified in the Written Request of the City filed with the Trustee at the time that any prepaid Base Rental Payment is paid to the Trustee pursuant to the Lease Agreement, shall deposit in the Redemption Fund that amount of moneys representing the portion of the Base Rental Payments designated as prepaid Base Rental Payments. Additionally, the Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Sections 5.03 or 5.04 hereof. Moneys in the Redemption Fund shall be used by the Trustee for the purpose of paying the principal of and interest and premium, if any, on Series 2017 Bonds redeemed pursuant to the provisions of subsections (a) and (b) of Section 4.01 hereof and Additional Bonds redeemed pursuant to the corresponding provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued; provided, however, that moneys deposited in the Redemption Fund may also be used to purchase Outstanding Series 2017 22 Bonds or Additional Bonds in the manner hereinafter provided. Purchases of Outstanding Series 2017 Bonds or Additional Bonds may be made by the Authority at public or private sale as and when and at such prices as the Authority may in its discretion determine, but only at prices (including brokerage or other expenses) not more than par plus accrued interest, plus, in the case of moneys set aside for an optional redemption or an extraordinary redemption, the premium applicable at the next following call date according to the premium schedule established pursuant to Sections 4.01(a) or (b), as applicable, or in the case of Additional Bonds the premium established in any Supplemental Indenture. Any accrued interest payable upon the purchase of Series 2017 Bonds or Additional Bonds may be paid from the amount reserved in the Interest Fund. (iv) Surplus. Moneys on deposit in the Base Rental Payment Fund not necessary to make any of the payments required above may be expended by the Authority at any time for any purpose permitted by law as directed by the Authority. (c) Upon receipt of a Written Certificate of the City pursuant to Section 3.06 of the Lease Agreement that the City has commenced repairs of the Property, the Trustee will transfer moneys from the Redemption Fund at the times and in the manner required by subsection (b)(iii) above if and to the extent there are insufficient funds in the Base Rental Payment Fund to make such transfers. Upon receipt of a Written Certificate of the City pursuant to Section 3.06 of the Lease Agreement that the City has completed repairs of the Property and will recommence to make Base Rental Payments or that the City has determined not to make such repairs and made the certifications required pursuant to the Lease Agreement, the Trustee will transfer any funds remaining on deposit in the Redemption Fund to the City for any lawful use. Section 5.03 Application of Net Insurance Proceeds. If the Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Property or the affected portion thereof in accordance with the provisions hereof. The Net Insurance Proceeds (other than Net Insurance Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in the Net Insurance Proceeds Fund and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Each such Written Request of the City 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. Pending such application, such proceeds may be invested by the Trustee as directed by the City in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Property or the portions of the Property which were damaged or destroyed. If the City does intend to replace or repair the Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the Net Insurance Proceeds Fund. In the event of any damage to or destruction of the Property caused by one of the perils covered by the insurance required by Section 5.01(c) of the Lease Agreement which would result in an 23 abatement of rental payments or any portion thereof pursuant to Section 3.06 thereof, then the City shall apply the Net Insurance Proceeds, together with other legally available funds that the City elects to contribute, to the repair, reconstruction or replacement of the damaged or destroyed portions of the Property; provided, however, that the City shall not be required to repair or replace any portion of the Property pursuant to this Section 5.03 if such Net Insurance Proceeds, together with any other amounts held under this Indenture and any other legally available funds made available by the City at its election, are sufficient to prepay: (i) all of the Outstanding Bonds; or (ii) a portion of the Outstanding Bonds such that the resulting Base Rental Payments under Section 4.01(a) in any Rental Period following such partial prepayment are sufficient to pay in such Rental Period the principal of and interest on all Bonds to remain Outstanding immediately after such partial redemption. If the City is not required to replace or repair the Property, or the affected portion thereof, or to use such amounts to redeem Bonds, in each case as set forth in this Section 5.03, then such proceeds shall, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Property after such damage or destruction is at least equal to the principal amount of the Outstanding Bonds, be paid to the City to be used for any lawful purpose. The proceeds of any award in eminent domain received in respect to the Property shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued. Section 5.04 Title Insurance. Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows: (a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City upon written direction from the City and used for any lawful purpose thereof, or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Property and will result in an abatement of Rental Payments payable by the City under the Lease Agreement, then the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued, as directed in writing by the City. Section 5.05 Rebate Fund. (a) Establishment. The Trustee shall establish a fund for the Bonds designated the "Rebate Fund" when required in accordance herewith. Absent an Opinion of Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected, the Authority shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States 24 Treasury. All amounts on deposit in the Rebate Fund for the Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee: (1) shall be deemed conclusively to have complied with the provisions thereof if it follows all Written Requests of the Authority or Written Requests of the City; (2) shall have no liability or responsibility to enforce compliance by the Authority or the City with the terms of the Tax Certificate and shall not be deemed to have knowledge of the terms thereof, (3) may rely conclusively on the Authority's or the City's calculations and determinations and certifications relating to rebate matters; and (4) shall have no responsibility to independently make any calculations or determinations or to review the Authority's or the City's calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the Authority shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "1%% Penalty") has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the "Rebatable Arbitrage"). The Authority shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the Authority or Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from any Rental Payments legally available for such purpose (as specified by the Authority or the City in the aforesaid Written Request), if and to the extent required, so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the Authority or Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Base Rental Payment Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund: (1) Not later than 60 days after the end of (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (2) Not later than 60 days after the payment of all of the Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations. 25 In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the Authority), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the Bonds and the payments described in subsection (a) above being made may be withdrawn by the Authority and utilized in any manner by the Authority. (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the Bonds. Section 5.06 Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the Authority. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture; provided, however, that such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date. Absent timely written direction from the Authority, the Trustee shall hold any funds held by it uninvested. Subject to the provisions of Section 5.06 hereof, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture shall be retained in such fund or account. Permitted Investments acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. In determining fair market value, the Trustee may use and rely conclusively on any generally recognized securities pricing service available to it (including brokers and dealers in securities). The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Authority, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. The Trustee may make any investments hereunder through the bond or investment department or trust investment department of the entity acting as Trustee hereunder, or those of such entity's parent or any affiliate, and such entity, or its parent or affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services. 26 The entity acting as Trustee hereunder, or any of its affiliates, may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder and such entity, or its affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services. The Authority and the City acknowledge that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority and the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, the Authority and the City specifically waive receipt of such confirmations to the extent permitted by law. ARTICLE VI COVENANTS Section 6.01 Compliance with Agreements. The Trustee will not authenticate or deliver any Bonds in any manner other than in accordance with the provisions hereof, and the Authority and the City will not suffer or permit any default by them to occur hereunder, but will faithfully comply with, keep, observe and perform all of the agreements, conditions, covenants and terms hereof required to be complied with, kept, observed and performed by them. Section 6.02 Compliance with Ground Lease and Lease Agreement. The Authority and the City will faithfully comply with, keep, observe and perform all of the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms. Section 6.03 Observance of Laws and Regulations. The Authority, the City and the Trustee will faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State of California, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.04 Other Liens. The City will keep the Property and all parts thereof free from judgments and materialmen's and mechanics' liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days' written notice to comply therewith and failure of the City to so comply within such ten-day period) may, but is in no event obligated to, defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its liability hereunder and to perform such agreements and covenants. 27 So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. The Authority, the City and the Trustee shall not encumber the Property other than in accordance with the Ground Lease, the Lease Agreement, the Indenture and the Assignment Agreement. Section 6.05 Prosecution and Defense of Suits. The City will promptly, upon request of the Trustee (which request the Trustee is not required to make), take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Property or any part thereof, whether now existing or hereafter developing, will prosecute all actions, suits or other proceedings as may be appropriate for such purpose and will indemnify and save the Trustee harmless from all cost, damage, expense or loss, including attorneys' fees and expenses, which it or the Owners may incur by reason of any such cloud, defect, action, suit or other proceeding. Section 6.06 Accounting Records and Statements. The Trustee will keep proper accounting records in which complete and correct entries shall be made of all transactions relating to the receipt, deposit and disbursement of the Base Rental Payments, and such accounting records shall be available for inspection by the Authority and the City at reasonable hours and under reasonable conditions. Section 6.07 Recordation and Filing. The City will record, or cause to be recorded, with the appropriate county recorder, the Lease Agreement, the Ground Lease and the Assignment Agreement, or memoranda thereof. Section 6.08 Tax Covenants. Notwithstanding any other provision of the Indenture, absent an Opinion of Counsel that the exclusion from gross income of the interest on the Bonds will not be adversely affected for federal income tax purposes, the City and the Authority covenant to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the Bonds and specifically covenant, without limiting the generality of the foregoing, as follows: (a) Private Activity. The City and the Authority will not take any action or refrain from taking any action or make any use of the proceeds of the Bonds or of any other moneys or property which would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code; (b) Arbitrage. The City and the Authority will make no use of the proceeds of the Bonds or of any other amounts or property, regardless of the source, and will not take any action or refrain from taking any action which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code; (c) Federal Guarantee. The City and the Authority will make no use of the proceeds of the Bonds and will not take or omit to take any action that would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City and the Authority will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of 28 the Code necessary to preserve the exclusion of interest on the Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The City and the Authority will make no use of the proceeds of the Bonds or any other amounts or property, regardless of the source, and will not take any action or refrain from taking any action that would cause the Bonds to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the City and the Authority take all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Bonds for federal income tax purposes; and (f) Miscellaneous. The City and the Authority will not take any action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the City and the Authority from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the Bonds, the interest with respect to which has been determined by an Opinion of Counsel to be subject to federal income taxation. Section 6.09 Continuing Disclosure. The City will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an event of default hereunder; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon being indemnified to its reasonable satisfaction therefor, shall) or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.10 Further Assurances. Whenever and so often as requested to do so by the Trustee, the Authority and the City will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Trustee all advantages, benefits, interests, powers, privileges and rights conferred or intended to be conferred upon it hereby or by the Assignment Agreement, the Ground Lease or the Lease Agreement, and to preserve the priority of the pledge of the Rental Payments under applicable law. ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01 Action on Default. If an event of default (within the meaning of Article VI of the Lease Agreement) shall happen, then such event of default shall constitute an event of default hereunder. The Trustee shall give notice, as assignee of the Authority, of an event of default under the Lease Agreement to the City to the extent that it has actual knowledge thereof. In each and every case during the continuance of an event of default, the Trustee may and, at the direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, and upon being indemnified to its reasonable satisfaction therefor, shall, upon notice in writing to the City and the Authority, exercise any of the remedies granted to the Authority under the Lease Agreement and, in 29 addition, take whatever action at law or in equity may appear necessary or desirable to enforce its rights as assignee pursuant to the Assignment Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.02 hereof. Section 7.02 Other Remedies of the Trustee. Subject to the provisions of Section 7.01 hereof, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or (c) by suit in equity upon the happening of any event of default hereunder to require the Authority and the City to account as the trustee of an express trust. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.03 Non -Waiver. A waiver of any default or breach of duty or contract by the Trustee shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee by law or by this Article may be enforced and exercised from time to time and as often as the Trustee shall deem expedient. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 7.04 Remedies Not Exclusive. Subject to the provisions of Section 7.01 hereof, no remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 30 Section 7.05 No Liability by the Authority to the Owners. Except as expressly provided herein, the Authority shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of the other agreements and covenants required to be performed by it contained in the Lease Agreement or herein, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. Section 7.06 No Liability by the City to the Owners. Except for the payment when due of the Base Rental Payments and the performance of the other agreements and covenants required to be performed by it contained in the Lease Agreement, the Ground Lease or herein, the City shall not have any obligation or liability to the Owners with respect to the Indenture or the preparation, execution, delivery or transfer of the Bonds or the disbursement of the Base Rental Payments by the Trustee to the Owners, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. Section 7.07 No Liability of the Trustee to the Owners. Except as expressly provided herein, the Trustee shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the Authority or the City of the other agreements and covenants required to be performed by them contained in the Lease Agreement, the Ground Lease or herein. Section 7.08 Application of Amounts After Default. All payments received by the Trustee with respect to the rental of the Property after a default by the City pursuant to Article VI of the Lease Agreement (including, without limitation, any proceeds received in connection with the sale, assignment or sublease of the Authority's right, title and interest in the Ground Lease), and all damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under Article VI of the Lease Agreement, shall be deposited into the Base Rental Payment Fund and as soon as practicable thereafter applied, together with all other funds held hereunder (except funds in the Rebate Fund): (a) to the payment of all amounts due to the Trustee under Article VIII hereof, (b) to the payment of all amounts then due for interest on the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable; and (c) to the payment of all amounts then due for principal of the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal of such Bonds due and payable. Section 7.09 Trustee May Enforce Claims Without Possession of Bonds. All rights of action and claims under this Indenture or the Bonds may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable 31 compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners in respect of which such judgment has been recovered. Section 7.10 Limitation on Suits. No Owner of any Bond shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or Trustee, or for any other remedy hereunder, unless: (a) such Owner shall have previously given written notice to the Trustee of a continuing event of default; (b) the Owners of not less than 25% of the aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee to institute proceedings in respect of such event of default in its own name as Trustee hereunder; (c) such Owner or Owners shall have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such proceedings; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such 60 day period by the Owners of a majority of the aggregate principal amount of Bonds then Outstanding; it being understood and intended that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Owner, or to obtain or seek to obtain priority or preference over any other Owner or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Owners. ARTICLE VIII THE TRUSTEE Section 8.01 Employment of the Trustee. The Authority hereby appoints and employs the Trustee to receive, deposit and disburse the Base Rental Payments, to authenticate, deliver and transfer the Bonds and to perform the other functions contained herein, all in the manner provided herein and subject to the conditions and terms hereof. By executing and delivering this Indenture, the Trustee accepts the appointment and employment hereinabove referred to and accepts the rights and obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other than when an event of default has occurred and is continuing, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. In case an event of default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Trustee hereby covenants and agrees that it will not encumber the Property. Section 8.02 Duties, Removal and Resignation of the Trustee. The Authority may, by an instrument in writing, remove the Trustee initially a parry hereto and any successor thereto unless an event of default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if at any time: (a) requested to do so by an instrument or concurrent instruments in writing signed by the Owners of a majority of the aggregate principal amount of Bonds at the time Outstanding (or their attorneys duly authorized in writing); or (b) the Trustee shall cease to be eligible in accordance with the following sentence, and shall appoint a successor Trustee. The Trustee and any successor Trustee shall be a banking corporation or association or trust company having (or if such banking corporation or association or trust company is a member of a bank holding company, its bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authorities. 32 If such banking corporation or 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 above referred to, then for the purposes of this Section the combined capital and surplus of such bank, 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 may at any time resign by giving written notice of such resignation to the Authority and the City and by giving notice, by first class mail, postage prepaid, of such resignation to the Owners at their addresses appearing on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event the Authority does not appoint a successor Trustee within 30 days following receipt of such notice of resignation, the resigning Trustee may, at the expense of the Authority, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of a Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided that such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Indenture and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.03 Compensation of the Trustee. The City shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include "overhead expenses" except as such expenses are included as a component of the Trustee's stated annual fees) hereunder, including but not limited to advances to and reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder. The Trustee may take whatever legal actions are lawfully available to it directly against the Authority or the City. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents and employees harmless against any liabilities, costs, suits, judgments, damages, claims or expenses, including those of its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder, under the Lease Agreement, or in connection with any document or transaction contemplated hereunder or thereunder, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its misconduct. The duty of the City to indemnify the Trustee shall survive the termination and discharge of this Indenture and the earlier removal or resignation of the Trustee. No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers hereunder. 33 Upon an event of default, and only upon an event of default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, and interest on any Bond, upon the trust estate for the foregoing fees, charges and expenses incurred by it. When the Trustee incurs expenses or renders services after the occurrence of an event of default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. Section 8.04 Protection 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, voucher, waiver or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the proper party or pursuant to any of the provisions hereof, 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, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Owners of the Bonds pursuant to this Indenture, unless such Owners shall have offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the reasonable costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect to any action taken or suffered by it hereunder in good faith in accordance therewith. The Trustee shall not be responsible for the sufficiency of the Bonds or the Lease Agreement, or of the assignment made to it by the Assignment Agreement, or for statements made in any preliminary or final official statement relating to the Bonds, or of the title to the Property. Whenever in the administration of its rights and obligations hereunder the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the City or a Written Certificate of the Authority, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof 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 it deems reasonable. The Trustee may buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party hereto. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the City, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Authority or the City as freely as if it were not the Trustee hereunder. The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform any rights and obligations required of it hereunder by or through agents, attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable care; provided, however, that in the event 34 of any negligence or misconduct of any such attorney, agent or receiver, the Trustee shall in a commercially reasonable manner pursue all remedies of the Trustee against such agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or for anything whatsoever in connection with the funds established hereunder, except only for its own willful misconduct or negligence. The Trustee shall not be deemed to have knowledge of an event of default unless it has actual knowledge thereof. The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Authority or the City is a party and which, in the opinion of the Trustee and its counsel, affects the Bonds or the security therefor, and shall do so if requested in writing by the Owners of at least 5% of the aggregate principal amount of Bonds then Outstanding, provided that the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action. The Trustee's rights to immunities and protection from liability hereunder and its rights to payment of its fees and expenses shall survive its resignation or removal and final payment or defeasance of the Bonds. All indemnifications and releases from liability granted herein to the Trustee shall extend to the directors, officers, employees and agents of the Trustee. The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default. The Trustee shall have no responsibility or liability with respect to any information, statements or recitals in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds. The Trustee shall not be accountable for the use or application by the Borrower of any of the Bonds or the proceeds thereof or for the use or application of any money paid over by the Trustee in accordance with the provisions of this Indenture or for the use and application of money received by any paying agent. The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions ("Instructions") given pursuant to this Indenture and delivered using Electronic Means. ("Electronic Means" shall mean the following communications methods: e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder). The Authority and the City shall provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions ("Authorized Officers") and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the Authority whenever a person is to be added or deleted from the listing. If the Authority elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee's understanding of such Instructions shall be deemed controlling. The Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the 35 incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The Authority shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the Authority and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the Authority. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such Instructions notwithstanding the fact that such directions conflict or are inconsistent with a subsequent written instruction. The Authority agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the Authority; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term "force majeure" means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include but not be limited to acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences. In acting or omitting to act pursuant to the Assignment Agreement, the Lease Agreement, Ground Lease or any other document executed in connection herewith or therewith, the Trustee shall be entitled to all of the rights, immunities and indemnities accorded to it under this Indenture and the Lease Agreement, including, but not limited to, this Article VIII. ARTICLE IX MODIFICATION OR AMENDMENTS Section 9.01 Modifications and Amendments Permitted. (a) This Indenture and the rights and obligations of the Authority, the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Trustee. No such modification or amendment shall: (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the Owner of each Bond so affected; or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment; or (iii) permit the creation of any lien on the Base Rental Payments and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture or deprive the Owners of the Bonds of the lien created by this Indenture on such Base Rental Payments and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. 36 (b) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Bond Owners, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III hereof, (iv) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (v) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the Authority, the City and the Trustee. (c) Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. (d) No Supplemental Indenture shall modify any of the rights or obligations of the Trustee without its prior written consent. (e) In executing, or accepting the additional trusts created by, any Supplemental Indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall receive, and shall be fully protected in relying upon, an opinion addressed and delivered to the Trustee stating that the execution of such Supplemental Indenture is permitted by and in compliance with this Indenture and that the execution and delivery thereof will not in and of itself adversely affect the exclusion from federal gross income tax of interest on the Bonds. 37 Section 9.02 Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all of the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03 Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Authority so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of such Owner's Bonds for such purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity. Section 9.04 Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. ARTICLE X DEFEASANCE Section 10.01 Discharge of Indenture. If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners of such Bonds shall cease to be entitled to the pledge of the Base Rental Payments and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority and the City to the Owners of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the City all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on such Bonds. Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if, at the time of such payment, the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by them on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease to be entitled to the lien of this Indenture and such lien and all covenants, agreements and other obligations of the Authority 38 and the City hereunder shall cease, terminate become void and be completely discharged as to such Bonds. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non -presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the compensation and indemnity of the Trustee shall remain in effect and shall be binding upon the Trustee, the City and the Authority. Section 10.02 Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bonds and the interest thereon at the maturity or redemption date thereof, such Bonds shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01 hereof. Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if: (a) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.02 hereof, notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with Section 4.02 hereof; (b) there shall have been deposited with the Trustee either: (i) money in an amount which shall be sufficient; or (ii) Federal Securities that are not subject to redemption other than at the option of the holder thereof, the interest on and principal of which when paid will provide money which, together with the money, if any deposited with the Trustee at the same time, shall, as verified in writing by an independent certified public accountant, be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds; and (c) in the event that such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bonds that the deposit required by clause (b) above has been made with the Trustee and that such Bonds, are deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bonds. Section 10.03 Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, to the extent permitted by law, any moneys held by the Trustee in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the Authority (without liability for interest) free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee may (at the cost of the Authority) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee 39 with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS Section 11.01 Benefits of Indenture Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the Authority, the City, the Trustee and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the Authority or the City shall be for the sole and exclusive benefit of the Trustee and the Owners. Section 11.02 Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee, or any officer thereof, is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.03 Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient. The ownership of any Bonds and the amount, payment date, number and date of owning the same may be proved by the Registration Books. Any declaration, request or other instrument in writing of the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done by the Authority, the City or the Trustee in good faith and in accordance therewith. Section 11.04 Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the City or the Authority from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby. Section 11.05 Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee may, in lieu of such cancellation and delivery, destroy such Bonds. 40 Section 11.06 Funds and Accounts. Any fund or account required to be established and maintained herein by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund, but all such records with respect to all such funds and accounts shall at an times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Owners. The Trustee may commingle any of the moneys held by it hereunder for investment purposes only; provided, however, that the Trustee shall account separately for the moneys in each fund or account established pursuant to this Indenture. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations hereunder. Section 11.07 Article and Section Headings Gender and References. The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of any gender shall include correlative words of the other genders. The headings or titles of the several Articles and Sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof. All references herein to "Articles," "Sections," subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words "hereby," "herein," "hereof," "hereto," "herewith," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, subsection or clause thereof. Section 11.08 Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Bonds pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.09 Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are actually known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; except that, in determining whether the Trustee shall be protected in relying upon any such demand, request, direction, consent or waiver of an Owner, only Bonds which the Trustee actually knows to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded unless all Bonds are so owned or held, in which case such Bonds shall be 41 considered Outstanding for the purpose of such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority and the City shall specify in a Written Certificate of the City and Authority those Bonds disqualified pursuant to this Section and the Trustee may conclusively rely on such Certificate. Section 11.10 Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon. Section 11.11 Payment on Non -Business Days. In the event that any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non -Business Day. Section 11.12 California Law. This Indenture shall be construed and governed in accordance with the laws of the State of California. Section 11.13 Notices. All written notices to be given hereunder shall be given by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: City of Costa Mesa 77 Fair Drive Costa Mesa, California 92626 Attention: City Manager If to the Authority: Costa Mesa Financing Authority c/o City of Costa Mesa 77 Fair Drive Costa Mesa, California 92626 Attention: Executive Director If to the Trustee: U.S. Bank National Association 633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, California 90071 Attention: U.S. Bank Global Corporate Trust Services Ref: City of Costa Mesa 2017 Bonds Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed: (a) if personally served or delivered, upon delivery; (b) if given by electronic communication, whether by telex, telegram or telecopier, upon the sender's receipt of an appropriate 42 answer back or other written acknowledgment; (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail; (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier; or (e) if given by any other means, upon delivery at the address specified in this Section. Section 11.14 Notice to Rating Agencies. The Trustee shall provide S&P, if the Bonds are then rated by S&P, and Moody's, if the Bonds are then rated by Moody's, with prompt notice of any substitution or release of property pursuant to Section 9.03 of the Lease Agreement. Section 11.15 Execution in Counterparts. This Indenture may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 43 IN WITNESS WHEREOF, the Authority and the City have caused this Indenture to be signed in their respective names by their representative thereunto duly authorized, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. ATTEST: Secretary ATTEST: City Clerk COSTA MESA FINANCING AUTHORITY Chairperson CITY OF COSTA MESA City Manager [SIGNATURES CONTINUED ON NEXT PA GEJ S-1 [SIGNATURE PAGE CONTINUED.] U.S. BANK NATIONAL ASSOCIATION, as Trustee Authorized Officer S-2 EXHIBIT A FORM OF SERIES 2017 BOND No. $ UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VAL UE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BOND INTEREST RATE MATURITY DATE October 1, 201 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: DATED DATE August _, 2017 DOLLARS CUSIP The Costa Mesa Financing Authority (the "Authority"), for value received, hereby promises to pay, solely from the Base Rental Payments (as hereinafter defined) or amounts in certain funds and accounts held under the Indenture (as hereinafter defined), to the Registered Owner identified above or registered assigns (the "Registered Owner"); on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on April 1 and October 1 in each year, commencing April 1, 2018 (the "Interest Payment Dates"), until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date, whether or not such day is a Business Day, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to March 15, 2018, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, interest on this Bond shall be payable from the date to which interest hereon has been paid in full, payable on each Interest Payment Date). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the Office of the Trustee (as hereinafter defined). Interest hereon is payable by wire or check of U.S. Bank National Association, as trustee (the "Trustee"), mailed by first class mail, postage prepaid, on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner shown on the Registration EN Books at the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City of Costa Mesa (the "City") by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or the agency of the Trustee at which, at any particular time, its corporate trust agency shall be conducted as specified to the Authority and the City by the Trustee in writing. This Bond is one of a series of a duly authorized issue of bonds issued for the purpose of refinancing the acquisition, construction and installation of certain capital improvements of the City, and is one of the series of bonds designated "Costa Mesa Financing Authority 2017 Lease Revenue Bonds" (the "Series 2017 Bonds") in the aggregate principal amount of $ . The Series 2017 Bonds are issued pursuant to the Indenture, dated as of October 1, 2017 (the "Indenture"), by and among the Authority, the City and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Indenture, additional bonds ("Additional Bonds"), may be issued by the Authority secured by a lien on a parity with the lien securing the Series 2017 Bonds. The Series 2017 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Indenture is entered into, and this Bond is issued under, the Marks -Roos Local Bond Pooling Act of 1985 (the "Act") and the laws of the State of California. Pursuant to the Indenture, the principal of and interest on the Bonds are payable solely from certain base rental payments (the "Base Rental Payments") under and pursuant to that certain Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), by and between the City, as lessee, and the Authority, as lessor, all of which rights to receive such Base Rental Payments have been assigned without recourse by the Authority to the Trustee. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. The Series 2017 Bonds are authorized to be issued in the form of fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof ("Authorized Denominations"). The Series 2017 Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any net insurance proceeds received with respect to all or a portion of the property leased under the Lease Agreement, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof, deposited by the Trustee in the Redemption Fund established under the Indenture, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. The Series 2017 Bonds maturing on or after October 1, 20_, shall be subject to optional redemption, in whole or in part, on 1, 20_ or any date thereafter, in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption. FEW The Series 2017 Bonds with stated maturities on October 1, 20_ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20 and each October 1 thereafter, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (October 1) Amount 20 $ 20 * Final Maturity If, during the Fiscal Year immediately preceding one of the redemption dates specified above, the Authority purchases Series 2017 Bonds, at least 45 days prior to the redemption date, the Authority will notify the Trustee as to the principal amount purchased and the amount of Series 2017 Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming mandatory sinking fund redemption payment for the Series 2017 Bonds so purchased. All Series 2017 Bonds purchased pursuant to the Indenture will be cancelled. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2017 Bonds designated for redemption, at their respective addresses appearing on the Registration Books, at least 20 but not more than 60 days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so mailed, nor any defect therein, shall affect the validity of the proceedings for the redemption of such Series 2017 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. The Redemption Price of the Series 2017 Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Office of the Trustee. From and after the date fixed for redemption of any Series 2017 Bonds, interest on such Series 2017 Bonds will cease to accrue and become payable. Subject to the limitations and upon payment of the charges, if any, provided in the Indenture, fully registered Series 2017 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series 2017 Bonds of other authorized denominations. This Bond is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series 2017 Bond or Series 2017 Bonds, in Authorized Denominations, for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority, the City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority, the City and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority, the City, the owners of the Bonds and the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indenture; provided that no such modification or amendment shall: (a) extend the fixed maturity of any Bonds, or reduce the principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the owner of each Bond so affected; or (b) reduce the percentage of Bonds the consent of the owners of which is required to effect any such A-3 amendment or modification; or (c) permit the creation of any lien on the Base Rental Payments and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture or deprive the owners of the Bonds of the lien created by the Indenture on such the Base Rental Payments and such other assets (except as expressly provided in the Indenture), without the consent of the owners of all Bonds then outstanding. The Indenture contains provisions permitting the Authority to make provision for the payment of interest on, and the principal and premium, if any, of any of the Bond so that such Bonds shall no longer be deemed to be outstanding under the terms of the Indenture. All obligations of the Authority under the Indenture shall be special obligations of the Authority, payable solely from Rental Payments and the other assets pledged therefor under the Indenture; provided, however, that all obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Joint Exercise of Powers Agreement, and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Chair and Secretary, all as of the Dated Date identified above. Attest: Secretary COSTA MESA FINANCING AUTHORITY M. Chair [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] FEW This is one of the Series 2017 Bonds described in the within -mentioned Indenture and registered on the Registration Books. Date: August _, 2017 U.S. BANK NATIONAL ASSOCIATION, as Trustee Authorized Signatory A-5 [FORM OF LEGAL OPINION] The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office. Secretary of the Costa Mesa Financing Authority [FORM OF ASSIGNMENT] For value, received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within -mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must guarantor. correspond with the name(s) as written on the face of the within pond in every particular without alteration or enlargement or any change whatsoever. A-6 EXHIBIT B DESCRIPTION OF THE PROJECT The 2017 Project Construction and equipping of improvements to Lions Park. These improvements include a two-story, 22,860 square foot library to be constructed in place of the existing community center and the repurposing of the existing Donald Dungan library, which will become the 20,000 square foot Neighborhood Community Center. The new library will include large meeting rooms, a children's area and an 890 square foot food area called the Mesa Cafe. The Neighborhood Community Center will include a 40 -seat meeting room, raised stage, new restrooms, a lobby entrance, catering kitchen and loading dock. The Refunding Project Construction and equipping of improvements to the Civic Center complex. These improvements include the renovation, expansion and seismic retrofitting of the City's Police Department facility, an 11,342 square foot single story addition to house expanded Property and Evidence sections, state of the art Crime Scene Investigation facilities, a large auditorium and Emergency Operations Center and dedicated training rooms. Additional parking and security fencing were also added. [CONFIRM ACTUAL EXPENDITURES] I:BI Attachment 6 Stradling Yocca Carlson & Rauth Draft of 911117 PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER , 2017 NEW ISSUE — BOOK -ENTRY ONLY Rating: Standard & Poor's: " See "RATING." In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the Series 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2017 Bonds is exempt from State of California personal income tax. See the caption "TAX MATTERS" with respect to tax consequences relating to the Series 2017 Bonds. Dated: Date of Delivery $28,625,000* COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS Due: October 1, as shown on inside cover The captioned bonds (the "Series 2017 Bonds") are issued by the Costa Mesa Financing Authority (the "Authority") and are payable from base rental payments (the "Base Rental Payments") to be made by the City of Costa Mesa (the "City") for the right to the use of certain real property, consisting of certain real property and improvements of the City (the "Property") pursuant to a Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), between the City, as lessee, and the Authority, as lessor. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS" The Series 2017 Bonds will be issued pursuant to an Indenture, dated as of October 1, 2017 (the "Indenture") among the City, the Authority and U.S. Bank National Association, as trustee (the "Trustee"). The Series 2017 Bonds are issued to provide funds to (i) finance certain capital improvements in the City, as described herein (the "Project"), (ii) refund all of the outstanding City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates"), and (iii) pay the costs of issuing the Series 2017 Bonds. See "THE PROJECT" and "REFUNDING PLAN." The City has covenanted under the Lease Agreement to make all scheduled Base Rental Payments, to include all such payments as a separate line item in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City's obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property. See "RISK FACTORS—Abatement." The Series 2017 Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Interest on the Series 2017 Bonds is payable semiannually on April 1 and October 1 of each year, commencing April 1, 2018. Purchasers will not receive certificates representing their interest in the Series 2017 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series 2017 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2017 Bonds. See "THE SERIES 2017 BONDS— Book-Entry Only System." The Authority may issue additional bonds ("Additional Bonds") payable from Base Rental Payments. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Additional Bonds." The Series 2017 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Series 2017 Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity as described in this Official Statement. See "THE SERIES 2017 BONDS—Redemption." No reserve fund has been created or will be funded with respect to the Series 2017 Bonds. The Series 2017 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2017 Bonds. The Authority has no taxing power. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Series 2017 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney. Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California is acting as disclosure counsel. Certain legal matters will be passed upon for the Underwriter by Jones Hall, a Professional Law Corporation, San Francisco, California, and for the Trustee by its counsel. It is anticipated that the Series 2017 Bonds in definitive form will be available for delivery to DTC on or about November — 2017. [Stifel Logo] Dated: October , 2017 Preliminary, subject to change. Principal Payment Date (October 1) $28,625,000* COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS MATURITY SCHEDULE BASE CUSIPt: Interest Principal Rate Yield Term Bonds due October 1, 2042`; Yield Price CUSIPt %; Price: ; CUSIPt: Preliminary, subject to change. t CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2017 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Authority, the City, or the Underwriter takes any responsibility for the accuracy of such numbers. No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Series 2017 Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of the Series 2017 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the Series 2017 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement and the information contained in this Official Statement are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described in this Official Statement since the date hereof. 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. This Official Statement is being submitted in connection with the sale of the Series 2017 Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. 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 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project," "budget," "intend" or similar words. Such forward-looking statements include, but are not limited to, certain statements contained under the caption "THE PROJECT," the information in APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA" and under the caption "RISK FACTORS." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE SERIES 2017 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2017 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE SERIES 2017 BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE SERIES 2017 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2017 Bonds. 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Irvine J;,-, _ , —wf Huntington Beach rg AdamSAve{ ° 8'`� ma Costa •` al[YIdA' Pak A Mesa All la Avo n ~ 3 -1 ewport Bay ey uspr p < Reganai Park aej E r ,•� a k•Caae` tlji But', any q 1hrp 1 CEbry San Newport �� Joaquin �? Beach 5°° Hills yon Jpa Qbrn H�ns¢d O Corona ay i del Mar a a ' F3'r•n �I o Pol¢an HAI 2 '�B. [ryalal ^q 1 Cov slate .I 4►� Pack �a. L]aunaCoast a CITY OF COSTA MESA, CALIFORNIA CITY COUNCIL Katrina Foley, Mayor Sandra Genis, Mayor Pro Tem John Stephens, Member James Righeimer, Member Allan Mansoor, Member COSTA MESA FINANCING AUTHORITY Katrina Foley, Chair Sandra Genis, Vice Chair John Stephens, Boardmember James Righeimer, Boardmember Allan Mansoor, Boardmember CITY/AUTHORITY STAFF Thomas R. Hatch, City Manager/Executive Director Tamara Letourneau, Assistant City Manager/Administrative Services Director/Assistant Executive Director Brenda Green, City Clerk/Secretary Stephen Dunivent, Interim Finance Director/Treasurer Colleen O'Donoghue, Assistant Finance Director Thomas P. Duarte, Esq., City Attorney SPECIAL SERVICES Bond and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Municipal Advisor Fieldman, Rolapp & Associates, Inc. Irvine, California Verification Agent Grant Thornton LLP Minneapolis, Minnesota Trustee U.S. Bank National Association Los Angeles, California TABLE OF CONTENTS INTRODUCTION................................................................................................................................................1 ESTIMATED SOURCES AND USES OF FUNDS............................................................................................3 REFUNDINGPLAN............................................................................................................................................3 THEPROJECT.....................................................................................................................................................4 BASE RENTAL PAYMENT SCHEDULE......................................................................................................... 5 THESERIES 2017 BONDS.................................................................................................................................6 General.............................................................................................................................................................. 6 Registration, Transfers and Exchanges............................................................................................................. 6 Redemption....................................................................................................................................................... 6 Book -Entry Only System.................................................................................................................................. 8 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS.............................................9 Pledgeof Revenues........................................................................................................................................... 9 AdditionalBonds...............................................................................................................................................9 BaseRental Payments.....................................................................................................................................10 AdditionalRental Payments............................................................................................................................11 Abatement.......................................................................................................................................................11 Substitutionand Release of Property ...............................................................................................................12 Terminationof Lease Agreement....................................................................................................................13 Actionon Default............................................................................................................................................13 NoReserve Fund.............................................................................................................................................13 Insurance.........................................................................................................................................................14 THEPROPERTY...............................................................................................................................................14 THE CITY OF COSTA MESA..........................................................................................................................15 THEAUTHORITY............................................................................................................................................15 RISKFACTORS................................................................................................................................................15 General Considerations — Security for the Series 2017 Bonds........................................................................16 Abatement.......................................................................................................................................................16 NoReserve Fund.............................................................................................................................................17 Substitution and Release of Property; Additional Bonds................................................................................17 Limited Recourse on Default; No Acceleration of Base Rental......................................................................17 Possible Insufficiency of Insurance Proceeds.................................................................................................18 NaturalDisasters.............................................................................................................................................18 HazardousSubstances.....................................................................................................................................19 OtherFinancial Matters...................................................................................................................................19 Limitationson Remedies.................................................................................................................................20 No Liability of Authority to the Owners.........................................................................................................21 SecondaryMarket............................................................................................................................................21 STATE OF CALIFORNIA BUDGET INFORMATION...................................................................................21 StateBudget....................................................................................................................................................21 Potential Impact of State Financial Condition on the City..............................................................................23 RedevelopmentDissolution.............................................................................................................................23 FutureState Budgets.......................................................................................................................................24 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ............25 Article XIIIA of the State Constitution...........................................................................................................25 Article XIIIB of the State Constitution............................................................................................................25 Proposition62..................................................................................................................................................26 Proposition218................................................................................................................................................26 UnitaryProperty ..............................................................................................................................................27 Proposition22..................................................................................................................................................27 Proposition1A.................................................................................................................................................27 Proposition26..................................................................................................................................................28 FutureInitiatives..............................................................................................................................................28 TAXMATTERS.................................................................................................................................................28 CERTAINLEGAL MATTERS.........................................................................................................................30 MUNICIPALADVISOR...................................................................................................................................30 LITIGATION.....................................................................................................................................................30 VERIFICATION OF MATHEMATICAL ACCURACY..................................................................................31 UNDERWRITING.............................................................................................................................................32 RATING............................................................................................................................................................. 32 CONTINUING DISCLOSURE ................................................. FINANCIAL STATEMENTS OF THE CITY MISCELLANEOUS ...... 32 33 35 APPENDIX A GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA.................................................................................................................................... A-1 APPENDIX B SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS .............................................. B-1 APPENDIX C COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF COSTA MESA FOR THE YEAR ENDED JUNE 30, 2016............................................................... C-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION.......................................................D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ................................................ E-1 APPENDIX F BOOK -ENTRY ONLY SYSTEM.........................................................................................F-1 OFFICIAL STATEMENT $28,625,000* COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS INTRODUCTION Series 2017 Bonds. This Official Statement, which includes the cover page and Appendices (the "Official Statement"), provides certain information concerning the captioned bonds (the "Series 2017 Bonds") issued by the Costa Mesa Financing Authority (the "Authority"). The Series 2017 Bonds will be issued pursuant to the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code (the "Act"), and an Indenture, dated as of October 1, 2017 (the "Indenture"), among the Authority, the City of Costa Mesa (the "City") and U.S. Bank National Association, as trustee (the "Trustee"). The Series 2017 Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Interest on the Series 2017 Bonds is payable semiannually on April 1 and October 1 of each year, commencing April 1, 2018. Purchasers will not receive certificates representing their interest in the Series 2017 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest on the Series 2017 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2017 Bonds. See "THE SERIES 2017 BONDS—Book-Entry Only System." Redemption Prior to Maturity. The Series 2017 Bonds are subject to redemption prior to maturity as described in this Official Statement. See "THE SERIES 2017 BONDS—Redemption." Financing Purpose. The Series 2017 Bonds are being issued to provide funds to: (i) finance certain capital improvements in the City, as described herein (the "Project"); (ii) refund all of the outstanding City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates"); and (iii) pay certain costs of issuing the Series 2017 Bonds. See "THE PROJECT" and "REFUNDING PLAN." Security for the Series 2017 Bonds, Base Rental Payments. The Series 2017 Bonds are equally and ratably payable from base rental payments (the "Base Rental Payments") to be made by the City for the right to use certain real property and improvements (the "Property") pursuant to a Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), between the City, as lessee, and the Authority, as lessor. Pursuant to a Ground Lease, dated as of October 1, 2017 (the "Ground Lease"), the City has leased the Property to the Authority. The Authority has subleased the Property to the City under the Lease Agreement. The Lease Agreement obligates the City to make Base Rental Payments to the Authority. k Preliminary, subject to change. The Trustee and the Authority have entered into an Assignment Agreement, dated as of October 1, 2017, (the "Assignment Agreement"), pursuant to which the Authority has assigned to the Trustee for the benefit of the Series 2017 Bond Owners substantially all of the Authority's right, title and interest in and to the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments due under the Lease Agreement and to enforce any remedies in the event of a default by the City. The City covenants under the Lease Agreement to take such action as may be necessary to include all Rental Payments, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Property, administrative costs of the Authority relating to the Property, fees and expenses of the Trustee and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described in this Official Statement. Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City's right to use and occupy the Property or any portion thereof. See "RISK FACTORS—Abatement." Abatement of Base Rental Payments under the Lease Agreement, to the extent payment is not made from alternative sources as set forth in the following sentence, would result in all Series 2017 Bond Owners receiving less than the full amount of principal of and interest on the Series 2017 Bonds. To the extent moneys in any of the funds and accounts established under the Indenture or proceeds of insurance are available, Base Rental Payments (or a portion thereof) may be made during periods of abatement. The Property subject to the Lease Agreement consists of two components, referred to herein as the "City Hall Property" and the "2026 Termination Property," as described under the caption "THE PROPERTY." In the absence of default, prior release, prior substitution or abatement, the term of the Lease Agreement ends with respect to the 2026 Termination Property on October 1, 2026 and with respect to the City Hall Property on October 1, 2042. As of October 1, 2026, the 2026 Termination Property will no longer be part of the Property subject to the leasehold encumbrance of the Lease Agreement and the Base Rental Payments securing the Series 2017 Bonds will be secured only by the use and operation of the City Hall Property. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Termination of Lease Agreement." Limited Obligation. THE SERIES 2017 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE "STATE"), OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2017 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. No Reserve Fund. No reserve fund has been created or will be funded with respect to the Series 2017 Bonds. Additional Bonds. The Authority may issue additional bonds (the "Additional Bonds") payable from the Base Rental Payments on a parity basis with the Series 2017 Bonds. The Series 2017 Bonds and any Additional Bonds are collectively referred to in this Official Statement as the "Bonds." Financial Statements. The City's comprehensive annual financial report for the fiscal year ended June 30, 2016 is included as Appendix C and has been audited by White Nelson Diehl Evans LLP, Irvine, 2 California (the "Auditor"), certified public accountants. See APPENDIX C—"COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF COSTA MESA FOR THE YEAR ENDED JUNE 30,2016." Continuing Disclosure. The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Securities and Exchange Commission Rule 15c2-12 (the "Rule") certain annual financial information and operating data and, in a timely manner, notice of certain listed events. See "CONTINUING DISCLOSURE." Certain Risk Factors. Certain events could affect the ability of the City to make the Base Rental Payments when due. See "RISK FACTORS" for a discussion of certain factors that should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the Series 2017 Bonds. Forward -Looking Statements. The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for the budget discussion for fiscal year 2017-18, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. Official Statement is a Summary. The summaries or references to the Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement and other documents, agreements and statutes referred to in this Official Statement, and the description of the Series 2017 Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined in this Official Statement) are defined in the Indenture or the Lease Agreement and have the meanings set forth therein. See APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2017 Bonds and amounts related to the 2007 Certificates are shown below. Sources Principal Amount of Series 2017 Bonds $ [Plus/Less] [Net] Original Issue [Premium/Discount] Amounts related to 2007 Certificates(') Total Sources $ Uses Deposit into Escrow Fund(2) $ Construction Fund Underwriter's Discount Cost of Issuance Fund(3) Total Uses $ 0) Reflects moneys held in funds and accounts established in connection with the 2007 Certificates. (2) To be used to prepay the 2007 Certificates on the prepayment date. See "REFUNDING PLAN." (3) Includes legal fees, municipal advisor fees, printing costs, rating agency fees and other miscellaneous expenses. REFUNDING PLAN The 2007 Certificates, which are currently outstanding in the aggregate principal amount of $16,765,000, were delivered by the City pursuant to an Amended and Restated Trust Agreement, dated as of January 1, 2007 (the "2007 Trust Agreement"), by and among the City, the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York Trust Company, N.A. (the "Prior Trustee"). The 2007 Certificates are payable from lease payments made by the City under the Lease/Purchase Agreement, dated as of October 1, 2003, as amended by a First Amendment to Lease/Purchase Agreement, dated as of January 1, 2007 (the "2007 Lease Agreement"), by and between the Authority, as lessor, and the City, as lessee. Proceeds of the 2007 Certificates were used by the City to pay for the construction and equipping of certain improvements to the Civic Center Complex of the City, including the expansion and seismic retrofitting of the City's Police Department facility. Under an Escrow Agreement (2007 Certificates), dated as of October 1, 2017 (the "2007 Escrow Agreement"), by and between the City and The Bank of New York Mellon Trust Company, N.A., as escrow agent (the "2007 Escrow Agent"), the City will deliver a portion of the proceeds of the 2017 Bonds to the 2007 Escrow Agent for deposit in the escrow fund (the "2007 Escrow Fund") established under the 2007 Escrow Agreement on or about the date of issuance of the Series 2017 Bonds. In addition, the Prior Trustee will transfer certain moneys held in connection with the 2007 Certificates to the 2007 Escrow Agent for deposit in the 2007 Escrow Fund on or about the date of issuance of the Series 2017 Bonds. The 2007 Escrow Agent will [hold such amounts uninvested in cash], and apply such moneys to prepay on , 2017 the principal of the 2007 Certificates together with interest accrued with respect thereto, without premium. See "VERIFICATION OF MATHEMATICAL ACCURACY." The amounts held by the 2007 Escrow Agent in the 2007 Escrow Fund are pledged solely to the payment of the 2007 Certificates. Neither the funds deposited in the 2007 Escrow Fund nor any interest thereon will be available for the payment of the principal of or interest on the Series 2017 Bonds. THE PROJECT A portion of the proceeds of the Series 2017 Bonds will be deposited in the Construction Fund and used to finance the construction and equipping of improvements collectively known as the Lions Park project (the "Project"). These improvements include a two-story, 22,860 square foot library to be constructed in place of the existing community center and the repurposing of the existing Donald Dungan library, which will become the 20,000 square foot Neighborhood Community Center. The new library will include large meeting rooms and a children's area, and will be operated by Orange County (the "County"). The Neighborhood Community Center will include a 40 -seat meeting room, raised stage, new restrooms, a lobby entrance, catering kitchen and loading dock. Additional recreational areas will also be added as part of the Project. Pursuant to the California Environmental Quality Act, California Public Resources Code Section 21000, et seq., and the implementing regulations thereto, Title 14 California Code of Regulations Section 15000, et seq., the City prepared a mitigated negative declaration to identify any environmental impacts from the Project, held a public hearing and the Planning Commission adopted a resolution approving the Project in March 2017. No further governmental approvals are necessary to commence construction of the Project. The total budget for the Project is approximately $36 million, of which approximately $18.6 million will be funded using proceeds of the Series 2017 Bonds. The City plans to use moneys held in the City's Capital Improvement Fund, Park Improvement Fund and Gas Tax Fund (for street -related Project improvements only) to pay the remaining costs of the Project. Any costs in excess of the budgeted amount will be funded from the City's capital improvement reserves. The City awarded the bid for the construction of the Project on July 18, 2017 to Tovey/Shultz Construction Inc. (the "Contractor") and the City and the Contractor executed a contract with respect to the Project. The Contractor is a California S corporation, based in Lake Elsinore, California. The Contractor has been in business since 1988 and has significant experience in new construction and modernization of public buildings. The City expects to commence construction in August 2017 and complete construction in the spring of 2020. 4 The Series 2017 Bonds are secured by and payable from Base Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture and there is no special or direct pledge of revenues generated by the Project to pay debt service on the Series 2017 Bonds. BASE RENTAL PAYMENT SCHEDULE Set forth below is the annual schedule of Base Rental Payments, which corresponds with the schedule of debt service payments on the Series 2017 Bonds (except that (i) the Interest Payment Dates for the Series 2017 Bonds are April 1 and October 1 and (ii) payments of principal on the Series 2017 Bonds are made according to the maturity schedule contained on the inside cover page of this Official Statement): Base Rental Payment Series 2017 Date(') Principal Total Series 2017 Total Interest Payments 0) The Base Rental Payment Date is the second day prior to the corresponding Interest Payment Date for the Series 2017 Bonds. THE SERIES 2017 BONDS General The Series 2017 Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2017 Bonds will be dated as of and bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) from the dated date thereof at the rates set forth on the inside cover page. Interest on the Series 2017 Bonds will be paid semiannually on April 1 and October 1 (each, an "Interest Payment Date") of each year, commencing April 1, 2018. Interest on the Series 2017 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2017 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Series 2017 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof, or (iii) interest on any Series 2017 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2017 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2017 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. The principal and premium, if any, of the Series 2017 Bonds will be payable in lawful money of the United States upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2017 Bonds will be subject to optional, mandatory sinking fund and extraordinary redemption as set forth in this Official Statement. Registration, Transfers and Exchanges The Series 2017 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2017 Bonds (the "Beneficial Owners") in the denominations set forth above, under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in Appendix F) as described in this Official Statement. Beneficial Owners will not be entitled to receive physical delivery of the Series 2017 Bonds. See "THE SERIES 2017 BONDS—Book-Entry Only System." Redemption* Optional Redemption. The Series 2017 Bonds maturing on or after October 1, 20_, are subject to optional redemption, in whole or in part, on October 1, 20 or any date thereafter, as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Series 2017 Bonds with stated maturities on October 1, 2042, are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20_ and each October 1 k Preliminary, subject to change. 0 thereafter, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal Amount (October 1) * Final Maturity Purchase in Lieu of Redemption. If, during the Fiscal Year immediately preceding one of the redemption dates specified above under the heading "—Mandatory Sinking Fund Redemption," the Authority purchases Series 2017 Bonds, at least 45 days prior to the redemption date, the Authority will notify the Trustee as to the principal amount purchased and the amount of Series 2017 Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming mandatory sinking fund redemption payment for the Series 2017 Bonds so purchased. All Series 2017 Bonds purchased as described in this paragraph will be cancelled pursuant to the Indenture. Extraordinary Redemption from Condemnation Award or Insurance Proceeds. The Series 2017 Bonds are subject to redemption, in whole or in part, on any date as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series 2017 Bonds, the Trustee will select the Series 2017 Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds, among maturities of Bonds as directed in a Written Request of the Authority, (b) with respect to any redemption from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Property and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable, and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion will deem appropriate and fair. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations, and such separate denominations will be treated as separate Bonds that may be separately redeemed. Notice of Redemption. So long as the Series 2017 Bonds are held in book -entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Trustee on behalf and at the expense of the Authority will mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and will designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Series 2017 Bonds of such maturity or maturities in whole) of the Series 2017 Bonds to be redeemed, and will require that such Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. A redemption notice may state that the redemption is conditioned upon sufficient funds being on deposit on the redemption date to redeem the Series 2017 Bonds so called for redemption. Neither the failure to receive 7 any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Series 2017 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Series 2017 Bonds surrendered. Effect of Notice of Redemption. If a redemption notice has been mailed, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, have been set aside in the Redemption Fund, the Series 2017 Bonds will become due and payable on the redemption date, and, upon presentation and surrender of a Bond at the principal corporate trust office of the Trustee, the Authority will pay the Redemption Price of the Bond, together with interest accrued and unpaid to said date. If, on the redemption date, moneys for the Redemption Price of all the Series 2017 Bonds to be redeemed, together with interest to said date, will be held by the Trustee so as to be available therefor on such date, and, if a notice of redemption has been mailed and not canceled, then, from and after said date, interest on the Series 2017 Bonds to be redeemed will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Series 2017 Bonds so to be redeemed without liability to such Owners for interest thereon. Book -Entry Only System General. DTC will act as securities depository for the Series 2017 Bonds. The Series 2017 Bonds will be issued as fully -registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully -registered Series 2017 Bond will be issued for each maturity of the Series 2017 Bonds, each in the initial aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX F—"BOOK- ENTRY ONLY SYSTEM." Transfer and Exchange of Bonds. The following provisions regarding the exchange and transfer of the Series 2017 Bonds apply only during any period in which the Series 2017 Bonds are not subject to DTC's book -entry system. While the Series 2017 Bonds are subject to DTC's book -entry system, their exchange and transfer will be made through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds are surrendered for transfer, the Authority will execute and the Trustee will authenticate and will deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee will require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Series 2017 Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee will require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee will not be obligated to make any transfer or exchange of Bonds of a Series during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS Pledge of Revenues The Series 2017 Bonds are equally and ratably payable from and secured by Base Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture. Base Rental Payments will be paid by the City from any and all legally available funds. See "RISK FACTORS" and see APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA" for certain financial and demographic information about the City, including its General Fund. The City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor. The Authority, pursuant to the Assignment Agreement, will assign to the Trustee for the benefit of the Series 2017 Bond Owners all of the Authority's right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, its right to receive Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See "—Base Rental Payments" below. Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on parity with the Series 2017 Bonds. See APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Series 2017 Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Series 2017 Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. THE SERIES 2017 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2017 BONDS. THE AUTHORITY HAS NO TAXING POWER. Additional Bonds The Authority may at any time issue one or more Series of Additional Bonds (in addition to the Series 2017 Bonds) payable from Base Rental Payments as provided in the Indenture on a parity with all other Bonds theretofore issued under the Indenture, but only subject to the following conditions, which are conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds has been authorized under and pursuant to the Indenture and has been provided for by a Supplemental Indenture which specifies the following: (1) the application of the proceeds of the sale of such Additional Bonds; (2) the principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) the date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that: (i) the serial Bonds of such Series of Additional Bonds will be payable as to principal annually on October 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds will have annual mandatory sinking fund redemptions on October 1; (ii) the Additional Bonds will be payable as to interest semiannually on April 1 and October 1 of each W year, except that the first installment of interest may be payable on either April 1 or October 1 and shall be for a period of not longer than twelve months and the interest will be payable thereafter semiannually on April 1 and October 1; (iii) all Additional Bonds of a Series of like maturity will be identical in all respects, except as to number or denomination; and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, will be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; (4) the redemption premiums and terms, if any, for such Additional Bonds; (5) the form of such Additional Bonds; and (6) such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture; (b) the Authority is in compliance with all agreements, conditions, covenants and terms contained in the Indenture, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; (c) the City is in compliance with all agreements, conditions, covenants and terms contained in the Indenture, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; and (d) the Ground Lease has been amended, to the extent necessary, and the Lease Agreement has been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment will be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period will be in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith (evidence of the satisfaction of such condition will be made by a Written Certificate of the City). Nothing contained in the Indenture limits the issuance of any bonds or other obligations payable from Base Rental Payments if, after the issuance and delivery of such bonds or other obligations, none of the Bonds theretofore issued under the Indenture will be Outstanding. Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth in the Indenture, Additional Bonds may not be issued if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists, unless such default will be cured upon such issuance. Base Rental Payments General. Rental Payments, including Base Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment will be deposited with the Trustee no later than second day next preceding each Interest Payment Date (the "Base Rental Deposit Date"). All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund. Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund as are necessary to the Interest Fund and the Principal Fund to provide for the payment of the interest on and principal of the Series 2017 Bonds. Base Rental Payment Schedule. Scheduled Base Rental Payments relating to the Series 2017 Bonds are set forth above under the heading `BASE RENTAL PAYMENT SCHEDULE." 10 Covenant to Budget and Appropriate. The City covenants in the Lease Agreement to take such action as may be necessary to include all Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City covenants to deliver to the Authority and the Trustee a Certificate of the City stating that its final annual budget includes all Base Rental Payments due in such fiscal year within 10 days after the filing or adoption of the final annual budget. The Lease Agreement declares that these covenants are and will be construed to be duties imposed by law and that it is the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the City's covenants and agreements under the Lease Agreement. See, however, "—Abatement" below. Limited Obligation. THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Additional Rental Payments For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the payment of the following: (i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees. (iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the Series 2017 Bonds required to be rebated to the federal government in accordance with section 148(1) of the Internal Revenue Code of 1986, as amended. (v) All other payments required to be paid by the City under the provisions of the Lease Agreement or the Indenture. Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts will be payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Abatement Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the 11 City's right to use and occupy any portion of the Property, Rental Payments will be subject to abatement proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement will continue in full force and effect. The amount of such abatement will be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period will not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. Any such abatement will continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement will be extended as provided in the Lease Agreement, except that the term will in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the City. See APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments due under the Lease Agreement in any of the funds and accounts established under the Indenture (including as a result of the availability of insurance proceeds), such Rental Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts. The City is permitted to apply Net Insurance Proceeds: (a) together with other legally available funds that the City elects to appropriate, to the repair, reconstruction or replacement of the damaged or destroyed portions of the Property; (b) to redeem Series 2017 Bonds; and/or (c) if the annual fair rental value of the Property is at least equal to 100% of the Base Rental Payments, to any other lawful purpose, including Base Rental Payments. See the captions "THE SERIES 2017 BONDS—Redemption—Extraordinary Redemption from Condemnation Award or Insurance Proceeds," "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—No Reserve Fund," "RISK FACTORS—Abatement" and "--No Reserve Fund" and Appendix A under the caption "INDENTURE—SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS—Application of Net Insurance Proceeds." Substitution and Release of Property The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and described below. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement. The Lease Agreement provides that there will be no reduction in or abatement of the Base Rental Payments due from the City as a result of such substitution or release. Any such substitution or release will be subject to the following specific conditions precedent: (a) The City will have delivered a certificate to the Trustee setting forth its findings that the Property, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period; and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds. (b) The City will have obtained or caused to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in an amount at least equal to the aggregate principal amount of any Outstanding Bonds, of the type and with the endorsements described in the Lease Agreement. 12 (c) The City will have provided the Trustee with an opinion of counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Series 2017 Bonds to be included in gross income for federal income tax purposes. (d) The City, the Authority and the Trustee will have executed, and the City will have caused to be recorded with the Orange County Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained in the Lease Agreement and in the Ground Lease. (e) The City will have provided notice of such substitution to each rating agency then rating the Series 2017 Bonds. Termination of Lease Agreement The Property subject to the Lease Agreement consists of two components, referred to herein as the "City Hall Property" and the "2026 Termination Property," as described under the caption "THE PROPERTY." In the absence of default, prior release, prior substitution or abatement, the term of the Lease Agreement ends with respect to the 2026 Termination Property on October 1, 2026 and with respect to the City Hall Property on October 1, 2042. As of October 1, 2026, the 2026 Termination Property will no longer be part of the Property subject to the leasehold encumbrance of the Lease Agreement and the Base Rental Payments securing the Series 2017 Bonds will be secured only by the use and operation of the City Hall Property. The Lease Agreement will terminate in its entirety on October 1, 2042, provided that the Lease Agreement is not terminated earlier or extended pursuant to the terms thereof. See "RISK FACTORS—Abatement," "RISK FACTORS—Substitution and Release of Property" and "RISK FACTORS—Limited Recourse on Default; No Acceleration of Base Rental Payments." Action on Default Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re-enter and re -let the Property. Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See "RISK FACTORS—Limited Recourse on Default; No Acceleration of Base Rental." For purposes of certain actions of Series 2017 Bond Owners under the Indenture and the Lease, such as certain consents and amendments and the direction of remedies following default, Series 2017 Bond Owners do not act alone and may not control such matters to the extent such matters are not supported by the requisite number of the Owners of all Bonds and Additional Bonds, if any. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." No Reserve Fund Neither the City nor the Authority has established a reserve fund in connection with the issuance of the Series 2017 Bonds. In the event of abatement of Base Rental Payments, only proceeds of rental interruption insurance or net proceeds of insurance may be available to pay Base Rental Payments. See the captions "RISK FACTORS—Abatement" and "—No Reserve Fund." 13 Insurance The Lease Agreement requires the City to maintain or cause to be maintained fire, lightning and special extended coverage insurance (which will include coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding principal amount of the Series 2017 Bonds. The City has an insurance policy that provides replacement cost coverage. All insurance required to be maintained pursuant to the Lease Agreement may be subject to a deductible in an amount not to exceed $500,000. The City's obligation to maintain the insurance described in this Official Statement (except for rental interruption insurance) may be satisfied by self-insurance, provided that such self- insurance and any self-insured retentions maintained by the City comply with the requirements of the Lease Agreement. See APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." Although not required under the Lease Agreement, the City maintains earthquake insurance on the Property. The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards covered by the casualty insurance described in the preceding paragraph, in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The City is not permitted to self -insure its obligation to maintain rental interruption insurance. The City is also required to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees, and worker's compensation insurance as described in APPENDIX B—"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." The City is required under the Lease Agreement to provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Series 2017 Bonds. Such policies will insure the fee interest of the City in the Property, the Authority's leasehold estate in the Property under the Ground Lease, and the City's subleasehold estate in the Property under the Lease Agreement, subject only to Permitted Encumbrances, and will provide that all proceeds thereunder are payable to the Trustee for the benefit of the Owners. THE PROPERTY The Property leased under the Lease Agreement consists of the City's Civic Center Complex, which includes the City Hall and City Council Chambers, Police Facility, Communications Building and Fire Station No. 5. All of the facilities of the Civic Center Complex are located on a 9.4 acre site. The Property also includes Fire Station No. 2, which is located at 800 Baker Street in the City. The Authority and the City may, under the terms of the Lease Agreement, substitute alternate real property for any portion of the Property in accordance therewith. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Substitution and Removal of Property." The City Hall was built in 1965 and consists of six floor levels (including the basement) with 65,000 square feet housing all of the administrative offices of the City and City Council Chambers (referred to herein as the "City Hall Property"). The City Hall Property was seismically retrofitted in 2003. The Police Facility was also built in 1965 and houses the City's main police station, offices and jail cells. The Police Facility has two stories and a basement level, and totals 60,342 square feet. In 1984, a 7,000 square foot elevated helipad with parking was added to the Police Facility. In 2007, an 11,342 square foot single story addition was added to the Police Facility, additional parking and security fencing was added and the Police Facility underwent seismic retrofitting. The Communications Building was built in 1983 and is comprised of two floors (including the mezzanine) with 8,000 square feet of space used as the City's dispatch center, additional offices and includes 14 a garage. Fire Station No. 5 is a 7,000 square foot, two story facility built in 1983. Fire Station No. 2 is a 4,875 square foot fire station, built in 1966 and located on a three-quarter acre site. The City estimates the current value of the Property at over $42 million. The insured values of the various buildings located at the Property are set forth in the following table. Property Component Insured Value City Hall Property $ 22,111,531 Police Facility 14,425,140 Fire Station No. 5 2,329,593 Communications Building 2,169,182 Fire Station No. 2 1,144,786 TOTAL $ 42,180,232 Source: The City. The buildings included in the Property sit on approximately 10.2 acres; the land value is not included in the valuation above. The Property will include improvements constructed on the Property which are financed with the proceeds of any Additional Bonds. See "THE BONDS—Additional Bonds." As described under the heading "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Termination of Lease Agreement," the Lease Agreement will terminate with respect to the Police Facility, Communications Building, Fire Station No. 5 and Fire Station No. 2 (collectively referred to herein as the "2026 Termination Property") on October 1, 2026, unless the Lease Agreement is extended in accordance with its terms. Thereafter, the Lease Agreement will relate only to the approximately 5.3 acre lot which includes the City Hall Property described above and the surrounding parking lot. THE CITY OF COSTA MESA See APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA" for certain financial and demographic information about the City, including its General Fund. THE AUTHORITY The Costa Mesa Financing Authority was organized pursuant to the provisions of Article I of Chapter 5 of Division 7 of Title 1 of the State Government Code and a Joint Exercise of Powers Agreement, dated as of August 1, 2017, by and between the City and the Costa Mesa Housing Authority, a public body corporate and politic, formed under the California Housing Authorities Law, Division 24, Part 2, Section 34200, et seq. The Authority has no financial liability to the Owners of the Series 2017 Bonds with respect to the payment of Base Rental Payments by the City or with respect to the performance by the City of the other agreements and covenants that the City is required to perform. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating the purchase of the Series 2017 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2017 Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. 15 General Considerations – Security for the Series 2017 Bonds The Series 2017 Bonds are special obligations of the Authority, payable solely from Base Rental Payments on a parity with the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City, the State, or any political subdivision thereof, is pledged to the payment of the Series 2017 Bonds. The Authority has no taxing power. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City, the County or the State or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City, the County or the State has levied or pledged any form of taxation. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Base Rental Payments and Additional Rental Payments from any source of legally available funds, and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all such Base Rental Payments and Additional Rental Payments due thereunder in its annual budgets, and to make necessary annual appropriations for all such Base Rental Payments and Additional Rental Payments, subject to abatement. The City is currently liable and may become liable on other obligations payable from general revenues. See Appendix A under the caption "CITY FINANCIAL INFORMATION --Other Indebtedness—General Fund -Supported Debt." The City has the capacity to enter into other obligations which may constitute additional charges against its revenues, including pension obligations and essential services. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event that the City's revenue sources are less than its total obligations, the City could choose to fund other activities before making Base Rental Payments. The same result could occur if, because of State Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, the City's appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution. See the caption "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIB of the State Constitution." Abatement In the event of substantial interference with the City's right to use and occupy any portion of the Property by reason of damage to or destruction or condemnation of the Property, or any defects in title to the Property, Base Rental Payments will be subject to abatement. See the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Abatement" and "—No Reserve Fund." In the event that such portion of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the City's rental interruption insurance will be available in lieu of Base Rental Payments, plus the period in which funds are available from the funds and accounts established under the Indenture, or in the event that casualty insurance proceeds are insufficient to provide for complete repair or replacement of such portion of the Property or redemption of the Series 2017 Bonds, there could be insufficient funds to make payments to Owners in full. It is not always possible to predict the circumstances under which abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, the value of the Property could be substantially higher or lower than its value at the time of the issuance of the Series 2017 Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Series 2017 Bonds. [L If damage, destruction, title defect or eminent domain proceedings with respect to the Property results in abatement of the Base Rental Payments related to such Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the Series 2017 Bonds during the period that the Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Series 2017 Bond Owners for nonpayment under such circumstances. No Reserve Fund Neither the City nor the Authority has established a reserve fund in connection with the issuance of the Series 2017 Bonds. In the event of abatement, funds available to pay debt service on the Series 2017 Bonds will be limited to proceeds of insurance (including rental interruption insurance). In addition, if annual appropriations to pay Base Rental Payments are not made (for example, due to delay in adoption of an annual budget), no funds would be available to pay debt service on the Series 2017 Bonds until such appropriations were available. Substitution and Release of Property; Additional Bonds The Authority and the City may amend the Lease Agreement: (a) to substitute alternate real property for all or a portion of the Property; or (b) to release all or a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement. Moreover, the Authority may issue Additional Bonds secured by Base Rental Payments which are increased from current levels. See the captions "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Substitution and Removal of Property," "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Termination of Lease Agreement" and "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Additional Bonds." Although the Lease Agreement requires, among other things, that the Property, as constituted after such substitution or release, have an annual fair rental value at least equal to the maximum Base Rental Payments becoming due in the then current Fiscal Year or in any subsequent Fiscal Year, it does not require that such Property have an annual fair rental value equal to the annual fair rental value of the Property at the time of substitution or release. Thus, a portion of the Property could be replaced with less valuable real property, or could be released altogether. Such a replacement or release could have an adverse impact on the security for the Series 2017 Bonds, particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or release. See Appendix B. The Indenture requires, among other things, that upon the issuance of Additional Bonds, the Ground Lease and the Lease Agreement will be amended, to the extent necessary, so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds; provided, however, that no such amendment will be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Fiscal Year is in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith. See the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Additional Bonds" for a full description of the requirements that must be met in order for the Authority to issue Additional Bonds. Limited Recourse on Default; No Acceleration of Base Rental Failure by the City to make Base Rental Payments or other payments required to be made under the Lease Agreement, or failure to observe and perform any other terms, covenants or conditions contained in the Lease Agreement or in the Indenture for a period of 30 days after written notice of such failure and request that 17 it be remedied has been given to the City by the Authority or the Trustee, constitute events of default under the Lease Agreement and permit the Trustee or the Authority to pursue any and all remedies available. In the event of a default, notwithstanding anything in the Lease Agreement or in the Indenture to the contrary, there is no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable, nor do the Authority or the Trustee have any right to re-enter or re -let the Property except as described in the Lease Agreement. The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Property, the Trustee, as assignee of the Authority, may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City. Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. There is no assurance that that the Trustee would be able to re -let the Property so as to provide rental income sufficient to make all payments of principal of, interest and premium, if any, on the Series 2017 Bonds when due. Similar limitations and constraints would apply to any property substituted for the Property pursuant to the Lease Agreement. Moreover, the Trustee is not empowered to sell the Property for the benefit of the Owners of the Series 2017 Bonds. Any suit for money damages would be subject to limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. See the captions "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS," "THE PROPERTY" and APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA." Possible Insufficiency of Insurance Proceeds The Lease Agreement obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Property in the event of damage, destruction or title defects, subject to certain exceptions. The Authority and the City make no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant to the Lease Agreement and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Series 2017 Bonds when due. In addition, certain risks, such as earthquakes and floods, are not required to be covered under the Lease Agreement. See the captions "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Insurance," "--No Reserve Fund" and "THE CITY—Risk Management." Natural Disasters The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm, drought, earthquake or flood, could have an adverse material impact on the economy within the City, its General Fund and the revenues available for the payment of the Base Rental Payments. The City currently maintains earthquake insurance on the Property; however, the Lease Agreement does not require the City to maintain this coverage. Earthquakes are considered a threat to the City due to the highly active seismic region and the proximity of fault zones, which could influence the entire southern coastal portion of the State. However, no major earthquake has caused substantial damage to the City. An earthquake along one of the faults in the vicinity of the City, either known or unknown, could cause a number of casualties and extensive property damage. The effects of such a quake could be aggravated by aftershocks and secondary effects such as fires, landslides, dam failure, liquefaction and other threats to public 18 health, safety and welfare. The potential direct and indirect consequences of a major earthquake could easily exceed the resources of the City and would require a high level of self-help, coordination and cooperation. The occurrence of natural disasters in the City could result in substantial damage to the City which, in turn, could substantially reduce General Fund revenues and affect the ability of the City to make the Base Rental Payments. Reduced ability to make the Base Rental Payments could affect the payment of the principal of and interest on the Series 2017 Bonds. The City maintains liability insurance and property casualty insurance for the Property. See Appendix A under the caption "THE CITY—Risk Management." However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Hazardous Substances An additional environmental condition that may result in the reduction in the assessed value of property, and therefore property tax revenue available to make Base Rental Payments, would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the City. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also stringent and similar in effect. Under many of these laws, the owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the City be affected by a hazardous substance, could be to reduce the marketability and value of such property by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The City is aware that asbestos is located within the City Hall building and other buildings located at the Property. While much of this asbestos has been remediated, some asbestos remains, in non -friable form, in locations within the buildings that are not accessible to the public or City employees. The location of this asbestos is not considered a risk to public health or safety. Except as described above, the City is not aware of the presence of any hazardous substances on the Property. Hazardous substance liabilities may arise in the future with respect to any of the property in the City resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise from the method of handling such substance. These possibilities could significantly affect the value of a parcel and could result in substantial delays in completing planned development on parcels that are currently undeveloped. Other Financial Matters Weakness in the economy of the State and the United States or other factors could cause the general revenues of the City to decline. Such financial matters may have a detrimental impact on the City's General Fund, and, accordingly, may reduce the City's ability to make Base Rental Payments. See Appendix A under the caption "CITY FINANCIAL INFORMATION." In addition, City expenses could also rise as a result of unforeseen events, including but not limited to increases in pension obligations. See Appendix A under the caption "Retirement Contributions." 19 Limitations on Remedies The rights of the Owners of the Series 2017 Bonds are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Furthermore, the remedies available to the Owners of the Series 2017 Bonds upon the occurrence of an event of default under the Indenture or the Lease Agreement are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. Additionally, enforceability of the rights and remedies of the Owners of the Series 2017 Bonds, and the obligations incurred by the City, may become subject to the provisions of Title 11 of the United States Code (the "Bankruptcy Code") and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, now or later in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the federal Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the Series 2017 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings for public agencies such as the City, involuntary petitions are not permitted. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Series 2017 Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement, and from taking any steps to collect amounts due from the City under the Lease Agreement. In particular, if 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 case. 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, and which could prevent the Trustee from making payments from funds in its possession; (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 secured debt which may have a priority of payment that is superior to that of Owners of the Series 2017 Bonds; and (iv) the possibility of the adoption of a plan (an "Adjustment Plan") for the adjustment of the City's various obligations over the objections of the Trustee or all of the Owners of the Series 2017 Bonds and without their consent, which Adjustment Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that such Adjustment Plan is "fair and equitable" and in the best interests of creditors. The Adjustment Plans approved by the Bankruptcy Courts in connection with the bankruptcies of the cities of Vallejo and Stockton resulted in significant reductions in the amounts payable by the cities under lease revenue obligations that were substantially identical or similar to the Series 2017 Bonds. The City can provide no assurances about the outcome of the bankruptcy cases of other California municipalities or the nature of any Adjustment Plan if it were to file for bankruptcy. In addition, the City could either reject the Lease Agreement or the Ground Lease or assume the Lease Agreement or the Ground Lease despite any provision of the Lease Agreement or the Ground Lease that makes the bankruptcy or insolvency of the City an event of default thereunder. If the City rejects the Lease Agreement, the Trustee, on behalf of the Owners of the Series 2017 Bonds, would have a pre-petition unsecured claim that may be substantially limited in amount, and this claim would be treated in a manner under an Adjustment Plan over the objections of the Trustee or Owners of the Series 2017 Bonds. Moreover, such rejection would terminate the Lease Agreement and the City's obligations to make payments thereunder. The City may also be permitted to assign the Lease Agreement or the Ground Lease to a third party, regardless of the terms of the transaction documents. If the City rejects the Ground Lease, the Trustee, on behalf of the Owners of the Series 20 2017 Bonds, would have a pre-petition unsecured claim and this claim would be treated in a manner under an Adjustment Plan over the objections of the Trustee or Owners of the Series 2017 Bonds. Moreover, such rejection may terminate both the Lease Agreement and the Ground Lease and the obligations of the City to make payments thereunder. The opinion to be delivered by Bond Counsel concurrently with the execution and delivery of the Series 2017 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the Series 2017 Bonds will be similarly qualified. See Appendix D. In the event that the City fails to comply with its covenants under the Lease Agreement or fails to pay Base Rental Payments, there can be no assurance of the availability of remedies adequate to protect the interest of the Owners of the Series 2017 Bonds. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority has no obligation or liability to the Owners of the Series 2017 Bonds with respect to: (a) the payment when due of the Base Rental Payments by the City; (b) the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture; or (c) the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. Secondary Market There can be no guarantee that there will be a secondary market for the Series 2017 Bonds or, if a secondary market exists, that the Series 2017 Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. STATE OF CALIFORNIA BUDGET INFORMATION State Budget The following information concerning the State's budgets for fiscal year 2016-17 and fiscal year 2017- 18 has been obtained from publicly available information that the City believes to be reliable; however, the City, the Authority and the Underwriter take no responsibility as to the accuracy or completeness thereof and have not independently verified such information. Information about the State budget is regularly available at various State -maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance (the "DOF"), http://www.dof.ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the Legislative Analyst's Office (the "LAO") at http://www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, the Authority or the Underwriter, and the City, the Authority and the Underwriter take no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. 2016-17 State Budget. On June 27, 2016, the Governor signed into law the State budget for fiscal year 2016-17 (the "2016-17 Budget"). The following information is drawn from the Department of Finance's summary of the 2016-17 Budget and the LAO's review of the 2016-17 Budget. 21 The 2016-17 Budget projected, for fiscal year 2015-16, total general fund revenues and transfers of $117.0 billion and total expenditures of $115.6 billion. The State was projected to end fiscal year 2015-16 with total available reserves of $7.3 billion, including $3.9 billion in the traditional general fund reserve and $3.4 billion in the Budget Stabilization Account (the `BSA"), the State's basic reserve account. For fiscal year 2016- 17, the 2016-17 Budget projected a growth in State general fund revenues driven primarily by total general fund revenues of $120.3 billion and authorized expenditures of $122.5 billion. The State was projected to end the fiscal year 2016-17 with total available reserves of $8.5 billion, including $1.8 billion in the traditional general fund reserve and $6.7 billion in the BSA. As a result of higher general fund revenue estimates for fiscal years 2015-16 and 2016-17, and after accounting for expenditures that are controlled by State Constitutional funding requirements such as Proposition 2 and Proposition 98, the 2016-17 Budget allocated over $6 billion in discretionary funding for various purposes. These included: (i) additional deposits of $2 billion to the BSA and $600 million to the State's discretionary budget reserve fund; (ii) approximately $2.9 billion in one-time funding for infrastructure, affordable housing, public safety and other purposes; and (iii) $700 million in on-going funding commitments for higher education (the California State University and the University of California systems), corrections and rehabilitation and State courts. As required by Proposition 2, the 2016-17 Budget applied $1.3 billion towards the repayment of existing State liabilities, including loans from special funds, State and University of California pension and retiree health benefits and settle -up payments to K-14 school districts resulting from an underfunding of the Proposition 98 minimum funding guarantee in a prior fiscal year. With respect to education funding, the 2016-17 Budget set the Proposition 98 minimum funding guarantee at $71.9 billion, an increase of $2.8 billion over the revised level from the prior fiscal year. For additional information regarding the 2016-17 Budget, see the DOF website at www.dof.ca.gov and the LAO'S website at www.lao.ca.gov. The information presented on such websites is not incorporated herein by reference. 2017-18 State Budget. On June 27, 2017, the Governor signed into law the State budget for fiscal year 2017-18 (the "2017-18 Budget"). The following information is drawn from the Department of Finance's summary of the 2017-18 Budget. The 2017-18 Budget projects, for fiscal year 2016-17, total general fund revenues and transfers of approximately $118.5 billion and total expenditures of approximately $121.4 billion, such revenues and expenditures being approximately $1.8 billion and $1.1 billion lower than what was included in the 2016-17 Budget, respectively. The State is projected to end fiscal year 2016-17 with total available reserves of approximately $7.4 billion, including $642 million in the traditional general fund reserve and $6.7 billion in the BSA. For fiscal year 2017-18, the 2017-18 Budget projects a growth in State general fund revenues driven primarily by total general fund revenues of approximately $125.9 billion and authorizes expenditures of approximately $125.1 billion. The State is projected to end the fiscal year 2017-18 with total available reserves of approximately $9.9 billion, including $1.4 billion in the traditional general fund reserve and $8.5 billion in the BSA. After accounting for expenditures that are controlled by State Constitutional funding requirements such as Proposition 2 and Proposition 98, the 2017-18 Budget allocates discretionary funding for various purposes, including additional deposits of approximately $1.8 billion to the BSA and $800 million to the State's discretionary budget reserve fund. Further, the 2017-18 Budget includes a $6 billion supplemental payment to Ca1PERS through a loan from the Surplus Money Investment Fund, which is projected to save $11 billion in pension costs over the next two decades. The General Fund share of repaying such loan will come from Proposition 2 revenues dedicated to reducing debts and long-term liabilities. Other discretionary allocations include one-time funding for infrastructure, affordable housing, public safety and other purposes. 22 As required by Proposition 2, the 2017-18 Budget applies $1.8 billion towards the repayment of existing State liabilities, including loans from special funds, State and University of California pension and retiree health benefits and settle -up payments to K-14 school districts resulting from an underfunding of the Proposition 98 minimum funding guarantee in a prior fiscal year. With respect to education funding, the 2017-18 Budget sets the Proposition 98 minimum funding guarantee at $74.5 billion, an increase of $3.1 billion over the revised level from the prior fiscal year. For additional information regarding the 2017-18 Budget, see the State Department of Finance website at www.dof.ca.gov and the LAO'S website at www.lao.ca.gov. However, the information presented on such websites is not incorporated herein by reference. Potential Impact of State Financial Condition on the City The State experienced significant financial stress during the last economic recession, with budget shortfalls in the several billions of dollars. There can be no assurance that, in the case of similar financial stress in the future, the State will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address the State financial difficulties. Although the State is not a significant source of City revenues, no prediction can be made by the City as to what measures the State would adopt to respond to potential future financial difficulties. There can be no assurance that State actions to respond to State financial difficulties will not adversely affect the financial condition of the City. Redevelopment Dissolution General. On December 29, 2011, the State Supreme Court upheld Assembly Bill 1x26 ("AB 1x26"), which dissolved redevelopment agencies in the State. The effect of AB 1 x26 upon the City is the termination of the redevelopment functions of the Costa Mesa Redevelopment Agency (the "Former Agency") and the transfer of such functions to the Successor Agency to the Costa Mesa Redevelopment Agency, ("a separate public entity from the public agency that provides for its governance [the City] and the two entities shall not merge" as provided in California Health and Safety Code Section 34171(g)), which entity is referred to in this context as the "Successor Agency" that is tasked with winding down the Former Agency's redevelopment activities. Under AB 1x26, the Successor Agency cannot enter into new redevelopment projects or obligations and its assets can be used only to pay enforceable obligations, which enforceable obligations are generally limited to obligations in existence in mid -2011, when AB 1x26 was signed by the Governor. In addition, the Successor Agency will receive tax increment revenues in amounts that are sufficient to pay 100% (but no greater amount) of such enforceable obligations until such obligations (including accrued interest, as applicable) are paid in full, at which time the Successor Agency will be dissolved. Certain tax revenues formerly allocable to the Former Agency will continue to be available to the Successor Agency to pay certain obligations, and a portion of such revenues may be redirected to other taxing agencies, such as the County, school districts and the City. The Successor Agency's activities are subject to review by an oversight board established under AB 1x26. Under AB 1x26, liabilities of the Successor Agency are not liabilities of the City. On June 27, 2012, the Governor signed Assembly Bill 1484 ("AB 1484"), which made certain amendments to AB 1x26. Under AB 1484, the County Auditor -Controller, the DOF and the State Controller may require the return of funds improperly spent or transferred to a public entity in conflict with the provisions of the Community Redevelopment Law, as amended by AB 1 x26 and AB 1484, and if such funds are not returned within 60 days, they may be recovered through an offset of sales and use tax or property tax allocations to the local agency, which, in the case of the Successor Agency, is the City. On September 22, 2015, the following amendments to the dissolution legislation discussed under the caption " —General" were enacted as Senate Bill 107 ("SB 107): (1) redevelopment successor agencies that enter into a written agreement with the DOF to remit unencumbered cash to the county auditor -controller will receive a finding of completion, which provides successor agencies with additional fiscal tools and reduced State 23 oversight; (2) successor agencies that that have a "Last and Final" ROPS (as discussed below) may expend a portion of proceeds of bonds issued in 2011, which proceeds are currently frozen; (3) pension or State Water Project override revenues that are not pledged to or not needed for redevelopment bond debt service will be returned to the entity that levies the override; (4) agreements relating to State highway improvements and money loaned to successor agencies to pay costs associated with redevelopment dissolution litigation will be considered enforceable obligations; and (5) reentered agreements entered into after the passage of AB 1484 are unenforceable unless entered into for the purpose of providing administrative support. SB 107 also: (a) requires the preparation of a Recognized Obligation Payment Schedule with respect to enforceable obligations (a "ROPS"), which are required to be submitted to the oversight board and the DOF in accordance with AB 1x26, once a year beginning with the ROPS period that commences on July 1, 2016 (rather than twice a year under current law); (b) establishes an optional "Last and Final" ROPS process beginning in September 2015; under this process, a successor agency that elected to submit a "Last and Final ROPS would no longer submit a periodic ROPS and the enforceable obligations set forth in the "Last and Final" ROPS would be binding on all parties; and (c) clarifies that former tax increment caps and plan limits do not apply for the purposes of paying approved enforceable obligations. Impact on the City. Significant provisions of AB 1 x26, AB 1484, SB 107 and implementing actions of affected parties, including the Successor Agency, the oversight board, the County and the DOF, may be subject to legal challenge, statutory or administrative changes and other clarifications which could affect the impact of the dissolution of redevelopment on the City and its General Fund. The DOF has periodically proposed additional legislation which would modify statutes affecting redevelopment dissolution; it is not known whether additional legislation will be enacted. The full extent of the impact of the implementation of AB 1 x26, AB 1484 and SB 107 or potential future legislation on the City's General Fund is unknown at this time. While certain administrative costs previously charged to the Former Agency by the General Fund will no longer be supported by the Successor Agency, certain property tax revenues formerly allocated to the Former Agency will now be received by the City's General Fund. Prior to its dissolution, the City provided loans of money to the Former Agency. The Dissolution Act, Health and Safety Code Section 34171(d)(2) invalidated these loans, but Health and Safety Code Section 34191.4(b) authorized the Successor Agency to reinstate such loans, subject to Oversight Board and DOF approval. The Successor Agency took the actions required to reinstate its loan obligations to the City and received Oversight Board and DOF approval of that certain Amended and Restated Agreement to Re -Establish Loan pursuant to Section 34191.4, dated as of April 17, 2014 (the "Reinstated Loan Agreement"). The City estimates that the balance of this "Reinstated Loan" as of June 30, 2017 is approximately $9,112,289.89. Beginning in Fiscal Year 2015, the City has received between $287,740 and $649,100 per year in repayment of the Reinstated Loan. The City cannot provide assurance that the Agency will continue to make annual payments to the City under the Reinstated Loan Agreement. See Note 22 in the City's audited financial statements attached hereto as Appendix C for more information regarding the Successor Agency's outstanding obligations. Future State Budgets No prediction can be made by the City as to whether the State will continue to encounter budgetary problems in future years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors. 24 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax revenues. Article XIIIA of the State Constitution On June 6, 1978, State voters approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the State Constitution. The amendment, which added Article XIIIA to the State 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 1% of the full cash value, except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to December 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after December 1, 1978 by two- thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Property taxes subject to Proposition 13 are a significant source of the City's General Fund revenues. See APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA." Legislation enacted by the State Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XHIA (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. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIIIA 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. Article XIIIB of the State Constitution At the Statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Government Appropriations," which added Article XIIIB to the State Constitution. Under Article XIIIB, State and local government entities have an annual "appropriations limit" which limits the ability to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues and investment proceeds thereof, certain State subventions and regulatory license fees, user charges and user fees to the extent that the proceeds thereof exceed the costs of providing such services, 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 moneys which are excluded from the definition of "appropriations limit," including debt service on indebtedness existing or authorized as of October 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the "appropriations limit" is to be based on certain 1978-79 expenditures and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities' revenues in any 25 year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. The City's appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution. Proposition 62 A statutory initiative ("Proposition 62") was adopted by the voters of the State at the November 4, 1986 general election which: (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency's legislative body and by a majority of the electorate of the governmental entity; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within the jurisdiction; (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the State Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 CalAth 220 (1995). Proposition 62 applies to the imposition of any taxes or the implementation of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are largely subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, 1996. See the caption "—Proposition 218" below. Proposition 218 On November 5, 1996, State voters approved Proposition 218, an initiative measure entitled the "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property -related fees and charges. Proposition 218 states that all taxes imposed by local governments are deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two- thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge may be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (a) the ad valorem property tax imposed pursuant to Articles XIII and XIIIA of the State Constitution; (b) any special tax receiving a two-thirds vote pursuant to the State Constitution; and (c) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 26 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City's General Fund. Although a portion of the City's General Fund revenues are derived from general taxes purported to be governed by Proposition 218 as discussed under the caption "CITY FINANCIAL INFORMATION --Other Taxes," all of such taxes were imposed in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges which support the City's General Fund. Unitary Property Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ("unitary property"). Under the State Constitution, such property is assessed by the State Board of Equalization (the "SBE") as part of a "going concern" rather than as individual pieces of real or personal property. State -assessed unitary and certain other property is allocated to the counties by the SBE, taxed at special county -wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to statutory formula generally based on the distribution of taxes in the prior year. Proposition 22 On November 2, 2010, voters in the State approved Proposition 22, which eliminates the State's ability to borrow or shift local revenues and certain State revenues that fund transportation programs. It restricts the State's authority over a broad range of tax revenues, including property taxes allocated to cities (including the City), counties and special districts, the Vehicle License Fee, State excise taxes on gasoline and diesel fuel, the State sales tax on diesel fuel, and the former State sales tax on gasoline. It also makes a number of significant other changes, including restricting the State's ability to use motor vehicle fuel tax revenues to pay debt service on voter -approved transportation bonds. Proposition 1A As part of former Governor Schwarzenegger's agreement with local jurisdictions, Senate Constitutional Amendment No. 4 was enacted by the State Legislature and subsequently approved by the voters as Proposition 1A ("Proposition IA") at the November 2, 2004 general election. Proposition I amended the State Constitution to, among other things, reduce the State Legislature's authority over local government revenue sources by placing restrictions on the State's access to local governments' property, sales, and vehicle license fee revenues as of November 3, 2004. Beginning with Fiscal Year 2009, the State may borrow up to 8% of local property tax revenues, but only if the Governor proclaims that such action is necessary due to a severe State fiscal hardship and two-thirds of both houses of the State Legislature approve the borrowing. The amount borrowed is required to be paid back within three years. The State also will not be able to borrow from local property tax revenues for more than two Fiscal Years within a period of ten Fiscal Years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the Statewide local sales tax. The Fiscal Year 2010 State budget included a Proposition IA diversion of $1.935 billion in local property tax revenues from cities, counties, and special districts to the State to offset State general fund spending. 27 Such diverted revenues were required to be repaid, with interest, by no later than June 30, 2013. The amount of the Proposition IA diversion from the City was $3,270,152. The City participated in the State of California Proposition IA Receivables Program to securitize its receivable from the State, and, as a result, received the shifted funds in the amount of $3,270,152, without interest, in two installments in 2010 from the California Statewide Communities Development Authority. See APPENDIX A—"GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA." Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof, (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property -related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect its General Fund revenues. Future Initiatives Articles XIIIA and XIIIB and Propositions 62, 218, 22, IA and 26 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. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Series 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2017 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Series 2017 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. The difference between the issue price of a Series 2017 Bond (the first price at which a substantial amount of the Series 2017 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Series 2017 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to the Owner of the Series 2017 Bond before receipt of cash attributable to such excludable income. The amount of original issue discount 28 deemed received by the Owner of a Series 2017 Bond will increase the Owner's basis in the Series 2017 Bond. In the opinion of Bond Counsel, original issue discount that accrues to the Owner of a Series 2017 Bond is excluded from the gross income of such Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. The amount by which a Series 2017 Bond Owner's original basis for determining loss on sale or exchange in the applicable Series 2017 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the "Code"); such amortizable bond premium reduces the Series 2017 Bond Owner's basis in the applicable Series 2017 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Series 2017 Bond Owner realizing a taxable gain when a Series 2017 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Series 2017 Bond to the Owner. Purchasers of the Series 2017 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. Bond Counsel's opinion as to the exclusion from gross income for federal income tax purposes of the interest (and original issue discount) on the Series 2017 Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City and the Authority comply with all requirements of the Code that must be satisfied subsequent to issuance of the Series 2017 Bonds to assure that the interest (and original issue discount) on the Series 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Series 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2017 Bonds. The City and the Authority have covenanted to comply with all such requirements applicable to each, respectively. The Internal Revenue Service (the "IRS") has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Series 2017 Bonds will be selected for audit by the IRS. It is also possible that the market value of the Series 2017 Bonds might be affected as a result of such an audit of the Series 2017 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Series 2017 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Series 2017 Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE SERIES 2017 BONDS THERE MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE SERIES 2017 BONDS OR THE MARKET VALUE OF THE SERIES 2017 BONDS. TAX REFORM PROPOSALS ARE BEING CONSIDERED BY CONGRESS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES MIGHT BE INTRODUCED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE SERIES 2017 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE SERIES 2017 BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE SERIES 2017 BONDS SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE SERIES 2017 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE SERIES 2017 BONDS. 29 Bond Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Bond Counsel's engagement with respect to the Series 2017 Bonds terminates upon their issuance and Bond Counsel disclaims any obligation to update the matters set forth in its opinion. The Indenture, the Lease Agreement and the Tax Certificate relating to the Series 2017 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) due with respect to any Series 2017 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that the interest (and original issue discount) on the Series 2017 Bonds is excluded from gross income for federal income tax purposes provided that the City and the Authority continue to comply with certain requirements of the Code, the ownership of the Series 2017 Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Series 2017 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Series 2017 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Series 2017 Bonds. The form of Bond Counsel's proposed opinion with respect to the Series 2017 Bonds is attached hereto as Appendix D. CERTAIN LEGAL MATTERS The validity of the Series 2017 Bonds and certain other legal matters are subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel and Disclosure Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Bond Counsel and Disclosure Counsel will receive compensation from the City contingent upon the sale and delivery of the Series 2017 Bonds. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, for the Underwriter by Jones Hall, a Professional Law Corporation, San Francisco, California, and for the Trustee by its counsel. MUNICIPAL ADVISOR The City has retained Fieldman, Rolapp & Associates, Inc., Irvine, California, as municipal advisor (the "Municipal Advisor") for the sale of the Series 2017 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisor will receive compensation contingent upon the issuance of the Series 2017 Bonds. LITIGATION To the best knowledge of the City, the Authority and the City Attorney, there is no action, suit or proceeding pending or threatened either restraining or enjoining the execution or delivery of the Series 2017 Bonds, the Lease Agreement or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing. There are a number of lawsuits and claims pending against the City. The following outstanding litigation matters may result in significant financial obligations of the City: The Kennedy Commission, et aL v. City of Costa Mesa, et al. The petitioners in this case (the "Kennedy Commission" case) seek (1) a writ of mandate to invalidate various land use approvals (the "project approvals") 30 relating to a new 224 -unit apartment development located in the City (the "proposed project") and (2) declaratory and injunctive relief to compel the City to comply with the California Relocation Assistance Act, Government Code Section 7260, et seq. (the "Relocation Law"). The City's potential exposure in the Kennedy Commission case relates to the petitioners' claim that the former long-term occupants ("LTOs") of a 236 -unit commercial motel, which was owned and operated and then closed by the owner of the property (the "Developer"), are entitled to monetary benefits under the Relocation Law. If a court were to rule that the Relocation Law applies to Developer's proposed project, then the court would order the City to carry out the relocation planning and procedures required under the Relocation Law to (a) determine which, if any, of the former LTOs are eligible for relocation advisory assistance and monetary benefits and (b) to pay such benefits to eligible LTOs. Further, if the City is unsuccessful in this litigation, the City could be liable for the petitioners' attorneys' fees. The City's total potential exposure if this litigation is resolved in a manner adverse to the City could exceed $4.5 million, including attorneys' fees and relocation payments to eligible LTOs; however, in the project approval conditions, the Developer agreed to indemnify the City, which indemnity obligation is affirmed in a Joint Defense Agreement entered into between the City and Developer, relating to defense of the Kennedy Commission litigation. No trial date has been set by the court with respect to the Relocation Law cause of action. Timothy Dailey, et al. v. City of Costa Mesa. The plaintiffs in this case (the "Dadey" case) challenge the City's adoption of Ordinance 14-11, which prohibits long-term occupancy at motels in the City in the absence of the motel operator obtaining a conditional use permit. The Ordinance grandfathered existing LTOs. Plaintiffs allege discrimination based on mental/physical disability, source of income, and/or familial status under state and federal housing discrimination statutes, as well as related state and federal civil rights violations and violations of the Relocation Law. Certain of the plaintiffs' allegations in the Dadey case relating to Relocation Law violations overlap with certain of the allegations in the Kennedy Commission case, in that one of the motels alleged to be affected by Ordinance 14-11 is the motel closed by the Developer in the Kennedy Commission case. If the City is unsuccessful in this litigation, the City could be liable for money damages, benefits under the Relocation Law and plaintiffs' attorneys' fees. Trial in the Dadey case is currently scheduled for September 18, 2017. The City estimates that its total exposure as a result of an unfavorable judgment in this case could exceed $5 million; however, the City cannot predict the outcome of the case and it is possible that the ultimate financial impact to the City could be higher. Yellowstone Women's First Step House, Inc. et al. v. City of Costa Mesa. The plaintiffs in this case (the "Yellowstone" case) challenge the City's adoption of an ordinance that creates the regulatory framework to provide a balance between group homes and single housekeeping units in single-family residential neighborhoods throughout the City. Plaintiffs allege that the ordinance impermissibly regulates sober living homes, a subset of group homes, in violation of state law, federal law, and both the state and federal constitutions. Plaintiffs also allege the City's adoption and enforcement of certain land use regulations discriminates on the basis of disability in violation of the Fair Housing Act, the Americans with Disabilities Act, the Civil Rights Act of 1871 and other related state laws. Trial in the Yellowstone case is set for February 6, 2018. Although the City cannot predict the outcome of this litigation, should it proceed to trial and be decided adversely to the City, the City's potential exposure could exceed $5 million in damages and plaintiffs' attorneys' fees. The City maintains a self-insurance reserve of $2 million in the General Fund for potential liabilities such as the litigation matters described above and would draw on this reserve, available cash in the City's self- insurance fund and other available General Fund reserves to cover potential exposure from these matters. Notwithstanding the litigation matters described above, in the opinion of the City and the City Attorney, and taking into account likely insurance coverage and moneys held in reserves, there are no lawsuits or claims pending against the City which will materially affect the City's finances so as to impair its ability to pay Base Rental Payments when due. VERIFICATION OF MATHEMATICAL ACCURACY The Verification Agent, upon delivery of the Series 2017 Bonds, will deliver a report on the mathematical accuracy of certain computations contained in schedules provided to them, which were prepared 31 by the Underwriter (as defined below), relating to the sufficiency of the anticipated receipts from the moneys deposited in the 2007 Escrow Fund to prepay the 2007 Certificates on , 2017. UNDERWRITING Stifel, Nicolaus & Company, Incorporated (the "Underwriter"), will purchase the Series 2017 Bonds from the Authority at an aggregate purchase price of $ (representing the principal amount of the Series 2017 Bonds ($), [plus/less] a [net] original issue [premium/discount] of $ , and less an underwriter's discount of $). The Series 2017 Bonds are offered for sale at the initial prices stated on the inside cover page of this Official Statement, which may be changed from time to time by the Underwriter. The Series 2017 Bonds may be offered and sold to certain dealers at prices lower than the public offering prices. RATING S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ("S&P"), has assigned its municipal bond rating of " " to the Series 2017 Bonds. No application has been made to any other rating agency for the purpose of obtaining any additional ratings on the Series 2017 Bonds. Any desired explanation of such rating should be obtained from S&P. Generally, rating agencies base their ratings on information and materials furnished to them and on investigations, studies and assumptions by the rating agencies. A securities rating is not a recommendation to buy, sell or hold securities and there is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any such change in or withdrawal of such rating may have an adverse effect on the market price of the Series 2017 Bonds. The City has covenanted in a Continuing Disclosure Certificate to file notices of any rating changes on the Series 2017 Bonds with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system. See the caption "CONTINUING DISCLOSURE" and Appendix E. Notwithstanding such covenant, information relating to rating changes on the Series 2017 Bonds may be publicly available from the S&P prior to such information being provided to the City or the Authority and prior to the date by which the City is obligated to file a notice of rating change. Purchasers of the Series 2017 Bonds are directed to the S&P's website and official media outlets for the most current rating with respect to the Series 2017 Bonds after the initial issuance of the Series 2017 Bonds. In providing a rating on the Series 2017 Bonds, S&P may have performed independent calculations of coverage ratios using its own internal formulas and methodology which may not reflect the provisions of the Indenture. The City and the Authority make no representations as to any such calculations, and such calculations should not be construed as a representation by the City or the Authority as to past or future compliance with any financial covenants, the availability of particular revenues for the payment of debt service or for any other purpose. CONTINUING DISCLOSURE The City, on behalf of itself and the Authority, has covenanted for the benefit of the Owners of the Series 2017 Bonds to provide annually certain financial information and operating data relating to the Series 2017 Bonds and the City (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. For a complete listing of items of information that will be provided in each Annual Report and further description of the City's undertaking with respect to the Annual Report and certain enumerated events, see APPENDIX E—"FORM OF CONTINUING DISCLOSURE CERTIFICATE." The Annual Report and notices of enumerated events will be filed with the Municipal Securities Rulemaking Board. 32 The Annual Report is to be provided by the City not later than March 15 of each year following the end of the City's fiscal year, commencing with the report for fiscal year 2016-17. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5) (the "Rule"). The City and its related governmental entities — specifically those entities for which City staff is responsible for undertaking compliance with continuing disclosure undertakings — have previously entered into numerous disclosure undertakings under the Rule in connection with the issuance of long-term obligations. The City and its affiliated entities have failed on one occasion during the past five years to comply, in all material respects, with these undertakings. More specifically, the City filed a notice of a rating upgrade on certain of the City's obligations which incorrectly stated that the City's obligations were downgraded. This incorrect filing was corrected prior to the date of this Official Statement. In order to ensure ongoing compliance with its continuing disclosure undertakings, the City has designated a single staff member within the City Finance Department with the responsibility of ensuring timely and complete filings. In addition, the City has retained an outside consultant to conduct periodic reviews of City compliance. FINANCIAL STATEMENTS OF THE CITY A copy of the most recent audited financial statements of the City audited by White Nelson Diehl Evans LLP, Irvine, California, certified public accountants (the "Auditor") is included as Appendix C to this Official Statement (the "Financial Statements"). The Auditor's letter concludes that the Financial Statements present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. The Auditor has not reviewed the information contained in this Official Statement, nor has the Auditor consented to the inclusion of the Financial Statements, which are public documents, herein. The City accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the Department ("GAAP"), and the City applies all relevant Governmental Accounting Standards Board pronouncements. In certain cases, GAAP requires or permits moneys collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses paid or incurred in one Fiscal Year to be recognized in a subsequent Fiscal Year. The underlying account system of the City is organized and operated on the basis of separate funds. A fund is defined as an independent fiscal and accounting entity with a self -balancing set of accounts, recording resources, related liabilities, obligations, reserves, and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate for governmental funds. Proprietary statements include financial information for internal service funds. Fiduciary statements include financial information for Agency and Private Purpose Trust funds. Fiduciary funds of the City represent assets held by the City in a custodial capacity for other individuals or organizations. In the fund financial statements, governmental funds are presented using the modified accrual basis of accounting. Revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated or otherwise determined. Available means that the amounts 33 were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days. Sales taxes, property taxes, franchise taxes, motor vehicle in lieu, transient occupancy taxes, grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized in the Financial Statements as revenues of the current fiscal period to the extent normally collected within the availability period. Other revenue items are considered to be measurable and available where cash is received by the government. Amounts paid to acquire capital assets are capitalized as assets in the government -wide financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as a liability in the government -wide financial statements, rather than as other financing sources. Amounts paid to reduce long- term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as expenditures. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that generally only current assets, current liabilities and deferred inflows of resources are included on their balance sheets. The reported fund balance is considered to be a measure of "available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balance. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Noncurrent portions of long-term receivables due to governmental funds are reported on the balance sheet in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources", since they do not represent fund balance. See Appendix C for a discussion of the City's accounting practices. Except as otherwise expressly noted herein, all financial information derived from the Financial Statements reflects the application of GAAP. In providing a rating on the Series 2017 Bonds, S&P may have performed independent calculations of coverage ratios using its own internal formulas and methodology, which may not reflect the provisions of the Indenture. See the caption "RATING." The City makes no representations as to any such calculations, and such calculations should not be construed as a representation by the Department as to past or future compliance with any financial covenants, the availability of particular revenues for the payment of debt service or for any other purpose. 34 MISCELLANEOUS References are made in this Official Statement to certain documents and reports that are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture, the Lease Agreement, the Ground Lease and other documents are available, upon request, and upon payment to the City of a charge for copying, mailing and handling, from the City Clerk at the City, 77 Fair Drive, Costa Mesa, California 92626. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the City and the purchasers or Owners of any of the Series 2017 Bonds. the City. The execution and delivery of this Official Statement have been duly authorized by the Authority and COSTA MESA FINANCING AUTHORITY By: Executive Director CITY OF COSTA MESA W. 35 City Manager APPENDIX A GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA General The City is located in southern Orange County (the "County"), approximately 35 miles southeast of Los Angeles and 85 miles northwest of San Diego, California. The City covers approximately 16.8 square miles. The California Department of Finance estimates that City has a population of approximately 114,044 as of January 1, 2017. The City's population has remained stable for the past ten years, growing 6.1% since 2008. The City was incorporated on June 29, 1953 and is a general law city operating under a council/manager form of government. The City provides or contracts for many municipal services for its residents, including libraries, parks maintenance, street sweeping, jail operations and electric utility services. Water service is provided by Mesa Water District and sewer service is provided by the Costa Mesa Sanitary District. The City had approximately 605 full and part-time employees as of June 30, 2017. In the past six years, the City has reduced the number of authorized full-time positions from approximately 611 to approximately 477. The City now relies on a greater number of part-time and contract workers. This enables the City to limit exposure to pension costs and to allow for greater flexibility in the City's ability to respond to future economic downturns that may affect the City. City employees are represented by six labor associations: (i) the Costa Mesa City Employees Association (the "CMCEA"), which represented approximately 236 employees as of June 30, 2017, (ii) the Costa Mesa Police Association (the "CMPA"), which represented approximately 127 employees as of June 30, 2017, (iii) the Costa Mesa Firefighters Association (the "CMFA"), which represented approximately 79 employees as of June 30, 2017, (iv) the Costa Mesa Division Managers Association (the "CMDMA"), which represented approximately 14 employees as of June 30, 2017, (v) the Costa Mesa Police Management Association (the "CMPMA"), which represented approximately 8 employees as of June 30, 2017 and (vi) the Costa Mesa Fire Management Association (CMFMA), which represented approximately 4 employees as of June 30, 2017. There are memoranda of understanding (each, and "MOU") in place between the City and CMCEA (which MOU expires June 30, 2020), between the City and CMFMA (which MOU expires June 30, 2022), and between the City and CMPA (which MOU expires June 20, 2018). Salaries and benefits for executives, CMDMA and confidential employees are governed by resolutions adopted by the City Council. The City and the CMFA are currently in negotiations to enter into a new MOU. The City anticipates that the City's labor costs will increase materially as a result of these negotiations from the increases currently projected in the Fiscal Year 2017-18 budget and the City's five-year Financial Plan (the "City Financial Plan"). (See the captions "CITY FINANCIAL INFORMATION --General Economic Condition and Outlook of the City" and "—Budget Procedures, Current Budget and Historical Budget Information.") The City cannot predict the outcome of these negotiations; however, the financial impact of any final MOU with the CMFA will be incorporated into a revision to the Fiscal Year 2017-18 Budget and updates to the City Financial Plan. The City currently expects to commence negotiations with the CMPMA with respect to a new MOU in September 2017. The previous MOU with the CMPMA expired in August 2010. Largest Employers The largest employer located in the City is EPL Intermediate, Inc. (El Pollo Loco), which currently employs approximately 3,998 employees, representing approximately 6.5% of the total City employment. EPL A-1 Intermediate, Inc., through its subsidiary, El Pollo Loco, Inc., owns, develops, operates and licenses quick - service restaurants under the name El Pollo Loco. Other large employers in the City include Experian Information Solutions, Inc., which currently employs approximately 3,700 employees, and the Coast Community College District Foundation, which currently employs approximately 2,900 employees. The table below sets forth the largest employers within the City as of June 30, 2016, the latest date for which such information is available. CITY OF COSTA MESA LARGEST EMPLOYERS AS OF JUNE 30, 2016 Percentage of Total Rank Name of Business Employees City Employment 1. EPL Intermediate, Inc. 3,998 6.53% 2. Experian Information Solutions, Inc. 3,700 6.04 3. Coast Community College District Foundation 2,900 4.73 4. Automobile Club of Southern California 2,516 4.11 5. Orange Coast Community College 1,900 3.10 6. California State Hospital -Fairview Develop. Center0) 1,500 2.45 7. Westar Capital Associates II, LLC 1,184 1.93 8. Deloitte Consulting LLP 800 1.31 9. Dynamic Cooking Systems, Inc. 700 1.14 10. FileNet Corporation 600 0.98 The City is informed that the Fairview Developmental Center may close in the near future and currently serves a reduced number of clients. Source: City. Government and Administration The City operates under a council-manager form of government. Currently, the City Council consists of five members, each elected by a City-wide vote. Beginning in November 2018, the City Council will consist of seven members, with six elected by their respective districts and the Mayor elected by a City-wide vote. The City Manager, appointed by the City Council, serves as the City's chief administrative officer and is responsible for overseeing the daily operations of City departments and efficient management of all City business. Functions of the City Manager's Office include coordination of the implementation of City Council policies and programs; providing overall direction to the departments that administer City programs and services; coordinating intergovernmental relations and legislative advocacy; and administration of the City's communications, media relations, and public information programs. Thomas R. Hatch is the City Manager. Mr. Hatch was appointed City Manager in March 2011. Mr. Hatch is responsible for the administration of all municipal affairs, including implementation of City Council policy, State laws and City ordinances. Mr. Hatch has over _ years of local government experience. He has worked at the City for over 15 years in a variety of leadership positions, including Assistant City Manager. Mr. Hatch obtained his master's degree in public administration and bachelor's degree from California State University, Fullerton. Other key personnel responsible for management of the City include the Assistant City Manager/Administrative Services Director Tamara Letourneau and the Interim Finance Director Stephen A-2 Dunivent. In addition, City Attorney Thomas P. Duarte, of the law firm Jones & Mayer, provides legal services to the City and the Authority. Assistant City Manager/Administrative Services Director Tamara Letourneau was appointed Assistant City Manager/Administrative Services Director in March 2011. Ms. Letourneau oversees the City's human resources, labor relations, Parks and Community Services Department, County -run libraries in the City and employee development and communications, among other duties. Ms. Letourneau has over 27 years of local government experience. She has worked at the City for over 6 years, and previously served as city manager for the cities of Yorba Linda and Sierra Madre. Ms. Letourneau obtained her master's degree in public administration from California State University, Long Beach and bachelor's degree from California State Polytechnic University, Pomona. Stephen Dunivent is the Interim Finance Director of the City. Mr. Dunivent began his employment with the City in September 2013 as the City's Interim Finance Director. During his professional tenure, Mr. Dunivent served the County in various finance -related capacities for 35 years, including as deputy county executive officer from 2007 to 2011. Mr. Dunivent holds a bachelor's degree in accounting from the University of Illinois. In July, 2017, Mr. Dunivent announced his intention to retire at the end of the year. The City is actively recruiting for the Finance Director position that will be vacated by Mr. Dunivent. City Attorney Thomas P. Duarte has been an attorney for more than 20 years and has been in private practice specializing in municipal law since 1996. He is a partner of the law firm Jones & Mayer with main offices in Fullerton, California. Previously, he served as legal counsel for the Whittier Planning Commission and Westminster Planning Commission. Mr. Duarte graduated with a juris doctorate from the Thomas Jefferson School of Law. Risk Management The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees and natural disasters. The City is self-insured for the first $2,000,000 of each claim arising for workers' compensation and has purchased outside insurance coverage in excess of the $2,000,000 up to an unlimited maximum. The City is self-insured for the first $2,000,000 of each claim arising for general liability. The City has purchased outside insurance coverage in excess of the $2,000,000 up to a maximum of $20,000,000 per occurrence. See the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS—Insurance." CITY FINANCIAL INFORMATION Accounting and Financial Reporting The City maintains its accounting records in accordance with Generally Accepted Accounting Principles and the standards established by the Governmental Accounting Standards Board ("GASB"). The City's Finance Department staff review City revenues and expenses on a monthly basis. On a semi-annual basis, a report is prepared for the City Council and City staff which reviews fiscal performance to date against the budget. Combined financial statements of the City and its component units are produced following the close of each Fiscal Year. The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with generally accepted auditing standards, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council. A-3 The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. It is expected that the Base Rental Payments will be paid for from amounts in the General Fund. Tables 1 through 3 below set forth certain historical and current Fiscal Year information for the General Fund. Information on the remaining governmental funds of the City as of June 30, 2016 is set forth in Appendix C. General Economic Condition and Outlook of the City As of June 30, 2017, the General Fund had a year-end deficit (expenditures in excess of revenues) of approximately $1.2 million. This was a planned deficit resulting from the transfer of approximately $6.9 million attributable to the Fiscal Year 2016 General Fund surplus into the IT Replacement Fund and the Capital Project Fund for planned IT system replacements and capital projects and a $1 million transfer into the Self -Insurance Fund. Seethe caption "—General Fund Reserves," below. For Fiscal Year 2018, the adopted General Fund operating budget projects revenues of $125,674,573, which is approximately $4.06 million (3.3%) above Fiscal Year 2017 unaudited actual revenues. The City projects that sales taxes will increase in Fiscal Year 2018 by approximately 0.6% over the Fiscal Year 2017 unaudited actual amount. Based on unaudited actual Fiscal Year 2017 results, the General Fund is projected to meet budgeted revenues and come in under expenditures set forth in the City's amended budget for Fiscal Year 2017. See the caption "—Budget Procedure, Current Budget and Historical Budget Information" for additional information relating to the adopted budget for Fiscal Year 2018. Seven -Year Capital Improvement Plan. In addition to the City's annual budgets, described below under the heading "—Budget Procedures, Current Budget and Historical Budget Information," the City maintains a rolling seven-year Capital Improvement Plan, which is updated by City staff and approved by the City Council annually. The City selects and evaluates capital improvement projects to be undertaken based on several criteria including City Council objectives, protection of infrastructure, assisting economically disadvantaged areas, health and public safety, availability of grant funding and community needs. Five -Year City Financial Plan. To ensure prudent financial management, the City also prepares the City Financial Plan, which is a five-year financial plan updated by City staff and approved by the City Council at least every two years. The current City Financial Plan was approved by the City Council in February 2017. The current City Financial Plan projects that in the absence of adjustments to projected revenues and/or expenditures, the General Fund will experience deficits for Fiscal Year 2018 through Fiscal Year 2022 as a result of projected revenues increasing at a slower rate than projected expenses. Such projected deficits range from approximately $45,000 in Fiscal Year 2018 to approximately $8.3 million in Fiscal Year 2022, with the largest single -year deficit increase projected to occur in Fiscal Year 2019, coinciding with the first Fiscal Year in which the lowered CalPERS (as defined below) discount rates will impact the City's pension funding obligations. Factors that impact the projected deficit include the City's conservative projections of modest growth in sales tax and property tax, as well as assumed increases in labor costs as a result of inflation, decreased CalPERS investment returns and decreased CalPERS discount rate assumptions. See the captions "—Retirement Contributions" and "GENERAL AND FINANCIAL INFORMATION ABOUT THE CITY OF COSTA MESA—General." To address the projected deficit described in the City Financial Plan, the City expects to consider a variety of strategies as part of the City's annual budgeting process, including: (i) cost reductions to lower priority A-4 items, (ii) re -shaping service delivery, (iii) revisiting the City's capital asset needs ordinance, (iv) revisiting the annual budgeted contingency amount, (v) updating fees for full cost recovery, (vi) implementing new fees and (vii) exploring other revenue enhancements. With the adoption of the Fiscal Year 2018 budget, the City approved a total of $450,000 in updated and new fees in the Parks Department and the Fire Department. The City Council also directed staff to prepare a proposal for full cost recovery in the special event rates. Other fees throughout the City will also be reviewed and updated with full cost recovery recommendations with the Fiscal Year 2019 budget. The City Financial Plan does not contemplate using City reserves to address projected operating deficits. See the caption "—Budget Procedure, Current Budget and Historical Budget Information" for more information regarding the City's budgets and budgeting process. General Fund Reserves. On March 3, 2015, the City Council reviewed a Reserves Study which recommended funding for reserves based on an analysis of risks including economic volatility, major infrastructure failure, natural disasters and other potential emergencies. Accordingly, the City Council approved a reserves goal of $55,000,000 and a plan to reach this target by annual increases to existing reserves of up to $1,500,000 funded by any actual operating surplus. The City has since surpassed the $55,000,000 reserves target and has reallocated the amount in excess of such target to debt reduction and one-time capital improvement items. As of June 30, 2017, the City continues to maintain a $14.125 million emergency general operating reserve, and has an estimated $63,291,560 in total General Fund reserves. See Table 2 under the caption "— Change in Fund Balance of the City General Fund" below. Amounts in excess of the reserves target not used to satisfy debt service reserve requirements for City obligations are transferred to separate City funds which include the Self -Insurance Fund, Equipment Replacement Fund and Information Technology Fund. The Self -Insurance Fund provides a reserve for payments of workers compensation, general liability and unemployment claims against the City. See the caption"—Risk Management." The Equipment Replacement Fund is a reserve maintained to provide funds for all motorized equipment used by City departments, while the Information Technology Replacement fund provides funds for the replacement and upgrading of City computer equipment, systems and supporting infrastructure. Finance and Pension Advisory Committee. The City maintains an 11 -member Finance and Pension Advisory Committee (the "Advisory Committee") to assist in the management of the City's finances and pension obligations. Of the 11 members, 4 have specialized pension knowledge and 7 have financial expertise in other areas such as securities and accounting. The Advisory Committee provides guidance and information to the City Council, serves as the review panel for the selection of the City's independent auditor and makes recommendations regarding proposed financial legislation and policy amendments. In addition, the Advisory Committee meets annually to review the City's investment policy, and meets quarterly to review the City's investment portfolio. See the caption "—City Investment Policy." In performing these roles, the Advisory Committee reviews the City's financial documents and plans, monitors and evaluates changes in pension contribution rates and actuarial schedules, reviews labor contracts to analyze pension and compensation packages, and examines alternative retirement benefit plans and financing methods to address the City's unfunded pension liability. See the caption "—Retirement Contributions." Budget Procedure, Current Budget and Historical Budget Information The Fiscal Year 2018 budget was approved on June 20, 2017 and governs the period beginning on July 1, 2017 to June 30, 2018. The budget includes all funding sources of the City, including the General Fund. At such time as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for the applicable 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 regarding the estimates with the respective department heads, and revises the estimates as the City Manager deems advisable. Prior to June 30, the City Manager submits to the City Council a proposed budget for the Fiscal Year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. A-5 Prior to June 30, public hearings are conducted to obtain public comments and the budget is legally enacted through the passage of a resolution. The budget is subject to amendment to reflect actual financial performance. Finance Department staff present a mid -year report regarding the budget to the City Council. From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named. The City Manager is authorized to transfer budgeted amounts between line items within a department or activity, and between departments and programs within the same fund, provided that the total appropriation does not exceed the budgeted amount. All other transfers or amendments require City Council approval. The City Manager and affected department heads are mutually responsible for controlling expenditures within budgeted appropriations. All appropriations lapse at the end of the Fiscal Year to the extent that they have not been expended or lawfully encumbered. At a public meeting after the adoption of the budget the City Council may amend or supplement the budget by motion adopted by the City Council. The City Council adopted a balanced budget for Fiscal Year 2017 on June 21, 2016. The budget for all funds totaled $129,189,648 (excluding internal service funds) and the General Fund operating budget totaled $109,596,111 (including debt service due to the Costa Mesa Public Financing Authority with respect to the 2007 Certificates). The Fiscal Year 2017 General Fund operating budget projected an increase in appropriations of approximately $3.4 million (3.2%) over the Fiscal Year 2016 adopted General Fund operating budget. Such increases were derived principally from an assumption of modest economic growth, an improving real estate market and increasing development activity within the City. Based on unaudited actual Fiscal Year 2017 results, the City reports that the General Fund is on track to exceed budgeted revenues and come in under amended budget expenditures for Fiscal Year 2017. The Fiscal Year 2018 adopted budget for all funds totals $140,694,811 (excluding internal service funds), and the General Fund operating budget totals $116,517,143 (including debt service due to the Costa Mesa Public Financing Authority with respect to the 2007 Certificates and to the Costa Mesa Financing Authority with respect to the Series 2017 Bonds). The Fiscal Year 2018 General Fund operating budget projects an increase in appropriations of approximately $6.9 million (6.3%) over the Fiscal Year 2017 adopted General Fund operating budget. Such increases were derived principally from an assumption of modest economic growth, an improving real estate market, expected increases in Fire and Parks Fees, revenues from new business and conditional use permits issued to medical marijuana operations, and six months of new Fire -Paramedic ambulance transportation revenue. The Fiscal Year 2018 budget allocates approximately $20,934,170 for capital improvements, an increase of 30.4% over the Fiscal Year 2017 allocation. The capital improvement budget and projects undertaken can vary significantly from year to year because most projects are funded by grants or restricted revenue sources. The General Fund provides approximately $8,283,644 of the capital improvement budget for Fiscal Year 2018, reflecting a 6.9% increase over the Fiscal Year 2017 allocation. Pursuant to the City's Municipal Code, the City is required to allocate a minimum of 5% of annual General Fund revenues to its capital expenditures and 1.5% to capital facilities accounts. Projects to be funded under the Fiscal Year 2018 budget include capital facilities, park development and maintenance, street improvements and maintenance and traffic planning and operations. Set forth in Table 1 are the General Fund budgets for Fiscal Years 2015 through 2018, the audited General Fund results for Fiscal Years 2015 and 2016 and the unaudited General Fund results for Fiscal Year 2017. During the course of each Fiscal Year, the budget is amended and revised as necessary by the City Council. W TABLE 1 CITY OF COSTA MESA GENERAL FUND BUDGETS AND RESULTS [CITY TO CONFIRM/COMPLETE FOOTNOTES] 0) Reflects unaudited actual Fiscal Year 2017 results. Such amounts are subject to change. Z Includes motor vehicle in -lieu fees and grants and reimbursements. �3> Includes �4> Includes costs related to City Council, personnel, information technology, financial services, development services, facilities and equipment maintenance, and non -departmental operations. �5> Includes police protection, fire protection and building and safety costs. �6> Includes community recreation and planning costs. Includes administration, engineering and transportation costs. Sources: Adopted budgets of the City for Fiscal Years 2015, 2016, 2017 and 2018; City audited financial statements for Fiscal Years 2015 and 2016; unaudited actual results for Fiscal Year 2017. A-7 Final Final Adopted Fiscal Unaudited Adopted Fiscal Fiscal Year Fiscal Year Fiscal Year Fiscal Year Year 2017 Fiscal Year Year 2018 2015 Budget 2015 Results 2016 Budget 2016 Results Budget 2017 Results() Budget Revenues Sales Taxes $ 50,169,000 $ 51,115,064 $ 52,862,000 $ 57,593,561 $ 54,600,000 $ 56,556,867 $ 56,906,000 Property Taxes 24,027,000 24,058,820 24,673,600 25,998,070 25,925,102 27,286,121 28,111,738 Transient Occupancy Taxes 8,040,000 7,995,154 8,107,500 8,622,505 8,531,000 8,924,854 9,250,000 Franchise Taxes 4,867,000 4,885,926 5,039,600 5,060,402 4,961,156 4,593,632 4,798,473 Business License Taxes 954,000 954,408 952,100 973,521 944,852 918,928 960,805 Licenses & Permits 2,287,500 2,313,296 2,889,500 2,983,081 2,173,933 2,930,920 2,636,508 Fines & Forfeitures 1,485,000 1,204,868 1,190,000 1,530,046 1,475,000 1,467,693 1,535,000 Intergovernmental(2) 10,295,157 11,229,135 10,696,705 10,448,829 10,695,418 11,078,463 11,167,025 Charges for Services 3,449,150 3,574,264 3,562,300 3,634,255 3,848,308 3,776,534 5,635,426 Rental 2,896,000 2,932,280 2,963,900 2,890,731 2,983,221 2,791,744 2,859,749 Investment Income 296,427 1,463,378 180,800 1,199,813 180,000 (161,368) 250,000 Miscellaneous (3) 901,960 1,260,202 714,500 1,067,367 1,074,107 1,440,621 1,563,849 Total Revenues $ 109,668,194 $ 112,986,795 $ 113,832,505 $ 122,002,181 $ 117,392,897 $ 121,605,009 $ 125,674,573 Expenditures General Government(4) $ 24,405,684 $ 24,699,226 $ 23,428,896 $ 25,102,067 $ 23,553,568 $ 26,543,133 $ 25,536,049 Protection of Persons & 65,938,890 58,538,083 65,698,544 61,698,933 67,435,134 63,615,323 69,746,567 Property(5) CommunityPrograms(6) 7,089,323 6,315,015 7,985,646 6,955,472 8,503,832 8,185,152 9,229,628 Public Services(7) 6,164,543 5,565,303 6,695,737 5,537,269 6,368,084 6,111,689 7,284,034 Total Expenditures $ 103,598,440 $ 95,117,627 $ 103,808,823 $ 99,293,741 $ 105,860,618 $ 104,455,297 $ 112,796,278 Excess (Deficiency) of Revenues Over (Under) Expenditures $ 6,069,754 $ 17,869,168 $ 10,023,682 $ 22,708,440 $ 11,532,279 $ 17,149,712 $ 12,878,295 [CITY TO CONFIRM/COMPLETE FOOTNOTES] 0) Reflects unaudited actual Fiscal Year 2017 results. Such amounts are subject to change. Z Includes motor vehicle in -lieu fees and grants and reimbursements. �3> Includes �4> Includes costs related to City Council, personnel, information technology, financial services, development services, facilities and equipment maintenance, and non -departmental operations. �5> Includes police protection, fire protection and building and safety costs. �6> Includes community recreation and planning costs. Includes administration, engineering and transportation costs. Sources: Adopted budgets of the City for Fiscal Years 2015, 2016, 2017 and 2018; City audited financial statements for Fiscal Years 2015 and 2016; unaudited actual results for Fiscal Year 2017. A-7 Change in Fund Balance of the City General Fund Set forth in Table 2 are the City's audited General Fund statements of revenues, expenditures and changes in fund balance for Fiscal Years 2013 through 2016 and the unaudited General Fund statement of revenues, expenditures and changes in fund balance for Fiscal Year 2017. TABLE 2 CITY OF COSTA MESA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Year Ending June 30, 2013 2014 2015 2016 20170) Revenues Taxes Sales Taxes(2) $ 45,830,107 $ 49,264,633 $ 51,115,064 $ 57,593,561 $ 56,556,867 Property Taxes 23,172,595 22,821,008 24,058,820 25,998,070 27,286,121 Transient Occupancy Taxes 7,257,695 7,696,090 7,995,154 8,622,505 8,924,854 Franchise Taxes 4,818,972 4,891,465 4,885,926 5,060,402 4,593,632 Business License Taxes 917,633 916,285 954,408 973,521 918,928 Licenses & Permits 1,997,057 2,085,348 2,313,296 2,983,081 2,930,920 Fines & Forfeitures 1,506,940 1,216,018 1,204,868 1,530,046 1,467,693 Intergovernmental(3) 9,623,130 10,148,835 11,229,135 10,448,829 11,078,463 Charges for Services 3,509,616 3,404,276 3,574,264 3,634,255 3,776,534 Rental 2,786,330 2,825,148 2,932,280 2,890,731 2,791,744 Investment Income 109,930 1,407,935 1,463,378 1,199,813 (161,368) Return on Equity 2,551,815 -- -- -- -- Settlements 1,452,623 121,971 -- -- -- Miscellaneous(4) 517,920 616,926 1,260,202 1,067,367 1,440,621 Total Revenues $ 106,052,363 $ 107,395,938 $112,986,795 $122,002,181 $ 121,605,009 Expenditures Current General government(') $ 21,982,783 $ 23,893,450 $ 24,699,226 $ 25,102,067 $ 26,543,133 Protection of Persons & 58,150,275 59,239,947 58,538,083 61,698,933 63,615,323 Property(6) Community Programs (7) 4,500,656 4,980,001 6,315,015 6,955,472 8,185,152 Public Services(') 5,177,151 5,634,647 5,565,303 5,537,269 6,111,689 Debt Service(9) 304,660 Total Expenditures $ 90,115,525 $ 93,748,045 $ 95,117,627 $ 99,293,741 $ 104,455,297 Excess (Deficiency) of Revenues Over (Under) Expenditures $ 15,936,838 $ 13,647,893 $ 17,869,168 $ 22,708,440 $ 17,149,712 Other Financing Sources (Uses) Transfers In $ 148 $ 126 $ 201 $ 400,505 $ 471 Transfers Out001 (6,212,312) (9,094,134) (14,253,744) (12,452,435) (18,331,084) Total Other Financing Sources (Uses) $ (6,212,164) $ (9,094,008) $ (14,253,543) $ (12,051,930) $ (18,330,613) Net Change in Fund Balance Before Extraordinary Items $ 9,724,674 $ 4,553,885 $ 3,615,625 $ 10,656,510 $ (1,180,901) Extraordinary Items(") (11,888,159) -- -- -- Net Change in Fund Balance $ (2,163,485) $ 4,553,885 $ 3,615,625 $ 10,656,510 $ (1,180,901) Fund Balance, Beginning of Year 47,809,926 45,646,441 50,200,326 53,815,951 64,472,461 Fund Balance, End of Year45.646.441 50.200326 53,815,951 S 64,472,46161291.560 [CITY TO CONFIRM/COMPLETE FOOTNOTES] (1) Reflects unaudited actual Fiscal Year 2017 results. Such amounts are subject to change. P) Increase in Fiscal Year 2016 sales tax revenues reflects in -lieu receipts related to the end of payments to the City under the triple -flip program. (3) Includes motor vehicle in -lieu fees and grants and reimbursements. 0) Includes contributions, sponsorships, donations, Successor Agency loan payments (see the caption "STATE OF CALIFORNIA BUDGET INFORMATION—Redevelopment Dissolution) and other miscellaneous revenues. (1) Includes costs related to City Council, personnel, information technology, financial services, development services, facilities and equipment maintenance, and non -departmental operations. (6) Includes police protection, fire protection and building and safety costs. Increase in Fiscal Year 2016 reflects [lease payments on capital leases]. (1) Includes community recreation and planning costs. (1) Includes administration, engineering and transportation costs. (9) Includes debt service on (11) Includes transfers for capital improvement projects, public safety expenditures, and debt service payments on Costa Mesa Public Financing Authority obligations. Fiscal Year 2013 also includes reimbursement to Homeless Prevention Fund for negative fund balance. �11> Extraordinary item for Fiscal Year 2013 reflects loss on advance to Successor Agency to the Redevelopment Agency of the City of Costa Mesa for demand payment to County Auditor Controller and write-off of General Fund loan declared an unenforceable obligation by the Department of Finance. See Note 22 to City's audited financial statements for Fiscal Year 2016 for more information. A-8 Sources: City audited financial statements for Fiscal Years 2013 through 2016; City for Fiscal Year 2017. A-9 General Fund Balance Sheets of the City Set forth in Table 3 are the City's audited General Fund balance sheets for Fiscal Years 2013 through 2016 and the unaudited General Fund balance sheet for Fiscal Year 2017. TABLE 3 CITY OF COSTA MESA GENERAL FUND BALANCE SHEETS A-10 Fiscal Year Ending June 30, 2013 2014 2015 2016 20170) Assets Cash and Investments(2) $ 37,286,126 $ 41,558,123 $ 44,593,386 $ 47,748,867 $ 51,292,862 Cash and Investments with Fiscal Agent - - - - - Due from Other Governments (3) 7,787,361 8,327,109 8,160,488 18,062,091 12,063,066 Accounts Receivable (net) 520,768 457,662 407,663 550,225 770,137 Interest Receivable 55,402 65,392 80,147 99,504 154,966 Loans Receivable - 311,931 - - - Rent Receivable 232,097 225,318 228,825 217,902 225,816 Due from Other Funds 113,477 53,054 40,562 279,539 - Advances to Other Funds 4,285,268 4,285,268 4,081,005 2,375,720 2,161,909 Inventories 41,036 47,095 36,066 45,480 52,447 Prepaid Items 37,251 66,671 48,724 64,885 47,978 Total Assets $ 50,358,786 $ 55,397,623 $ 57,676,866 $69,444,213 $ 66,769,181 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities Accounts Payable $ 1,545,563 $ 1,581,772 $ 1,544,599 $ 2,313,712 $ 2,160,331 Accrued Liabilities 1,208,888 1,315,305 1,330,898 1,350,605 66,862 Retentions Payable - - - - - Deposits Payable 732,133 769,844 727,370 740,977 740,204 Due to Other Funds - - - - - Advances from Other Funds Total Liabilities $ 3,486,584 $ 3,666,921 $ 3,602,867 $ 4,405,294 $ 2,967,397 Deferred Inflows of Resources Unavailable Revenues $ 1,225,761 $ 1,530,376 $ 258,048 $ 566,458 $ 510,224 Total Deferred Inflows of Resources $ 1,225,761 $ 1,530,376 $ 258,048 $ 566,458 $ 510,224 Fund Balances Nonspendable Prepaid Costs $ 37,251 $ 66,671 $ 48,724 $ 64,885 $ 47,978 Inventories 41,036 47,095 36,066 45,480 52,447 Advances to Other Funds 3,059,507 3,316,338 4,081,005 2,375,720 2,161,909 Restricted for Protection of Persons & Property - - - - - Community Programs Public Services Debt Service - - - - - Committed 16,125,000 16,125,000 16,125,000 16,125,000 16,125,000 Assigned 10,131,615 10,016,092 11,325,819 13,820,663 13,579,974 Unassigned(') 16,252,032 20,629,130 22,199,337 32,040,713 31,324,252 Total Fund Balances $ 45,646,441 $ 50,200,326 $ 53,815,951 $ 64,472,461 $ 63,291,560 Total Liabilities, Deferred Inflows of Resources and Fund Balances 15 0,358,786 &55 ,397,623 L52&76 ,866 S 69,444,213 $ 66,769,181 0) Reflects unaudited actual Fiscal Year 2017 results. Such amounts are subject to change. (2) Increases in Fiscal Year 2015 and 2016 reflect (3) Increase in Fiscal Year 2016 reflects increased sales tax receipts of approximately $2.5 million over Fiscal Year 2015 and sales tax in lieu receipts of approximately $6.8 million related to the end of the triple -flip payments to the City. 0 Increase in Fiscal Year 2016 reflects [add footnote showing which moneys will be used for the Lions Park project.] Sources: City audited financial statements for Fiscal Years 2013 through 2016; City for Fiscal Year 2017. A-10 Sales Taxes Estimated sales tax receipts of $56,556,867 provided the largest tax revenue source for the City in Fiscal Year 2017, contributing approximately 58% of General Fund tax revenues and approximately 47% of total General Fund revenues during Fiscal Year 2017. Fiscal Year 2016 sales tax receipts equaled $57,556,867, 42% of which was attributable to sales at car dealerships on Harbor Boulevard and retail sales at the South Coast Plaza Shopping Center. A sales tax is imposed on retail sales or consumption of personal property and collected and distributed by the State Board of Equalization. The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current sales tax rate in the City is 8%. The following table shows taxable sales by category for calendar years 2007 through 2016. TABLE 4 CITY OF COSTA MESA TAXABLE SALES BY CATEGORY (in thousands of dollars) A-11 Fiscal Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Apparel stores $ 482,249 $ 432,965 $ 383,716 $ 436,980 $ 484,036 $ 604,936 $ 681,348 $ 715,097 $ 727,073 $ 754,197 General merchandise 639,878 582,091 534,936 540,920 568,293 591,832 599,163 615,702 618,702 582,500 Food stores 101,762 102,519 96,251 92,575 93,721 94,377 87,225 88,872 103,225 90,941 Eating and drinking establishments 379,604 358,069 325,087 337,684 371,523 387,667 421,830 443,384 469,465 496,041 Building materials 222,523 192,021 143,602 145,342 142,575 150,604 180,198 193,248 205,343 224,225 Auto dealers and supplies 659,095 560,317 488,122 536,390 577,755 613,669 670,976 753,804 858,187 924,641 Service stations 183,362 203,309 157,149 196,497 240,892 269,067 263,352 245,432 215,707 190,969 Other retail stores 1,030,546 918,095 797,163 853,264 924,979 961,488 972,383 1,025,424 1,047,009 1,050,063 All other outlets 928,733 822,086 697,731 758,854 778,329 839,005 914,501 1,015,134 1,112,851 1,206,829 4.627.752 4.171.472 3.623.757 3.898.506 4.182.103 4.512.645 4 0 6 5.096.097 5 35 562 5.520.407 City direct sales tax rate 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Source: City audited financial statements for Fiscal Year 2016 for calendar years 2007 through 2015. State of California Board of Equalization and The HdL Companies for calendar year 2016. A-11 The City is home to South Coast Plaza International Shopping Destination, one of the largest retail centers in the United States. At almost 3 million square feet of enclosed space, and covering some 128 acres, it contains over 300 shops and nine anchor department stores including Nordstrom, Macy's, Bloomingdale's and Saks Fifth Avenue. South Coast Plaza is regarded as a shopping, dining and entertainment complex, featuring two separate enclosed malls joined by a "Bridge of Gardens" and several distinctive outdoor areas. The surrounding property includes luxury hotels, dozens of restaurants, banks, fountains, art gardens and theaters. Sears, one of the anchor department stores at South Coast Plaza, is not among the Sears stores currently planned for closure by the company, although the City is aware that the South Coast Plaza Sears may be included in a future round of store closures. Sears owns (i.e., does not lease) the South Coast Plaza retail location. In addition to the sales tax generated by brick and mortar retail locations, the City receives 8% of the sales tax generated by online purchases originating in Orange County. Property Taxes Estimated property tax receipts of $27,286,121 provided the second largest tax revenue source of the City in Fiscal Year 2017, contributing approximately 28% of General Fund tax revenues and approximately 22% of total General Fund revenues during Fiscal Year 2017. Property in the State which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State law, on the secured property, regardless of the time of the creation of other liens. The valuation of property is determined as of January 1 each year, and installments of taxes levied upon secured property become delinquent on the following December 10th and April 10th of the subsequent calendar year. Taxes on unsecured property are due July 1 and become delinquent August 31. Secured and unsecured properties are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of forcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes of the State for the amount of taxes that are delinquent. The taxing authority has four methods of collecting unsecured personal property taxes: (1) filing 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 recording in the county recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements or possessory interests belonging or taxable to the assessee. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1.5% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the 10% penalty, plus interest at the rate of 1.5% 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. A 10% penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date. Legislation enacted in 1984 (Section 25 et seq. of the California Revenue and Taxation Code), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new A-12 assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current Fiscal Year and the full 12 months of the next Fiscal Year. For a number of years, the State Legislature has shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund ("ERAF"). In Fiscal Years 1993 and 1994, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts pursuant to ERAF shifts. The Fiscal Year 2005 State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, in Fiscal Years 2005 and 2006. On November 2, 2004, State voters approved Proposition IA, which amended the State Constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1A, 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-thirds approval of both houses of the State Legislature; or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Beginning in Fiscal Year 2009, 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 1 A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. On July 27, 2009, the Governor signed a revised Fiscal Year 2010 State budget that included an ERAF shift of approximately 8% of 1% ad valorem property tax revenues from certain local agencies, including the City. The City participated in the State of California Proposition IA Receivables Program to securitize its receivable from the State, and, as a result, received the shifted funds in the amount of $3,270,152, without interest, in two installments in 2010 from the California Statewide Communities Development Authority. A-13 2017. Set forth in Table 5 are the assessed valuations for property in the City for the Fiscal Years 2009 through TABLE 5 CITY OF COSTA MESA ASSESSED VALUATION HISTORY Fiscal Residential Commercial Industrial Miscellaneous Taxable Assessed Year Property Property Property Property Value 2009 $ 8,164,306,671 $ 2,553,080,097 $ 1,129,832,358 $2,518,888,713 $ 14,366,107,839 2010 8,171,208,423 3,383,235,481 1,196,215,357 1,682,015,788 14,432,675,049 2011 8,347,650,226 3,466,364,532 1,138,864,468 1,163,583,656 14,116,462,882 2012 8,557,101,277 3,394,223,104 1,100,996,492 1,065,596,839 14,117,917,712 2013 8,704,306,093 3,479,681,880 1,122,815,201 1,070,250,329 14,377,053,503 2014 9,101,889,466 3,566,114,710 1,117,794,289 1,140,508,581 14,926,307,046 2015 9,745,389,688 3,633,678,888 1,126,437,386 1,206,217,946 15,711,723,908 2016 10,456,976,124 3,766,616,981 1,190,970,066 1,118,171,362 16,532,734,533 2017 11,033,602,522 3,918,807,590 1,336,961,702 1,180,683,099 17,470,054,913 2018 -- -- -- -- 18,440,879,306(') 0) Preliminary amount provided by County Assessor's Office. Sources: City audited financial statements for Fiscal Year 2016; County Assessor's Office for Fiscal Year 2017 and 2018 information. Set forth in Table 6 are property tax collections in the City as of June 30 for Fiscal Years 2009 through 2017. Certain counties in the State of California operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County has adopted the Teeter Plan, and consequently the City's receipt of property taxes is not subject to delinquencies. No assurances can be provided that the County will not discontinue the Teeter Plan, the result of which would be to subject the City's receipt of property taxes to delinquencies in the payment thereof. TABLE 6 CITY OF COSTA MESA PROPERTY TAX LEVIES AND COLLECTIONS 0) The amounts shown in this column reflect all property tax collections of the City. See Table 2 under the caption "—Change in Fund Balance of the City General Fund" for historic General Fund property tax revenues alone. Source: City audited financial statements for Fiscal Years 2013-2016, County Assessor's Office for Fiscal Year 2017. A-14 Collections within Percent of Levy Total the Fiscal Year of Collected within the Collections in Percent of Levy Fiscal Year Tax Levy Levy(l) Fiscal Year of Levy Subsequent Years Collected to Date 2009 $ 21,276,710 $ 20,363,004 95.71% $ 920,531 100.03% 2010 21,092,684 17,122,170 81.18 911,902 85.50 2011 20,670,091 20,059,681 97.05 594,003 99.92 2012 20,574,309 19,958,891 97.01 408,220 98.99 2013 21,112,082 20,599,679 97.57 382,281 99.38 2014 22,178,464 21,732,926 97.99 285,325 99.28 2015 23,405,838 22,897,171 97.83 242,634 98.86 2016 24,960,369 24,222,713 97.04 227,104 97.95 2017 26,330,538 25,640,344 97.38 216,963 98.20 0) The amounts shown in this column reflect all property tax collections of the City. See Table 2 under the caption "—Change in Fund Balance of the City General Fund" for historic General Fund property tax revenues alone. Source: City audited financial statements for Fiscal Years 2013-2016, County Assessor's Office for Fiscal Year 2017. A-14 The ten largest taxpayers in the City as shown on the Fiscal Year 2017 tax roll, number of parcels held by each taxpayer, net assessed valuation of the property held by such taxpayers, primary use of the taxpayer property and the percentage of the City's total net assessed valuation attributable to each taxpayer are set forth in Table 7. Rank Property Owner 1. South Coast Plaza 2. The Irvine Company LLC(') 3. PR II of MCC South Coast Property Owner LLC 4. United Dominion Realty LP 5. BRE LLCM') 6. Mar ack LLC Irvine Company 7. Automobile Club of Southern California(') 8. Casden Lakes LP 9. Soco Retail Fee Owner LLC 10. JKS-CMFV LLCM TOP 10 TOTAL CITY TOTAL Net Assessed (') Assessment appeals pending. Source: County Assessor's Office. TABLE 7 CITY OF COSTA MESA TEN LARGEST TAXPAYERS A-15 % of Total Fiscal Year % of Total City Net 2017 Net City Net % of Total Fiscal Year 2017 Assessed Assessed Assessed City Net Assessed Valuation of Valuation of Valuation of Combined Net Combined Valuation of Secured Unsecured Unsecured Assessed Net Assessed Parcels Secured Property Property Parcels Property Property Valuation Valuation Primary Use 19 $ 279,792,466 1.70% 1 $ 4,378 0.00% $ 279,796,844 1.60% Commercial 2 236,578,710 1.45 -- -- 0.00 238,578,710 1.37 Commercial 6 233,000,000 1.41 -- -- 0.00 233,000,000 1.33 Commercial 2 194,669,466 1.18 -- -- 0.00 194,669,466 1.11 Residential 7 178,051,677 1.08 1 8,562 0.00 178,060,239 1.02 Commercial 1 153,657,985 0.93 -- -- 0.00 153,657,985 0.88 Residential 4 130,400,706 0.79 3 5,163,569 0.53 135,564,275 0.78 Commercial 17 126,946,891 0.77 1 472,147 0.05 127,419,038 0.73 Residential 10 120,000,000 0.73 -- -- 0.00 120,000,000 0.69 Industrial 5 113,427,480 0.69 _ 0.00 113,427,480 0.65 Commercial 73 $ 1,768,525,381 10.72% 6 $ 5,648,656 0.58% $ 1,774,174,037 10.16% $ 16,503,360,676 100.00% $966,694,237 100.00% $ 17,470,054,913 100.00% A-15 Transient Occupancy Taxes Estimated transient occupancy taxes of $8,924,854 provided the third largest tax revenue source for the City in Fiscal Year 2017, contributing approximately 9% of General Fund tax revenues and approximately 7% of total General Fund revenues during Fiscal Year 2017. The transient occupancy tax is imposed upon persons staying 30 days or less in a hotel, inn, motel or other lodging facility at the rate of 8%. The Business Improvement Area, comprised of 10 hotels within the City, imposes an additional 3% which is used by the Costa Mesa Conference and Visitor's Bureau to promote travel and tourism in the City. The City is evaluating a potential increase in its transient occupancy tax rate from 8% to 11%. If the City determines to proceed with this increase, the City may place this measure on the November 2018 ballot. Franchise Taxes Estimated franchise taxes of $4,593,632 provided the fourth largest tax revenue source for the City in Fiscal Year 2017, contributing approximately 5% of General Fund tax revenues and approximately 4% of total General Fund revenues during Fiscal Year 2017. The franchise tax is imposed on utility companies for use of City streets and rights-of-way. Currently, the City collects electric franchise taxes from Southern California Edison and gas franchise taxes from Southern California Gas Company at the rate of 2% of gross receipts arising from use, operation or possession of the franchise; and, cable franchise fees from Time Warner at the rate of 5% of receipts, net of bad debt. The electric and gas franchise fees are paid annually while the cable franchise fees are paid on a quarterly basis. The Public Utility Commission limits the franchise tax for electric and gas to 2% of gross receipts and cable franchise taxes to 5% of gross receipts. The City also collects a quarterly franchise fee of 16% of gross receipts from 25 waste haulers in the City. Other Taxes, Fees and Services In Fiscal Year 2017 the City collected an estimated $13,326,440 in other fees, taxes and charges for the issuance of business licenses or building permits, certain police services, public works projects, parks and recreation programs, and other miscellaneous services, activities or permits. Such fees provided approximately 11 % of General Fund revenues during Fiscal Year 2017. Such amounts reflect the sum of the "Business License Tax," "Licenses & Permits," "Rental," "Charges for Services," "Fines & Forfeitures" and "Miscellaneous" line items shown in Tables 1 and 2 above. State of California Motor Vehicle In -Lieu Payments The State imposes a Vehicle License Fee (the "VLF"), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The VLF is based on vehicle value and declines as the vehicle ages. Prior to the adoption of the Fiscal Year 2005 State Budget, the VLF was 2% of the value of a vehicle. Through legislation in prior Fiscal Years, the State enacted VLF reductions under which the State was required to "backfill" local governments for their revenue losses resulting from the lowered fee. The Fiscal Year 2005 State Budget permanently reduced the VLF from 2% to 0.65% of the value of a vehicle and deleted the requirement for backfill payments, providing instead that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties. See the caption "STATE OF CALIFORNIA BUDGET INFORMATION." A-16 As set forth in Table 8 below, for Fiscal Year 2017, the City received $10,541,298 (unaudited) in total VLF revenues. TABLE 8 CITY OF COSTA MESA STATE OF CALIFORNIA MOTOR VEHICLE IN -LIEU PAYMENTS Source 2013 Motor Vehicle In -Lieu Payments $8,814,644 Fiscal Year 2014 2015 2016 $9,229,059 $9,481,340 $9,982,948 (') Reflects unaudited actual Fiscal Year 2017 results. Such amounts are subject to change. Source: City. Other Indebtedness General Fund -Supported Debt. 2017(') $10,541,298 2007 Certificates. As described in the Official Statement under the caption "REFUNDING PLAN," the City will refund the City's 2007 Certificates of Participation (Police Facility Expansion Project), currently outstanding in the aggregate principal amount of $18,295,000, at the time of issuance of the Series 2017 Bonds. Employee Leave. As of June 30, 2016, the City owes $4,107,428 in compensated absences which is expected to be paid primarily by the General Fund in future years. See Note 1 in the City's audited financial statements for Fiscal Year 2016, attached hereto as Appendix C, for more information on the City's policies related to compensated absences. For additional information regarding debt supported by the General Fund, see the captions "— Retirement Contributions," "—Police 1% Supplemental Retirement Plan," and "—Other Post -Employment Benefits" herein. Other Long Term Debt. Other long term debt includes the Costa Mesa Public Financing Authority's Revenue Refunding Bonds, Series 2006A, currently outstanding in the aggregate principal amount of $960,000 (the "2006 Bonds"). The 2006 Bonds are secured by revenues consisting primarily of debt service payments on Costa Mesa Community Facility District No. 91-1 (Plaza Tower Public Improvements) 1991 Special Tax Bonds (the "1991 CFD Bonds"). The 1991 CFD Bonds are secured by a special tax levied on property within Costa Mesa Community Facilities District No. 91-1 ("CFD No. 91-1"). Such special tax is collected by the City on behalf of CFD No. 91-1, however the 1991 CFD Bonds and the debt service payments with respect thereto securing the 2006 Bonds are not obligations of the City payable from City funds. Short -Term Debt. The City currently has no short-term debt outstanding. Estimated Direct and Overlapping Bonded Debt. The estimated direct and overlapping bonded debt of the City as of June 30, 2017 is set forth in Table 9. The information in Table 9 has been derived from data assembled and reported to the City by California Municipal Statistics, Inc. None of the City, the Authority or the Underwriter has independently verified the information in Table 9 and the City, the Authority and the Underwriter do not guarantee its accuracy. A-17 TABLE 9 CITY OF COSTA MESA ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT AS OF SEPTEMBER 1, 2017 2016-17 Assessed Valuation: $17,513,150,535 COMBINED TOTAL DEBT $215,548,050(4) Ratios to 2016-17 Assessed Valuation: Direct Debt ($785,000)...................................................................0.004% Total Direct and Overlapping Tax and Assessment Debt .................0.99% Total Direct Debt ($21,620,000)....................................................0.11% Combined Total Debt........................................................................1.23% Ratios to Redevelopment Successor Agencies Incremental Valuation ($669,878,740): Total Overlapping Tax Increment Debt............................................0.07% 0) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. (2) 2006 Revenue Refunding Bonds. (3) The City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) will be redeemed with proceeds of the Series 2017 Bonds. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations. Source: California Municipal Statistics, Inc. A-18 City's Share of DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable0) Debt 8/1/17 Metropolitan Water District 0.678% $ 507,856 Coast Community College District 13.280 103,761,222 Rancho Santiago Community College District 1.332 3,437,846 Rancho Santiago Community College District SFID No. 1 2.546 1,293,241 Newport Mesa Unified School District 26.542 55,617,208 Santa Ana Unified School District 3.146 8,068,423 City of Costa Mesa Community Facilities District No. 91-1 100. 785,000(2) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $173,470,796 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 3.336% $ 7,403,451 Orange County Pension Obligation Bonds 3.336 12,568,798 Orange County Board of Education Certificates of Participation 3.336 481,718 Coast Community College District General Fund Obligations 13.280 479,408 Santa Ana Unified School District Certificates of Participation 3.146 2,338,980 City of Costa Mesa General Fund Obligations 100. 18,295,0003) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $41,617,355 OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): Orange County Neighborhood Project Tax Allocation Bonds 4.425% 437,854 Orange County Santa Ana Heights Tax Allocation Bonds 0.148 22,045 TOTAL OVERLAPPING TAX INCREMENT DEBT $459,899 COMBINED TOTAL DEBT $215,548,050(4) Ratios to 2016-17 Assessed Valuation: Direct Debt ($785,000)...................................................................0.004% Total Direct and Overlapping Tax and Assessment Debt .................0.99% Total Direct Debt ($21,620,000)....................................................0.11% Combined Total Debt........................................................................1.23% Ratios to Redevelopment Successor Agencies Incremental Valuation ($669,878,740): Total Overlapping Tax Increment Debt............................................0.07% 0) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. (2) 2006 Revenue Refunding Bonds. (3) The City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) will be redeemed with proceeds of the Series 2017 Bonds. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations. Source: California Municipal Statistics, Inc. A-18 Retirement Contributions [TO BE UPDATED FURTHER BASED ON 2017 INFORMATION] This caption contains certain information relating to the California Public Employees Retirement System ("CalPERS'). The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City and the Authority have not independently verified the information provided by CalPERS and make no representations nor express any opinion as to the accuracy of the information provided by CalPERS. The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS' most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference herein. Neither the City nor the Authority can guarantee the accuracy of such information. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans. The City contributes to CalPERS, an agent multiple -employer public employee defined benefit pension plan, on behalf of 316 total City employees who participate in the City's Miscellaneous Plan and the 112 total City employees who participate in the City's Police Safety Plan. The City also offers a Fire Safety plan administered by CalPERS, in which 74 City employees currently participate. CalPERS provides retirement, disability and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State, including the City. CalPERS plan benefit provisions and all other requirements are established by State statute and the City Council. In June 2012, GASB adopted revised standards (GASB Statement No. 68, or "GASB 68") with respect to accounting and financial reporting by state and local government employers for defined benefit pension plans. The revised standards alter the accounting treatment of defined benefit pension plans, changing the way expenses and liabilities are calculated and how state and local government employers report those expenses and liabilities in their financial statements. Major changes include: (i) the inclusion of unfunded pension liabilities on the local government's balance sheet (previously, such unfunded liabilities were typically included as notes to the local government's financial statements); (ii) pension expense incorporates more rapid recognition of actual experience and investment returns and is no longer based on the employer's actual contribution amounts; (iii) lower actuarial discount rates that are required to be used for underfunded plans in certain cases for purposes of the financial statements; (iv) closed amortization periods for unfunded liabilities that are required to be used for certain purposes of the financial statements; and (v) the difference between expected and actual investment returns to be recognized over a closed five-year smoothing period. The reporting requirements took effect in Fiscal Year 2015. GASB 68 is a change in accounting reporting and disclosure requirements, but it does not change the City's pension plan funding obligations. A-19 The City participates in separate Ca1PERS plans for employees based on hire date. The City's plans are part of Ca1PERS risk pools. Benefit provisions for each plan are set forth below. Source: August 2016 Ca1PERS Actuarial Valuation Report. CITY OF COSTA MESA SUMMARY OF CALPERS PLAN PROVISIONS AS OF JUNE 30, 2017 POLICE SAFETY PLAN (AGENT MULTIPLE -EMPLOYER) Prior to On or After Hire date March 11, 2012 January 1, 2013 (AB 340) Benefit formula 3% at 50 2.7% at 57 Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Retirement age 50-55 50-57 Monthly benefits, as a % of eligible compensation 3% 2.0% to 2.7% Required employee contribution rates 9% 11.50% Required employer contribution rates 55.611% 11.50% Source: August 2016 Ca1PERS Actuarial Valuation Report A-20 CITY OF COSTA MESA SUMMARY OF CALPERS PLAN PROVISIONS AS OF JUNE 30, 2017 MISCELLANEOUS PLAN (AGENT MULTIPLE -EMPLOYER) On or After Prior to On or After January 1, 2013 Hire date March 11, 2012 March 11, 2012 (AB 340) Benefit formula 2.5% at 55 2.0% at 60 2% at 62 Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life Retirement age 50-55 50-63 52-67 Monthly benefits, as a % of eligible compensation 2.0% to 2.5% 1.092% to 2.418% 1.0% to 2.5% Required employee contribution rates 8% 7% 6.75% Required employer contribution rates 35.231% 35.231% 6.75% Source: August 2016 Ca1PERS Actuarial Valuation Report. CITY OF COSTA MESA SUMMARY OF CALPERS PLAN PROVISIONS AS OF JUNE 30, 2017 POLICE SAFETY PLAN (AGENT MULTIPLE -EMPLOYER) Prior to On or After Hire date March 11, 2012 January 1, 2013 (AB 340) Benefit formula 3% at 50 2.7% at 57 Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Retirement age 50-55 50-57 Monthly benefits, as a % of eligible compensation 3% 2.0% to 2.7% Required employee contribution rates 9% 11.50% Required employer contribution rates 55.611% 11.50% Source: August 2016 Ca1PERS Actuarial Valuation Report A-20 CITY OF COSTA MESA SUMMARY OF CALPERS PLAN PROVISIONS AS OF JUNE 30, 2016 FIRE SAFETY PLAN (COST-SHARING MULTIPLE -EMPLOYER) Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits, as a % of eligible compensation Required employee contribution rates Required employer contribution rates [UPDATE] Prior to On or After December 30, 2012 December 30, 2012 3.0% at 50 5 years of service monthly for life 50-55 3% 9% 49.231% Source: City audited financial statements for Fiscal Year 2016. 2.0% at 50 5 years of service monthly for life 50-55 2.0% to 2.7% 9% 13.813% On or After January 1, 2013 (AB 340) 2.7% at 57 5 years of service monthly for life 50-57 2.0% to 2.7% 11.50% 11.50% City employees who were hired on and after January 1, 2013 and who were not previously Ca1PERS members participate in the City 2.0% at 62 Miscellaneous Plan, the City's 2.7% at 57 Police Safety Plan and the City's 2.7% at 57 Fire Safety Plan, as applicable; such employees are required to make the full amount of required employee contributions themselves under the California Public Employees' Pension Reform Act of 2013 ("AB 340"), which was signed by the State Governor on September 12, 2012. AB 340 established new pension tiers (2.0% at 62 formula) and maximum benefit formulas for miscellaneous and safety plans; the options selected by the City are reflected in the foregoing tables. Benefits for such participants are calculated on the highest average annual compensation over a consecutive 36 month period. Employees are required to pay at least 50% of the total normal cost rate. AB 340 also caps pensionable income for [2015 at $117,020 for employees who participate in Social Security and $140,424 for employees who are not enrolled in Social Security], subject to Consumer Price Index increases, and prohibits retroactive benefits increases, generally prohibiting contribution holidays and purchases of additional non-qualified service credit. CaIPERS estimates savings for local agency plans as a result of AB 340 of approximately $1.653 billion to $2.355 billion over the next 30 years, primarily due to increased employee contributions and, as the workforce turns over, lower benefit formulas that will gradually reduce normal costs. Savings specific to the City have not been quantified. Provisions in AB 340 will likely not have a material effect on City contributions in the short term. However, additional employee contributions, limits on pensionable compensation and higher retirement ages for new members will reduce the City's unfunded pension lability and potentially reduce City contribution levels in the long term. For the year ended June 30, 2017, the employer contributions recognized as a reduction to the net pension liability for the Miscellaneous Plan, Police Safety Plan and Fire Safety Plan were $6,226,072, $5,992,098 and $ respectively. The City's Normal Cost contribution rates for the Miscellaneous Plan were 8.981 % for Fiscal Year 2016 and 9.150% for Fiscal Year 2017. For Fiscal Years 2016 and 2017, the City's contributions to its Miscellaneous Plan totaled $6,056,123 and $ , respectively, which were equal to the respective annual required contributions (each, an "ARC") of the City. The Normal Cost contribution rates for Fiscal Years 2018, 2019, 2020 and 2021 for the Miscellaneous Plan have been established by Ca1PERS at 8.677%, 8.999%, 9.5% (projected) and 10.5% (projected), respectively, of annual covered payroll. Based on Ca1PERS' July 2017 actuarial valuation report for the City's Miscellaneous Plan, the City's Fiscal Year 2018, 2019, 2020 and 2021 payments for its unfunded liability for the Miscellaneous Plan have been established at $5,974,842, $6,773,527, $7,692,000 (projected) and $8,347,000 (projected), respectively. The Normal Cost rates and unfunded liability A-21 payments set forth in the August 2017 CalPERS actuarial valuation report for the Miscellaneous Plan reflect the impact of upcoming CalPERS discount rate reductions which affect the City's pension obligations beginning in Fiscal Year 2019. See "—Actuarial Methods" below. The City's Normal Cost contribution rates for the Police Safety Plan were 19.756% for Fiscal Year 2016 and 21.295% for Fiscal Year 2017. For Fiscal Years 2016 and 2017, the City's contributions to its Police Safety Plan totaled $5,994,277 and $ , respectively, which were equal to the respective ARCS of the City. The Normal Cost contribution rates for Fiscal Years 2018, 2019, 2020 and 2021 for the Police Safety Plan have been established by CalPERS at 20.197%, 20.270%, 21.2% (projected) and 23.1 % (projected), respectively, of annual covered payroll. Based on CalPERS' July 2017 actuarial valuation report for the City's Police Safety Plan, the City's Fiscal Year 2018, 2019, 2020 and 2021 payments for its unfunded liability for the Police Safety Plan have been established at $5,868,102, $6,926,358, $8,127,000 (projected) and $9,059,000 (projected), respectively. The Normal Cost rates and unfunded liability payments set forth in the July 2017 CalPERS actuarial valuation report for the Police Safety Plan reflect the impact of upcoming CalPERS discount rate reductions which affect the City's pension obligations beginning in Fiscal Year 2019. See "—Actuarial Methods" below. The City's Normal Cost contribution rates for the Fire Safety Plan were 20.230% for Fiscal Year 2016 and 21.230% for Fiscal Year 2017. For Fiscal Years 2016 and 2017, the City's contributions to its Fire Safety Plan totaled $3,786,280 and $ , respectively, which was $500,000 greater than the respective ARCS of the City for each such year. The Normal Cost contribution rates for Fiscal Years 2018, 2019, 2020 and 2021 for the Fire Safety Plan have been established by CalPERS at 21.418%, 22.346%, 23.3% (projected) and 25.1% (projected), respectively, of annual covered payroll. Based on CalPERS' August 2017 actuarial valuation report for the City's Fire Safety Plan, the City's Fiscal Year 2018, 2019, 2020 and 2021 payments for its unfunded liability for the Fire Safety Plan have been established at $4,222,722, $4,855,573, $5,579,000 (projected) and $6,129,000 (projected), respectively. The Normal Cost rates and unfunded liability payments set forth in the August 2017 CalPERS actuarial valuation report for the Fire Safety Plan reflect the impact of upcoming CalPERS discount rate reductions which affect the City's pension obligations beginning in Fiscal Year 2019. See "—Actuarial Methods" below. The City's second tier Fire Safety Plan was not in place prior to Fiscal Year 2017; as such, Fiscal Year 2017 is the first year for which information regarding the second tier Fire Safety Plan is available. The City's Normal Cost contribution rate for the second tier Fire Safety Plan was 14.785% for Fiscal Year 2017. For Fiscal Year 2017, the City's contributions to its second tier Fire Safety Plan totaled $431, which was equal to the ARC of the City. The Normal Cost contribution rates for Fiscal Years 2018, 2019, 2020 and 2021 for the second tier Fire Safety Plan have been established by CalPERS at 14.971%, 15.719%, 16.4% (projected) and 17.8% (projected), respectively, of annual covered payroll. Based on CalPERS' August 2017 actuarial valuation report for the City's second tier Fire Safety Plan, the City's Fiscal Year 2018, 2019, 2020 and 2021 payments for its unfunded liability for the second tier Fire Safety Plan have been established at $544, $316, $790 (projected) and $1,600 (projected), respectively. Fiscal Year 2018 is the first year which the City's AB 340 Fire Safety Plan will be in place; as such, Fiscal Year 2018 is the first year for which information regarding the AB 340 Fire Safety Plan is available. The Normal Cost contribution rates for Fiscal Years 2018, 2019, 2020 and 2021 for the AB 340 Fire Safety Plan have been established by CalPERS at 11.990%,12.141%,12.4% (projected) and 13.1 % (projected), respectively, of annual covered payroll. Based on CalPERS' August 2017 actuarial valuation report for the City's AB 340 Fire Safety Plan, the City's Fiscal Year 2018, 2019, 2020 and 2021 payments for its unfunded liability for the AB 340 Fire Safety Plan have been established at $4, $55, $150 (projected) and $300 (projected), respectively. The discount rate reduction announced by Ca1PERS is not anticipated to have a significant impact on the unfunded actuarial liability for the second tier Fire Safety Plan or the AB 340 Fire Safety Plan. The City paid the small unfunded actuarial liability for the second tier Fire Safety Plan in Fiscal Year 2017 (the AB 340 Fire Safety Plan was not yet in place) and intends to do the same in future fiscal years with respect to both plans. A-22 The discount rate reduction announced by CalPERS has been incorporated into the current City Financial Plan, which was presented to the City Council in February 2017 as part of the mid -year budget update to the City Council. See the caption "CITY FINANCIAL INFORMATION—Economic Condition and Outlook of the City." A summary of principal assumptions and methods used to determine the total pension liability for Fiscal Year 2016 is shown below. Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Payroll Growth Projected Salary Increase Investment Rate of Return Mortality Miscellaneous June 30, 2014 June 30, 2015 Entry -Age Normal Cost Method 7.65% 2.75% 3.00% (1) 7.5%(2) (3) Police & Fire Safety June 30, 2014 June 30, 2015 Entry -Age Normal Cost Method 7.65% 2.75% 3.00% (1) 7.5%(2) (3) (1) Varies based on age, service and type of employment. (2) Net of pension plan investment expenses, including inflation. (3) The probabilities of mortality are derived using CalPERS' membership data for all funds. The mortality table used was developed based on CalPERS' specific data and includes 20 years of mortality improvements using Society of Actuaries Scale BB. Source: City. Actuarial Methods. The staff actuaries at CalPERS annually prepare an actuarial valuation which covers a Fiscal Year ending approximately 15 months before the actuarial valuation is delivered (thus, the actuarial valuations delivered to the City in fall 2017 covered the City's Fiscal Year ended June 30, 2016). The actuarial valuations express the City's required contribution rates in percentages of covered payroll, which percentages the City must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City's contribution rate derived from the actuarial valuation as of June 30, 2016, which was delivered in fall 2017, affects the City's Fiscal Year 2018-19 required contribution rate). CalPERS rules require the City to implement the actuary's recommended rates. CalPERS provides a lump sum payment option that the City may opt to pay in July of each year, rather than having payment transmitted as a percentage of each reported biweekly payroll. In calculating the annual actuarially recommended contribution rates, the CalPERS actuary calculates on the basis of certain assumptions the actuarial present value of benefits that CalPERS, will fund under the CalPERS plans, which includes two components, the normal cost and the total pension liability. The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS plans that are attributed to the current year, and the actuarial accrued liability represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The total pension liability represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The total pension liability is based on several assumptions such as, among others, the rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the total pension liability includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the total pension liability may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will fund under the CalPERS plans to retirees and active employees upon their retirement and not as a fixed expression of the liability that the City owes to CalPERS under its CalPERS plans. A-23 In each actuarial valuation, the CalPERS actuary estimates the actuarial value of the assets (the "Actuarial Value") of the CalPERS plans at the end of the Fiscal Year (which assumes, among other things, that the rate of return during that Fiscal Year equaled the assumed rate of return, currently 7.50%. As described below, these policies and actuarial assumptions have changed significantly in recent years and are expected to change or be modified further by CalPERS in the future. The CalPERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. Certain significant recent changes in assumptions include the following: 1. On December 21, 2016, the CalPERS Board voted to lower the CalPERS discount rate to 7.0% over the next three years in accordance with the following schedule: 7.375% in fiscal year 2017-18, 7.25% in fiscal year 2018-19 and 7.00% in fiscal year 2019-20. The new discount rate will go into effect July 1, 2017 for the State and July 1, 2018 for public agencies. For the City, the new discount rate will take effect July 1, 2018. Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 will also see their contribution rates rise under AB 340. CalPERS estimates that the three-year reduction of the discount rate will result in average employer rate increases of approximately 1 % to 3% of normal cost as a percentage of payroll for most miscellaneous retirement plans such as the City's. Additionally, many employers will see a 30% to 40% increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the long-term. The City Financial Plan projects that such discount rate reductions will necessitate increases in General Fund appropriations for retirement benefits ranging from approximately $3.1 million to $4.3 million per year from Fiscal Year 2019 through Fiscal Year 2022. See the discussion above for a description of the Normal Cost Rates and unfunded liability payments for the City's retirement plans set forth in the 2017 actuarial reports for each plan, which reflect the impact of the discount rate reduction on the City's pension obligations for Fiscal Year 2019 and the projected effect of such reduction for Fiscal Years 2020 and 2021. 2. On November 17, 2015, the CalPERS Board approved changes that could affect the assumed investment return rate in the future. In years in which CalPERS' investment returns are more than 2% greater than forecast, the long-term assumed investment return rate will be reduced by a maximum of 0.25%. CalPERS estimates that this change will reduce the assumed investment return rate by approximately 1% (to 6.5%) within 20 years. 3. On February 18, 2014, the CalPERS Board approved changes to actuarial assumptions and methods based upon a recently completed experience study. These changes include: moving from using smoothing of the market value of assets to obtain the actuarial value of assets to direct smoothing of employer contribution rates; increased life expectancy; changes to retirement ages (earlier for some groups and later for others); lower rates of disability retirement; and other changes. 4. On April 17, 2013, the CalPERS Board approved a plan: (i) to replace the current 15 -year asset -smoothing policy with a 5 -year direct -rate smoothing process; and (ii) to replace the current 30 -year rolling amortization of unfunded liabilities with a 30 -year fixed amortization period. Ca1PERS' Chief Actuary has stated that the revised approach provides a single measure of funded status and unfunded liabilities, less rate volatility in extreme years, a faster path to full funding and more transparency to employers such as the City about future contribution rates. These changes are expected to accelerate the repayment of unfunded liabilities of the City's CalPERS plan in the near term; the exact magnitude of the potential contribution rate increases is not known at this time, but may be significant. These changes were reflected beginning with the June 30, 2014 actuarial valuation affecting contribution rates for Fiscal Year 2016 and thereafter. The City budgets for its annual pension contributions based on the rates established by CalPERS each year. A-24 The total change in the net pension liability for the City's Miscellaneous Plan and Police Safety Plan, using the measurement date of June 30, 2016, is set forth in the following tables. CITY OF COSTA MESA CHANGE IN NET PENSION LIABILITY MISCELLANEOUS PLAN (AGENT MULTIPLE -EMPLOYER) Balance at June 30, 2015 Changes in the Year: Service cost Interest on the total pension liability Differences between actual and expected experience Changes in assumptions Changes in benefit terms Plan to Plan resource movement Contributions - employer Contributions - employees Net investment income Administrative expenses Benefit payments, including refunds of employee contributions Net Changes Balance at June 30, 2016 (Measurement Date) Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Liability Net Position (Asset) $ 251,837,852 $ 171,902,350 $ 79,935,502 3,269,125 - 3,269,125 18,633,944 - 18,633,944 (2,818,846) - (2,818,846) (4,399,842) - (4,399,842) - 3,064 (3,064) - 6,226,072 (6,226,072) - 1,966,557 (1,966,557) - 897,287 (897,287) - (104,766) 104,766 (14,145,202) (14,145,202) - 4,939,021 (5,156,988) 10,096,009 256,776,873 166.745.362 90.031.511 Source: CalPERS GASB 68 Accounting Valuation Report for the City Miscellaneous Plan. A-25 CITY OF COSTA MESA CHANGE IN NET PENSION LIABILITY POLICE SAFETY PLAN (AGENT MULTIPLE -EMPLOYER) Balance at June 30, 2015 Changes in the Year: Service cost Interest on the total pension liability Differences between actual and expected experience Changes in assumptions Changes in benefit terms Plan to Plan resource movement Contributions - employer Contributions - employees Net investment income Administrative expenses Benefit payments, including refunds of employee contributions Net Changes Balance at June 30, 2016 (Measurement Date) Total Pension Liability $ 255,373,714 4,011,055 19,519,447 4,436,634 Increase (Decrease) Plan Fiduciary Net Position $ 162,430,581 Net Pension Liability (Asset) $ 92,943,133 4,011,055 19,519,447 4,436,634 - 72 (72) - 5,992,098 (5,992,098) - 1,988,684 (1,988,684) - 825,770 (825,770) - (98,993) 98,993 (13,319,431) (13,319,431) - 14,647,705 (4,611,800) 19,259,505 270,021,419 157.818.781 112,202,638 Source: CalPERS GASB 68 Accounting Valuation Report for the City Police Safety Plan. As of June 30, 2016, the City reported a proportionate share of net pension liability of $59,018,969 for the pooled Fire Safety Plan. The following table presents the net pension liability of the City's Ca1PERS plans, calculated using the discount rate of 7.65%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65%) or 1 percentage point higher (8.65%) than the current rate. The City has adopted a policy under which it will contribute $500,000 per year to reduce its unfunded pension liability. The City also contributes any savings achieved through prepayments of the City's unfunded pension liability to pay down additional unfunded pension liability. Accordingly, the City has budgeted $570,000 in Fiscal Year 2018 to reduce its unfunded liability. This additional contribution is allocated entirely to the Fire Safety Plan. CITY OF COSTA MESA SENSITIVITY OF THE NET PENSION LIABILITY TO CHANGES IN THE DISCOUNT RATE I% Decrease Net Pension Liability Current Discount Rate Net Pension Liability 1% Increase Net Pension Liability Miscellaneous Plan 6.65% $123,053,521 7.65% $90,031,511 8.65% $62,816,506 Police Safety Plan 6.65% $150,077,752 7.65% $112,202,638 8.65% $81,359,864 Fire Safety Plan [6.65%] [$84,029,979] [7.65%] [$59,018,969] [8.65%] [$38,510,400] Source: Ca1PERS GASB 68 Accounting Valuation Reports for the City Miscellaneous Plan and Police Safety Plan; [City audited financial statements for Fiscal Year 2016 for the Fire Safety Plan.] A-26 Ca1PERS earnings reports for Fiscal Years 2010 through 2017 report an investment gain of approximately 13.0%, 21.7%, 1%, 12.5%, 18.4%, 2.4%, 0.6% and 11.2%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the City. For additional information relating to the City's plans, see Note 13 to the City's audited financial statements for Fiscal Year 2016 attached hereto as Appendix C. No assurance can be provided that the City's CalPERS plan expenses will not increase significantly in the future. Police 1% Supplemental Retirement Plan The Police 1% Supplemental Retirement Plan (the "Police 1% Plan") is a single employer defined benefit plan. The Police 1% Plan currently has only retired participants as all active employees were transferred to the Ca1PERS 3% at age 50 benefit plan. The number of participants at June 30, 2016 was 19, and the average monthly benefit being paid is $929.75. The retirement benefit is 1% of the highest 12 -month earnings for credited services up to 25 years. The maximum benefit is 75% of the highest 12 -month earnings for service retirement including all public plan pension benefits but not including Social Security. The 75% is proportionately reduced for less than 25 years of Costa Mesa Police Department service. A summary of principal assumptions and methods used to determine the total pension liability for Fiscal Year 2016 is shown below. Measurement Date June 30, 2016 Actuarial Cost Method Entry -Age Normal Cost Method Actuarial Assumptions: Discount Rate 2.90% Inflation 2.75% Payroll Growth N/A Employer Funding Policy Pay-as-you-go Census Data Provided by Police 1% Plan Sponsor as of June 2016 Mortality Rates based on Ca1PERS Safety Police Plan annual valuation report as of June 30, 2014 Source: City audited financial statements for Fiscal Year 2016. A-27 The total change in the net pension liability for the City's Police I% Plan was as follows: CITY OF COSTA MESA CHANGE IN NET PENSION LIABILITY POLICE 1% PLAN Balance at June 30, 2015 Changes in the Year: Service cost Interest on the total pension liability Differences between actual and expected experience Changes in assumptions Changes in benefit terms Plan to Pan resource movement Contributions — employer Contributions — employees Net investment income Administrative expenses Benefit payments, including refunds of employee contributions Net Changes Balance at June 30, 2016 Source: City audited financial statements for Fiscal Year 2016. $ 2,897,028 80,931 (211,287) (130,356) 2.766.672 The following table presents the net pension liability of the City's Police 1 % Plan, calculated using the discount rate of 2.90%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (1.90%) or 1 percentage point higher (3.90%) than the current rate: CITY OF COSTA MESA SENSITIVITY OF THE NET PENSION LIABILITY TO CHANGES IN THE DISCOUNT RATE POLICE 1% PLAN I% Decrease 1.90% Net Pension Liability $3,028,779 Current Discount Rate 2.90% Net Pension Liability $2,766,672 1% Increase 3.90% Net Pension Liability $2,540,355 Source: City audited financial statements for Fiscal Year 2016. For additional information relating to the City's Police 1% Plan, see Note 14 to the City's audited financial statements for Fiscal Year 2016 attached hereto as Appendix C. Defined Contribution Plan On January 1, 2000, the City adopted a Defined Contribution Plan for part-time employees that work under 1,000 hours during the fiscal year and do not meet the eligibility requirements to be enrolled in the CAPERS plans. The Defined Contribution Plan is administered by the Public Agency Retirement Services. As of June 30, 2016, there were 201 active participants in the Defined Contribution Plan. Both the City and employees are required to each contribute 3.75% of gross wages. The City's contribution to the defined contribution plan for the year ended June 30, 2016 was $47,313. A-28 Other Post -Employment Benefits The City provides post -employment health care benefits to qualified retired employees. Employees are eligible for such benefits if they were hired prior to January 1, 2004 and retire directly from the City with at least ten years of City service. The City provides a contribution up to a percentage (which varies by retirement date and years of service) of the lesser of $500 per month or the premium for the most popular medical plan elected by the employees. For employees hired on or after January 1, 2004, the City will only pay for the subsidy pursuant to the Public Employees' Medical and Hospital Care Act ("PEMCHA") once such employees meet the Ca1PERS definition of a retiree. The City provides retiree life insurance of $1,000 for the retiree and $500 for the retiree's spouse. The City's plan is a single -employer defined benefit other post -employment benefits ("OPEB") plan, with 326 active participants as of June 30, 2016. The OPEB plan contributes an amount for the retiree and dependents, as applicable, for certain healthcare services. The contribution requirements for OPEB plan participants and the City are established and may be amended by the City Council. The annual required contribution (the "OPEB ARC") is an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The OPEB ARC is equal to the normal cost each year plus a closed 30 year period amortization of the unfunded actuarial liability. Based on the actuarial valuation of the City's OPEB plan, the OPEB ARC for Fiscal Year 2015 was approximately $2,134,522 and the OPEB ARC for Fiscal Year 2016 was approximately $2,712,574. The OPEB valuation that was prepared as of June 30, 2016, in accordance with GASB Statement No. 45, was used for reporting OPEB information in the City's financial statements for Fiscal Year 2016. The City contributed an estimated $1,915,100 to the OPEB plan in Fiscal Year 2017 and expects to contribute $1,915,100 to the OPEB plan in Fiscal Year 2018. In October 2016, Nyhart Actuary & Employee Benefits completed an actuarial valuation of the City's OPEB plan based on a valuation date of June 30, 2016. The report was developed in accordance with new accounting standards established by GASB Statement No. 75 ("GASB 75"), which requires that the valuation include the value of the "implied subsidy" of older retired participants by a younger active workforce in a pooled rate medical plan. The City intends to continue to pay the full OPEB ARC without the impact of the implied subsidy included. The City typically sets aside a portion of its general fund balance each year for its net annual OPEB obligation and otherwise treats this as a pay-as-you-go obligation. Based on the 2016 actuarial valuation of the City's OPEB plan, the OPEB pay-as-you-go cost for Fiscal Year 2017 is expected to be $2,382,182, including PEMCHA, explicit subsidy and implicit subsidy. The City is not required to fund the amortization of the unfunded actuarial liability. Based on the 2016 actuarial valuation, the unfunded actuarial accrued liability of the City's OPEB plan was estimated to be approximately $45,889,694 as of July 1, 2015. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the last five Fiscal Years was as follows: Percentage of Annual Fiscal Year Annual OPEB Cost(O OPEB Cost Contributed 2012 $ 2,153,804 74.7% 2013 2,153,804 80.2 2014 2,141,410 80.7 2015 2,141,410 85.4 2016 2,721,185 88.1 Equal to the OPEB ARC. (2) See Note 16 in Appendix C for a description of the calculation of the net OPEB obligation. Source: City audited financial statements for Fiscal Year 2014 through 2016. A-29 Net OPEB Obligation (2) 2,470,935 2,897,591 3,310,261 3,622,775 3,946,563 Historical information with respect to the funded status of the City's OPEB plan is set forth below. Unfunded Unfunded Actuarial Actuarial Actuarial Accrued Liability Valuation Actuarial Value Accrued Funded Annual Covered as Percentage of Date Accrued Liability of Assets Liability Ratio Payroll Payroll 07/01/11 $ 36,429,075 $ -- $ 36,429,075 0.0% $ 38,315,112 95.1% 07/01/13 35,828,202 -- 35,828,202 0.0 35,329,764 101.4 07/01/15 45,889,693 -- 45,889,693 0.0 30,578,088 150.1 Source: City audited financial statements for Fiscal Years 2014 through 2016. Actuarial valuations of an ongoing plan involve estimates of the value of expected benefit payments and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the City's financial statements set forth in Appendix B, presents multi-year trend information about whether the actuarial value of OPEB plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits are based on the substantive plan and include the types of benefits in force at the valuation date and the pattern of sharing benefit costs between the City and the plan members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Significant methods and assumptions are described in detail in Note 16 to Appendix C. City Investment Policy The City invests its funds in accordance with the City's investment policy (the "Investment Policy"), which was most recently amended on June 6, 2017. In accordance with Section 53600 et seq. of the California Government Code, idle cash management and investment transactions are the responsibility of the City Treasurer. The City's Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments. The Investment Policy sets forth a stated objective, among others, of insuring the safety of invested funds by limiting credit and market risks. Eligible investments are generally limited to the Local Agency Investment Fund which is operated by the California State Treasurer, the County investment pool for local agencies, municipal securities including obligations of a state or a local agency within California rated "A" by at least one nationally recognized statistical rating organization ("NRSRO") if long-term debt issued, U.S. Treasury Bills, Notes and Bonds, obligations issued by United States Government agencies, FDIC -insured or negotiable certificates of deposit, repurchase agreements, banker's acceptances and commercial paper rated "A1" or equivalent by at least one NRSRO or "A" by at least one NRSRO if long term debt issued, or better, corporate medium term notes rated "A" or better by at least one NRSRO, mortgage and asset-backed securities rated of "AA" or better by an NRSRO, and money market funds rated in the highest category by not less than two NRSROs or SEC registered. Funds are invested in the following order of priority: • Safety of Principal and Interest; • Liquidity; • Yield; and • Safekeeping of funds A-30 The City Treasurer is required to provide a monthly report to the City Manager and the City Council showing the type of investment, date of maturity, amount invested, current market value, rate of interest, and other such information as may be required by the City Council. A summary of the City's investments as of June 30, 2016 is set forth in the below table. Approximately $45,650,585 (44%) of the total investment portfolio as of June 30, 2016 was attributed to the General Fund. CITY OF COSTA MESA INVESTMENTS AS OF JUNE 30,2016(l) [TO BE UPDATED FOR FY 2017] .7 Held by Trustee Costa Mesa Community Facilities District Bonds 165,000 175,000 400,000 225,000 Money Market Mutual Funds 5,061,218 -- -- -- Lehman Brothers Holdings, Inc. (bankruptcy) 200,000 187,500 -- -- Totals $ 52,469,419 $ 19,148,363 $ 29,972,261 $ 225,000 Totals may not add due to rounding. Source: City audited financial statements for Fiscal Year 2016. See Note 2 in Appendix C for further information with respect to City investments. A-31 Total $ 27,238,761 40,822,238 15,973,699 11,141,895 224,732 965,000 5,061,218 387,500 $101,815,043 Investment Maturity 12 Months 13 to 24 25 to 60 More than 60 Investment Type or Less Months Months Months Federal Agency Securities $ 5,010,346 $ 13,058,763 $ 9,169,652 $ -- Local Agency Investment Fund 40,822,238 -- -- U.S. Treasury Securities 985,885 2,406,203 12,579,611 -- Medium-Term Corporate Notes -- 3,318,397 7,822,998 -- Mone Market Mutual Funds 224 732 -- -- .7 Held by Trustee Costa Mesa Community Facilities District Bonds 165,000 175,000 400,000 225,000 Money Market Mutual Funds 5,061,218 -- -- -- Lehman Brothers Holdings, Inc. (bankruptcy) 200,000 187,500 -- -- Totals $ 52,469,419 $ 19,148,363 $ 29,972,261 $ 225,000 Totals may not add due to rounding. Source: City audited financial statements for Fiscal Year 2016. See Note 2 in Appendix C for further information with respect to City investments. A-31 Total $ 27,238,761 40,822,238 15,973,699 11,141,895 224,732 965,000 5,061,218 387,500 $101,815,043 APPENDIX B SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS APPENDIX C COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF COSTA MESA FOR THE YEAR ENDED JUNE 30, 2016 C-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION Upon issuance of the Series 2017 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: [Date of Delivery] Costa Mesa Financing Authority c/o City of Costa Mesa 77 Fair Drive Costa Mesa, California 92626 Re: $ Costa Mesa Financing Authority 2017 Lease Revenue Bonds Members of the Board of Directors: We have acted as Bond Counsel to the Costa Mesa Financing Authority (the "Authority") in connection with the issuance by the Authority of its 2017 Lease Revenue Bonds (the "Series 2017 Bonds") in the aggregate principal amount of $ . In such connection, we have reviewed: (i) the Indenture, dated as of October 1, 2017 (the "Indenture"), by and among U.S. Bank National Association, as trustee (the "Trustee"), the Authority and the City of Costa Mesa (the "City"); (ii) the Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), by and between the City and the Authority; (iii) the Ground Lease, dated as of August 1, 2017 (the "Ground Lease"), by and between the City and the Authority; (iv) the Assignment Agreement, dated as of October 1, 2017 (the "Assignment Agreement"), by and between the Authority and the Trustee; (v) the Tax Certificate of the Authority and the City, dated as of the date hereof (the "Tax Certificate"); and (vi) opinions of counsel to the Authority, the City and the Trustee, certificates of the Authority, the City and the Trustee and others and such other documents, opinions and matters to the extent that we deemed necessary to render the opinions set forth herein. Capitalized terms not otherwise defined herein have the meanings ascribed thereto in the Indenture. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: I. The obligation of the City to pay Base Rental Payments in accordance with the terms of the Lease Agreement is a valid and binding obligation payable from the funds of the City lawfully available therefor. The obligation of the City to make Base Rental Payments under the Lease Agreement does not constitute a debt of the City, the State of California (the "State") or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State or any political subdivision thereof. 2. The Lease Agreement and the Indenture have been duly authorized, executed and delivered by the City and the Authority and constitute valid and legally binding agreements of the City and the Authority enforceable against the City and the Authority in accordance with their terms, except that we express no opinion as to any provisions in the Lease Agreement or the Indenture with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. 3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Series 2017 Bonds is excluded from gross income for federal income tax D-1 purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. 4. Interest (and original issue discount) on the Series 2017 Bonds is exempt from personal income taxes imposed in the State. 5. The difference between the issue price of a Series 2017 Bond (the first price at which a substantial amount of the Series 2017 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Series 2017 Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Series 2017 Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Series 2017 Bond Owner will increase the Series 2017 Bond Owner's basis in the applicable Series 2017 Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the Owner of the Series 2017 Bond is excluded from the gross income of such Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State personal income tax. 6. The amount by which a Series 2017 Bond Owner's original basis for determining loss on sale or exchange in a Series 2017 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the "Code"); such amortizable bond premium reduces the Series 2017 Bond Owner's basis in the applicable Series 2017 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Series 2017 Bond Owner realizing a taxable gain when a Series 2017 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Series 2017 Bond to the Owner. Purchasers of the Series 2017 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The opinions expressed herein as to the exclusion from gross income of interest on the Series 2017 Bonds are based upon certain representations of fact and certifications made by the City and the Authority and are subject to the condition that the City and the Authority comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2017 Bonds to assure that such interest (and original issue discount) on the Series 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Series 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2017 Bonds. The City and the Authority have covenanted to comply with all such requirements. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Series 2017 Bonds terminates on the date of their issuance. The Indenture, the Lease Agreement and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) on the Series 2017 Bonds for federal income tax purposes if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than as expressly stated herein, we express no other opinion regarding tax consequences with respect to the Series 2017 Bonds. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease Agreement, the Ground Lease and the Assignment Agreement or of the accuracy or "_J sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. Our opinion is limited to matters governed by the laws of the State and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture, the Lease Agreement and the Series 2017 Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Series 2017 Bonds and expressly disclaim any duty to advise the Owners of the Series 2017 Bonds with respect to matters contained in the Official Statement. Respectfully submitted, D-3 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Costa Mesa (the "City"), in connection with the issuance of the Costa Mesa Financing Authority's (the "Authority") $ 2017 Lease Revenue Bonds (the "Bonds"). WHEREAS, the Bonds are being issued pursuant to an Indenture, dated as of October 1, 2017 (the "Indenture"), by and among the Authority, the City and U.S. Bank National Association, as trustee (the "Trustee"); WHEREAS, the Bonds are payable from the base rental payments to be made by the City under the Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), by and between the City, as lessee, and the Authority, as lessor; and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). NOW, THEREFORE, the City covenants as follows: SECTION 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 2 and 3 of this Disclosure Certificate. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the City Manager of the City, the Interim Finance Director of the City or their designee, or such other officer or employee as the City shall designate in writing from time to time. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 4(a) and (b) of this Disclosure Certificate. "MSRB" shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. E-1 "Official Statement" shall mean the Official Statement relating to the Bonds, dated , 2017. "Participating Underwriter" shall mean Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean the Municipal Securities Rulemaking Board, which can be found at http://emma.msrb.org. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. SECTION 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than March 15 of each year (the "Annual Report Date") following end of the City's fiscal year (currently June 30), commencing March 15, 2018 with the report for the 2016-17 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 3 of this Disclosure Certificate, with a copy to the Trustee. Not later than five (5) Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent, if other than the City. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 of this Disclosure Certificate. If the City's fiscal year changes, the City, upon becoming aware of such change, shall give notice of such change in the same manner as for a Listed Event under Section 4(c). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (b) If by five (5) Business Days prior to the Annual Report Date, the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such non -receipt. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the Annual Report Date, the Dissemination Agent shall provide a notice in substantially the form attached hereto as Exhibit A, in a timely manner to the MSRB (with a copy to the Trustee and the Participating Underwriter). (d) Unless the City has done so pursuant to Section 2(a) above, the Dissemination Agent (if other than the City) shall: (i) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a certificate with the City to the effect that the Annual Report has been provided pursuant to this Disclosure Certificate, stating, to the extent it can confirm such filing of the Annual Report, the date it was provided. SECTION 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) The City's audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not E-2 available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not included in the City's audited financial statements required pursuant to Section 3(a) hereof, the following information: (i) The principal amount of the Bonds outstanding; (ii) The City's adopted general fund budget for the City's then -current fiscal year (iii) The revenues, expenditures and change in General Fund balance for the most recent fiscal year then ended, which may be in substantially the form of Table 2 in Appendix A of the Official Statement; (iv) The City's General Fund balance sheet for the most recent fiscal year then ended, which may be in substantially the form of Table 3 in Appendix A of the Official Statement; (v) Taxable sales by category for the past ten calendar years for which information is available, which may be substantially in the form of Table 4 in Appendix A of the Official Statement; (vi) Total property assessed values within the City, which may be substantially in the form of Table 5 in Appendix A of the Official Statement; (vii) Property tax levies and collections, which may be substantially in the form of Table 6 in Appendix A of the Official Statement; (viii) Top ten property taxpayers within the City, which may be substantially in the form of Table 7 in Appendix A of the Official Statement; (ix) The total change in the City's net pension liability for the City's Miscellaneous and Police Safety Ca1PERS plans, which may be substantially in the form of the tables titled "Change in Net Pension Liability — Miscellaneous Plan" and "Change in Net Pension Liability — Police Safety Plan" in Appendix A of the Official Statement; and (x) Sensitivity of the City's net pension liability to changes in the Ca1PERS discount rate for the City's Miscellaneous, Police Safety and Fire Safety plans, which may be substantially in the form of the table title "Sensitivity of the Net Pension Liability to Changes in the Discount Rate" in Appendix A of the Official Statement. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each such other document so included by reference. SECTION 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the event: E-3 I . Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposal Issue (IRS Form 5701-TEB); 6. Tender Offers; 7. Defeasances; 8. Rating changes; and 9. Bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 4, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material in a timely manner not more than ten (10) business days after occurrence: 1. unless described in Section 4(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. modifications to the rights of Bondholders; 3. Bond calls; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the Authority or the sale of all or substantially all of the assets of the City or the Authority, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and 7. appointment of a successor or additional trustee or the change of the name of a trustee. (c) If the City determines that knowledge of the occurrence of a Listed Event under subsection (b) would be material under applicable federal securities laws, and if the Dissemination Agent is other than the City, the City shall promptly notify the Dissemination Agent in writing. If the City is the Dissemination Agent, the City will, or if the Dissemination Agent is other than the City, such notice shall instruct the Dissemination Agent to, file a notice of such occurrence with the MSRB in an electronic format as prescribed by the MSRB in a timely manner not more than ten (10) Business Days after the event. E-4 (d) If the City determines that the Listed Event under subsection (b) would not be material under applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence. (e) The City hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall not be responsible for determining whether the City's instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. SECTION 5. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 6. Termination of Reporting Obligation. The obligations of the City, the Trustee and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 4(c). SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 4(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any holder or Beneficial Owner of the Bonds may take such actions as may be necessary E-5 and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel performance. No Bond holder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney's fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, if any, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. ATTEST: City Clerk CITY OF COSTA MESA By: City Manager E-6 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Costa Mesa Financing Authority Name of Issue: Costa Mesa Financing Authority 2017 Lease Revenue Bonds Date of Issuance: , 2017 NOTICE IS HEREBY GIVEN that the City of Costa Mesa (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated 2017, executed by the City. [The City anticipates that the Annual Report will be filed by .] Dated: CITY OF COSTA MESA E-7 APPENDIX F BOOK -ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC's book -entry only system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the completeness or accuracy thereof. The following description of theprocedures and record keeping with respect to beneficial ownership interests in the Series 2017 Bonds, payment ofprincipal, premium, if any, accreted value and interest on the Series 2017 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Series 2017 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2017 Bonds (the "Securities"). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC is rated "AA+" by Standard & Poor's. 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. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. F-1 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities 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. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices will be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Principal, redemption price and interest payments on the Securities 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 Authority or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, 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. 9. If applicable, a Beneficial Owner will give notice to elect to have its Securities purchased or tendered, through its Participant, to tender/remarketing agent, and will effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to tender/remarketing agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Securities to tender/remarketing agent's DTC account. 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Authority or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. F-2 11. The Authority may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. F-3 Attachment 7 Stradling Yocca Carlson & Rauth Draft of 8116117 ESCROW AGREEMENT (2007 CERTIFICATES) By and Between CITY OF COSTA MESA and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent Dated as of October 1, 2017 Relating to CITY OF COSTA MESA 2007 CERTIFICATES OF PARTICIPATION (POLICE FACILITY EXPANSION PROJECT) ESCROW AGREEMENT (2007 CERTIFICATES) THIS ESCROW AGREEMENT (2007 CERTIFICATES), dated as of October 1, 2017 (the "Escrow Agreement"), by and between the City of Costa Mesa (the "City") and The Bank of New York Mellon Trust Company, N.A., as escrow agent (the "Escrow Agent") and as Prior Trustee (as such term is defined below), is entered into in accordance with a resolution of the City Council of the City adopted on September 19, 2017 and an Indenture, dated as of October 1, 2017 (the "Indenture"), by and among the City, the Costa Mesa Financing Authority (the "Authority") and U.S. Bank National Association, as trustee, to prepay on November [4], 2017 (the "Prepayment Date") the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates") at a price equal to the principal amount thereof plus interest accrued with respect thereto, without premium (the "Prepayment Price"). The 2007 Certificates were executed and delivered pursuant to an Amended and Restated Trust Agreement, dated as of January 1, 2007 (the "2007 Trust Agreement'), by and among the City, the Costa Mesa Public Financing Authority (the "PFA") and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the "Prior Trustee"). RECITALS A. The 2007 Certificates were executed and delivered in the aggregate principal amount of $29,960,000, of which $18,295,000 is currently outstanding. B. The Authority has determined to issue its 2017 Lease Revenue Bonds in the aggregate principal amount of $ (the "2017 Bonds"), a portion of the proceeds of which will be used to optionally prepay the 2007 Certificates on the Prepayment Date at the Prepayment Price. C. By irrevocably depositing with the Escrow Agent moneys (as permitted by, in the manner prescribed by, and all in accordance with the 2007 Trust Agreement), which moneys will be [used to purchase securities as described in Exhibit 1 hereto (the "Federal Securities"), which Federal Securities satisfy the criteria for "Defeasance Securities" that is set forth in Section 14.01 of the 2007 Trust Agreement, provided that the principal of and the interest on the Federal Securities when paid will provide money which, together with the moneys deposited with the Escrow Agent at the same time pursuant to this Escrow Agreement, will be] fully sufficient to pay the Prepayment Price of the 2007 Certificates on the Prepayment Date. In consideration of the mutual covenants and agreements herein contained, the City and the Escrow Agent agree as follows: SECTION 1. Deposit of Moneys. The City will hereby cause the deposit with the Escrow Agent of $ , comprised of a portion of the net sale proceeds of the 2017 Bonds, and instructs the Prior Trustee to transfer to the Escrow Agent $ , consisting of moneys held in the Account established under the 2007 Trust Agreement, to be held in irrevocable escrow by the Escrow Agent separate and apart from all other securities, investments or moneys on deposit with the Escrow Agent, in a fund hereby created and established and to be known as the "Escrow Fund," and to be applied solely as provided in this Escrow Agreement. [The City represents that such moneys are at least equal to an amount sufficient to purchase the Federal Securities listed in Exhibit 1 hereto, and to hold $ uninvested as cash.] SECTION 2. Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees [to hold such moneys uninvested as cash] [immediately to invest such moneys as specified in Section 1 in the Federal Securities listed in Exhibit 1 hereto and to deposit such Federal Securities in the Escrow Fund, and to hold the balance of such moneys uninvested as cash]. The Escrow Agent shall be entitled to rely upon the conclusion of Grant Thornton LLP, Minneapolis, Minnesota (the "Verification Agent"), that the [Federal Securities listed in Exhibit 1 hereto mature and bear interest payable in such amounts and at such times as, together with] cash on deposit in the Escrow Fund, will be sufficient to pay the Prepayment Price of the 2007 Certificates on the Prepayment Date. [If the Escrow Agent learns that the Department of the Treasury or the Bureau of Fiscal Service will not, for any reason, accept a subscription of state and local government series securities ("SLGS") that is to be submitted pursuant to this Escrow Agreement, the Escrow Agent shall promptly request alternative written investment instructions from the City with respect to funds which were to be invested in SLGS. The Escrow Agent shall follow such instructions and, upon the maturity of any such alternative investment, the Escrow Agent shall hold such funds uninvested and without liability for interest until receipt of further written instructions from the City. In the absence of investment instructions from the City, the Escrow Agent shall not be responsible for the investment of such funds or interest thereon. The Escrow Agent may conclusively rely upon the City's selection of an alternative investment as a determination of the alternative investment's legality and suitability and shall not be liable for any losses related to the alternative investments or for compliance with any yield restriction applicable thereto.] SECTION 3. Investment of Any Remaining Moneys. [At the written direction of the City, the Escrow Agent shall reinvest any other amount of principal and interest, or any portion thereof, received from the Federal Securities prior to the date on which such payment is required for the purposes set forth herein, in noncallable Federal Securities maturing not later than the date on which such payment or portion thereof is required for the purposes set forth in Section 5, at the written direction of the City, as verified in a report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions to the effect that the reinvestment described in said report will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay the Prepayment Price of the 2007 Certificates on the Prepayment Date, and provided that the City has obtained and delivered to the Escrow Agent an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of the interest with respect to the 2007 Certificates or interest on the 2017 Bonds. Any interest income resulting from investment or reinvestment of moneys pursuant to this Section 3 which is not required for the purposes set forth in Section 5, as verified in the letter of the Verification Agent originally obtained by the City with respect to the refunding of the outstanding 2007 Certificates or in any other report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of tax-exempt obligations of political subdivisions, shall be paid to the City promptly upon the receipt of such interest income by the Escrow Agent. The determination of the City as to whether an accountant qualifies under this Escrow Agreement shall be conclusive.] SECTION 4. Substitution of Securities. [Upon the written request of the City, and subject to the conditions and limitations herein set forth and applicable governmental rules and regulations, the Escrow Agent shall sell, redeem or otherwise dispose of the Federal Securities, provided that there are substituted therefor from the proceeds of the Federal Securities other Federal Securities, but only 2 after the City has obtained and delivered to the Escrow Agent: (i) an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, to the effect that the substitution of securities is permitted under the 2007 Trust Agreement and that such substitution will not adversely affect the exclusion from gross income for federal income tax purposes of the interest with respect to the 2007 Certificates or interest on the 2017 Bonds; and (ii) a report by a firm of independent certified public accountants to the effect that the substitution described in said report will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay the Prepayment Price of the 2007 Certificates on the Prepayment Date. The Escrow Agent shall not be liable or responsible for any loss resulting from any reinvestment or substitution made pursuant to this Escrow Agreement and in full compliance with the provisions hereof.] SECTION 5. Refunding of the 2007 Certificates. (a) Payment. From the maturing principal of the Federal Securities and the investment income and other earnings thereon and other moneys on deposit in the Escrow Fund, the Escrow Agent shall pay, on the Prepayment Date, the Prepayment Price of the 2007 Certificates maturing after the Prepayment Date, as set forth in Exhibit 1 hereto. (b) Required Notices. The Prior Trustee acknowledges that the prepayment of all outstanding 2007 Certificates will cause the defeasance thereof. The Prior Trustee acknowledges that it has previously received an instruction to send a notice of conditional prepayment of the 2007 Certificates pursuant to Section 4.05 of the 2007 Trust Agreement substantially in the form that is attached hereto as Exhibit 2, and the Prior Trustee has previously disseminated a notice of prepayment of the 2007 Certificates (substantially in the form that is attached hereto as Exhibit 2) in accordance with Section 4.05 of the 2007 Trust Agreement as required to provide for the prepayment of the 2007 Certificates. The Escrow Agent agrees to disseminate a notice of defeasance of the 2007 Certificates to the holders of the 2007 Certificates in the form that is attached hereto as Exhibit 3. (c) Unclaimed Moneys. Any excess moneys which remain in the Escrow Fund and are unclaimed for two years after the prepayment of the 2007 Certificates on the Prepayment Date shall be repaid by the Escrow Agent to the City, without liability for interest. (d) Priority of Pgyrnents. The Prior Trustee, on behalf of the owners of the 2007 Certificates, shall have a first and exclusive lien on all moneys and securities in the Escrow Fund until such moneys and such securities are used and applied as provided in this Escrow Agreement. (e) Termination of Obligation. As provided in the 2007 Trust Agreement, upon the deposit of moneys with the Escrow Agent in the Escrow Fund as set forth in Section 1 hereof [and the purchase of the various Federal Securities as provided in Section 2 hereof], all obligations of the PFA, the City and the Prior Trustee with respect to the 2007 Certificates shall cease and terminate, except as set forth therein. SECTION G. Application of Certain Terms of the 2007 Trust Agreement. All of the terms of the 2007 Trust Agreement relating to notices to the Prior Trustee, the PFA or the City and the making of payments of principal and interest under the 2007 Trust Agreement are incorporated in this Escrow Agreement as if set forth in full herein. The procedures set forth in Article IX of the 2007 Trust Agreement relating to the resignation, removal and merger of the Prior Trustee under the 2007 Trust Agreement are also incorporated in this Escrow Agreement as if set forth in full herein and shall be the procedures to be followed with respect to any resignation, removal or merger of the Escrow Agent hereunder. SECTION 7. Performance of Duties. The Escrow Agent agrees to perform the duties that are expressly set forth herein and shall have no responsibility to take any action or omit to take any action that is not set forth herein, and no duties shall be implied hereunder. SECTION 8. Escrow Agent's Authority to Make Investments. Except as provided in Sections 2, 3 and 4 hereof, the Escrow Agent shall have no power or duty to invest any funds that are held under this Escrow Agreement or to sell, transfer or otherwise dispose of the moneys or Federal Securities held hereunder. SECTION 9. Indermifty. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, directors, agents, officers, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Escrow Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds deposited therein, the acceptance of the funds and securities deposited therein, the retention of the proceeds thereof and any payment, transfer or other application of moneys by the Escrow Agent in accordance with the provisions of this Escrow Agreement; provided, however, that the City shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Agent's respective agents and employees or the breach by the Escrow Agent of the terms of this Escrow Agreement. In no event shall the City or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities that are contained in this Section shall survive the termination of this Escrow Agreement or earlier removal or resignation of the Escrow Agent. SECTION 10. Responsibilities of the Escrow Agent. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Escrow Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or securities deposited therein, [the retention of the Federal Securities or the proceeds thereof, the sufficiency of the Federal Securities to pay the Prepayment Price of the 2007 Certificates on the Prepayment Date] or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Escrow Agreement or by reason of any non -negligent act, non -negligent omission or non - negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact herein shall be taken as the statements of the City, and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the funds deposited in the Escrow Fund to accomplish the prepayment of the 2007 Certificates on the Prepayment Date or to the validity of this Escrow Agreement as to the City and, except as otherwise provided herein, the Escrow Agent shall incur no liability with respect thereto. The Escrow Agent shall not be liable in connection with the performance of its duties under this Escrow Agreement except for its own negligence or willful misconduct, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Escrow Agreement. The Escrow Agent may consult with 4 counsel, who may or may not be counsel to the Authority or the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. The liability of the Escrow Agent to make the payments required by this Escrow Agreement shall be limited to the moneys in the Escrow Fund. No provision of this Escrow Agreement shall require the Escrow Agent to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties hereunder, or in the exercise of its rights or powers. The Escrow Agent shall not be liable for the accuracy of any calculations provided herein. Any company into which the Escrow Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Escrow Agent may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Agent without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. The City shall pay the Escrow Agent full compensation for its duties under this Escrow Agreement, including out-of-pocket costs such as publication costs, prepayment expenses, legal fees and other costs and expenses relating hereto. Under no circumstances shall amounts deposited in the Escrow Fund be deemed to be available for said purposes. The Escrow Agent may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed. The Escrow Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel and the advice or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel. The Escrow Agent shall have the right to accept and act upon instructions, including funds transfer instructions ("Instructions") given pursuant to this Escrow Agreement and delivered using Electronic Means. ("Electronic Means" shall mean the following communications methods: e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Escrow Agent, or another method or system specified by the Escrow Agent as available for use in connection with its services hereunder). The City shall provide to the Escrow Agent an incumbency certificate listing officers with the authority to provide such Instructions ("Authorized Officers") and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the City whenever a person is 5 to be added or deleted from the listing. If the City elects to give the Escrow Agent Instructions using Electronic Means and the Escrow Agent in its discretion elects to act upon such Instructions, the Escrow Agent's understanding of such Instructions shall be deemed controlling. The City understands and agrees that the Escrow Agent cannot determine the identity of the actual sender of such Instructions and that the Escrow Agent shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Escrow Agent have been sent by such Authorized Officer. The City shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Escrow Agent and that the City and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the City. The Escrow Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Agent's reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The City agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Escrow Agent, including without limitation the risk of the Escrow Agent acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Escrow Agent and that there may be more secure methods of transmitting Instructions than the method(s) selected by the City; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Escrow Agent immediately upon learning of any compromise or unauthorized use of the security procedures. The Escrow Agent shall furnish the City with periodic cash transaction statements that include detail for all investment transactions effected by the Escrow Agent or brokers selected by the City. Upon the City's election, such statements will be delivered via the Escrow Agent's online service and upon electing such service, paper statements will be provided only upon request. The City waives the right to receive brokerage confirmations of security transactions effected by the Escrow Agent as they occur, to the extent permitted by law. The City further understands that trade confirmations for securities transactions effected by the Escrow Agent will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. SECTION 11. Amendments. This Escrow Agreement is made for the benefit of the City and the owners of the 2007 Certificates, and it shall not be repealed, revoked, altered or amended without the written consent of all such holders, the Escrow Agent and the City; provided, however, but only after the receipt by the Escrow Agent of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the 2017 Bonds and interest with respect to the 2007 Certificates will not be adversely affected for federal income tax purposes, the City and the Escrow Agent may, without the consent of, or notice to, such holders, amend this Escrow Agreement or enter into such agreements supplemental to this Escrow Agreement as shall not materially adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Escrow Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Escrow Agreement; (ii) to grant to, or confer upon, the Escrow Agent any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; and (iii) to include under this Escrow Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized bond counsel with respect to compliance with this Section, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the holders of rel the 2007 Certificates and the 2017 Bonds or that any instrument executed hereunder complies with the conditions and provisions of this Section. SECTION 12. Term. This Escrow Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either: (i) the date upon which the outstanding 2007 Certificates have been paid in accordance with this Escrow Agreement; or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent and all amounts owed to the Escrow Agent shall have been paid in full. Any unclaimed money which remains in the Escrow Fund for two years from the date upon which the outstanding 2007 Certificates have been paid in accordance with this Escrow Agreement shall be remitted by the Escrow Agent (without liability for interest) to the City. SECTION 13. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to and any other reasonable fees and expenses (including legal fees and expenses) of the Escrow Agent approved by the City; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Agent under this Escrow Agreement. SECTION 14. Severability. If any one or more of the covenants or agreements provided in this Escrow Agreement on the part of the City or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Escrow Agreement. SECTION 15. Counterparts. This Escrow Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. SECTION 16. Governing Law. This Escrow Agreement shall be construed under the laws of the State of California. SECTION 17. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Escrow Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Escrow Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day that is not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Escrow Agreement, and no interest shall accrue for the period after such nominal date. SECTION 18. Notices. Any notice or demand which by any provision of this Escrow Agreement is required or permitted to be given may be given or served by being deposited postage prepaid in a post office letter box, delivered via courier or overnight mail or sent via fax or electronic transmission addressed as follows: If to the Escrow Agent: The Bank of New York Mellon Trust Company, N.A. 400 South Hope Street, Suite 500 7 Los Angeles, California 90071 Attention: Corporate Trust If to the City: City of Costa Mesa 77 Fair Drive Costa Mesa, California 92626 Attention: City Manager SECTION 19. Assignment. This Escrow Agreement shall not be assigned by the Escrow Agent or any successor thereto without the prior written consent of the City, except as set forth in the fifth paragraph of Section 10 hereof, pursuant to which no such prior written consent shall be required. IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be executed by their duly authorized officers and attested as of the date and year first written above. ATTEST: City Clerk CITY OF COSTA MESA Lo City Manager [SIGNATURES CONTINUED ON NEXT PAGE.I S-1 [SIGNATURE PAGE CONTINUED.] THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent and as Prior Trustee Authorized Officer S-2 EXHIBIT 1 PREPAYMENT SCHEDULE [AND ESCROW SECURITIES] The 2007 Certificates to be prepaid on the Prepayment Date are as follows: [Moneys deposited in the Escrow Fund shall be invested as follows:] Principal Security Maturity Amount September $ 2017 1-1 Interest Rate Outstanding Maturity Amount of 2007 CUSIP (October 1) Rate Certificates Price 221498 BW7 2017 4.000% $15300 100% 221498 BX5 2018 4.000 111W 100 221498 BY3 2019 4.000 100 221498 BZO 2020 4.000 100 221498 CA4 2021 4.125 177M 100 221498 CB2 2022 4.125 WK 100 221498 CCO 2023 4.200 ow 100 221498 CD8 2024 4.250 2 " 100 221498 CE6 2025 4.300 21TW 100 221498 CF3 2026 4.300 MR 100 [Moneys deposited in the Escrow Fund shall be invested as follows:] Principal Security Maturity Amount September $ 2017 1-1 Interest Rate EXHIBIT 2 CONDITIONAL NOTICE OF FULL OPTIONAL PREPAYMENT CITY OF COSTA MESA 2007 CERTIFICATES OF PARTICIPATION (POLICE FACILITY EXPANSION PROJECT) BASE CUSIP 221498 NOTICE IS HEREBY GIVEN to the owners of the above -captioned obligations (the "2007 Certificates") pursuant to the Amended and Restated Trust Agreement, dated as of January 1, 2007, by and among the City of Costa Mesa (the "City"), the Costa Mesa Public Financing Authority (the "Authority") and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), that all of the outstanding 2007 Certificates, in the aggregate principal amount of $18,295,000, have been called for prepayment on September [17], 2017 (the "Prepayment Date"). The 2007 Certificates to be called, which were originally executed and delivered on February 7, 2007, are as follows: The 2007 Certificates will be payable on the Prepayment Date at a price of 100% of the principal amount plus accrued interest with respect thereto to such date (the "Prepayment Price"). The Prepayment Price of the 2007 Certificates will become due and payable on the Prepayment Date. From and after the Prepayment Date, interest on the 2007 Certificates to be prepaid will cease to accrue, and such 2007 Certificates will be surrendered to the Trustee. Funds in an amount that is sufficient to pay the Prepayment Price of the 2007 Certificates will be on deposit with the Trustee on the Prepayment Date. To receive payment on the Prepayment Date, owners of the 2007 Certificates should present and surrender said 2007 Certificates on the Prepayment Date at the address of the Trustee set forth below: 2-1 Outstanding Maturity Amount of 2007 CUSIP (October 1) Rate Certificates Price BW7 2017 4.000% $151W 100% BX5 2018 4.000 t9w 100 BY3 2019 4.000 100 BZO 2020 4.000 100 CA4 2021 4.125 177W 100 CB2 2022 4.125 WM 100 CCO 2023 4.200 ID 100 CD8 2024 4.250 2X" 100 CE6 2025 4.300 21 100 C173 2026 4.300 2Rm 100 The 2007 Certificates will be payable on the Prepayment Date at a price of 100% of the principal amount plus accrued interest with respect thereto to such date (the "Prepayment Price"). The Prepayment Price of the 2007 Certificates will become due and payable on the Prepayment Date. From and after the Prepayment Date, interest on the 2007 Certificates to be prepaid will cease to accrue, and such 2007 Certificates will be surrendered to the Trustee. Funds in an amount that is sufficient to pay the Prepayment Price of the 2007 Certificates will be on deposit with the Trustee on the Prepayment Date. To receive payment on the Prepayment Date, owners of the 2007 Certificates should present and surrender said 2007 Certificates on the Prepayment Date at the address of the Trustee set forth below: 2-1 First Class/Registered/Certified Express Delivery Only The Bank of New York Mellon The Bank of New York Mellon Global Corporate Trust Global Corporate Trust P.O. Box 396 111 Sanders Creek Parkway East Syracuse, NY 13057 East Syracuse, NY 13057 By Hand Only The Bank of New York Mellon Global Corporate Trust Corporate Trust Window 101 Barclay Street, 1 st Floor East New York, New York 10286 Additional information regarding the foregoing actions may be obtained from The Bank of New York Mellon Trust Company, N.A., Corporate Trust Department, Bondholder Relations, telephone number (800) 254-2826. Prepayment of the 2007 Certificates is conditional upon the receipt by the Trustee on or prior to the Prepayment Date of moneys that are sufficient to pay the principal of and interest with respect to the 2007 Certificates that are subject to optional prepayment and, if such moneys have not been so received, this notice shall be of no force and effect and the Trustee shall not be required to prepay such 2007 Certificates. A form W-9 must be submitted with the 2007 Certificates. Failure to provide a completed form W-9 will result in 31 % backup withholding pursuant to the Interest and Dividend Tax Compliance Act of 1983. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, 28% will be withheld if the tax identification number is not properly certified. If the Owner of any 2007 Certificate that is subject to optional prepayment fails to deliver such 2007 Certificate to the Trustee on the Prepayment Date, such 2007 Certificate shall nevertheless be deemed prepaid on the Prepayment Date and the Owner of such 2007 Certificate shall have no rights in respect thereof except to receive payment of the Prepayment Price from funds that are held by the Trustee for such payment. Note: The Authority, the City and the Trustee shall not be responsible for the selection or use of the CUSIP numbers selected, nor is any representation made as to their correctness in the notice or as printed on any 2007 Certificate. They are included solely for the convenience of the holders. Dated this August [18], 2017. By: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee 2-2 EXHIBIT 3 NOTICE OF DEFEASANCE CITY OF COSTA MESA 2007 CERTIFICATES OF PARTICIPATION (POLICE FACILITY EXPANSION PROJECT) BASE CUSIP 221498 Notice is hereby given to the owners of the outstanding obligations described below (the "2007 Certificates") that: (i) there have been deposited on the date hereof with The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee") under the Amended and Restated Trust Agreement, dated as of January 1, 2007 (the "Trust Agreement"), by and among the City of Costa Mesa (the "City"), the Costa Mesa Public Financing Authority (the "Authority") and the Trustee, moneys [and Defeasance Securities] as permitted by the Trust Agreement that are sufficient to pay the principal and accrued interest with respect to the 2007 Certificates, without premium, as evidenced by the report of a verification agent delivered to the City, the Authority and the Trustee; (ii) all obligations of the Authority, the City and the Trustee with respect to the 2007 Certificates have ceased and terminated, except as set forth in the Trust Agreement; and (ii) the City's obligations under the Lease (as such term is defined in the Trust Agreement) have terminated. In addition, all obligations of the City under the Continuing Disclosure Certificate executed by the City with respect to the 2007 Certificates have ceased and terminated. The 2007 Certificates are described below: No representation is made as to the correctness of the CUSIP number either as printed on any 2007 Certificate or as contained herein and any error in the CUSIP number shall not affect the validity of the proceedings for prepayment of the 2007 Certificates. 3-1 Outstanding Maturity Amount of 2007 CUSIP (October 1) Rate Certificates Price BW7 2017 4.000% $1,9W 100% BX5 2018 4.000 MR 100 BY3 2019 4.000 go 100 BZO 2020 4.000 17W 100 CA4 2021 4.125 om 100 C132 2022 4.125 W 100 CCO 2023 4.200 MR 100 CD8 2024 4.250 2R 100 CE6 2025 4.300 2,TW 100 C173 2026 4.300 MW 100 No representation is made as to the correctness of the CUSIP number either as printed on any 2007 Certificate or as contained herein and any error in the CUSIP number shall not affect the validity of the proceedings for prepayment of the 2007 Certificates. 3-1 Dated this [31 st day of August], 2017. THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Agent 3-2 COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds BOND PURCHASE AGREEMENT , 2017 Costa Mesa Financing Authority 77 Fair Drive Costa Mesa, CA 92626 City of Costa Mesa 77 Fair Drive Costa Mesa, CA 92626 Ladies and Gentlemen: Attachment 8 Stifel, Nicolaus & Company, Incorporated (the "Underwriter") offers to enter into this Bond Purchase Agreement (this "Purchase Contract") with the Costa Mesa Financing Authority (the "Authority") and the City of Costa Mesa (the "City"). This offer is made subject to the Authority's and the City's acceptance by execution of this Purchase Contract and delivery of the same to the Underwriter on or before 11:59 p.m. Pacific Time on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Authority and the City at any time prior to such acceptance. Upon the Authority's and the City's acceptance hereof, the Purchase Contract will be binding upon the Authority, the City and the Underwriter. The Authority and the City acknowledge and agree that: (i) the purchase and sale of the Bonds (as hereinafter defined) pursuant to this Purchase Contract is an arm's-length commercial transaction between the Authority, the City, and the Underwriter; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as principal and is not acting as Municipal Advisor (as defined in Section 15B of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has not assumed a fiduciary responsibility in favor of the Authority or the City with respect to the offering of the Bonds or the process leading thereto (whether or not the Underwriter has advised or is currently advising the Authority or the City on other matters); (iii) the only obligations the Underwriter has to the Authority and the City with respect to the transaction contemplated hereby expressly are set forth in this Purchase Contract; (iv) the Authority and the City have consulted their own legal, financial and other advisors to the extent it has deemed appropriate; (v) the Underwriter has financial interests that may differ from and be adverse to those of the City and the Authority; and (vi) the Underwriter has provided the Authority and the City with certain disclosures required under the rules of the Municipal Securities Rulemaking Board (the "MSRB"). Capitalized terms used in this Purchase Contract and not otherwise defined herein will have the respective meanings set forth for such terms in the Indenture (defined below). Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations set forth in this Purchase Contract, the Underwriter agrees to purchase from the Authority, and the Authority agrees to sell and deliver to the Underwriter, all (but not less than all) of the bonds captioned above (the "Bonds") at a purchase price of $ (being an amount equal to the principal amount of the Bonds ($ .00), plus/less a net original issue premium/discount of $ , and less an underwriter's discount of $ ). The obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds will be conditioned on the sale and delivery of all of the Bonds by the Authority to the Underwriter at Closing (hereafter defined). Section 2. Bond Terms; Authorizing Instruments; Purpose. (a) The Bonds will be dated their date of delivery and will mature and bear interest as shown on Exhibit A. The Bonds will be as described in, and will be issued and secured under, an Indenture, dated as of September 1, 2017 (the "Indenture"), by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"). The Bonds are payable and subject to redemption as shown in Exhibit A. (b) The Bonds will be issued pursuant to the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code and are payable from and secured by the Authority's pledge of "Base Rental Payments" under and as defined in the Indenture, which will be made by the City under a Lease Agreement, dated as of September 1, 2017, between the Authority, as lessor, and the City, as lessee (the "Lease Agreement"). (c) The City and the Authority are also entering into a Ground Lease dated as of September 1, 2017 (the "Ground Lease"). Under the Ground Lease, the City leases the real property described therein to the Authority and, under the Lease Agreement, the Authority leases the same real property back to the City. The Authority will assign to the Trustee its right to receive the Base Rental Payments pursuant to an Assignment Agreement, dated as of September 1, 2017 (the "Assignment Agreement"). (d) The Authority is issuing the Bonds to provide funds to (i) finance the construction of various public improvements within the City; and (ii) prepay on a current basis the outstanding City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates"). The 2007 Certificates were executed and delivered pursuant to an Amended and Restated Trust Agreement, dated as of January 1, 2007 (the "2007 Trust Agreement"), by and among the City, the Costa Mesa Public Financing Authority (the "Public Financing Authority") and The Bank of New York Mellon Trust Company, N.A., as trustee (the "2007 Trustee"). The 2007 Certificates were payable from lease payments (the "2007 Lease Payments") made by the City pursuant to a Lease/Purchase Agreement, dated as of October 1, 2003, as amended by a First Amendment to Lease/Purchase Agreement, dated as of January 1, 2007, by and between the City and the Public Financing Authority (the "2007 Lease Agreement"). In connection with the issuance of the Bonds, the City and the 2007 Trustee will enter into an Escrow Agreement (2007 Certificates), dated as of September 1, 2017 (the "Escrow Agreement"). In addition, the City and the Public Financing Authority will enter into (i) a Termination of First Amendment to Lease/Purchase Agreement, dated as of September 1, 2017, (ii) a Termination of First Amendment to Site Lease, dated as of September 1, 2017, (iii) a Termination of Lease/Purchase Agreement, dated as of September 1, 2017 and (iv) a Termination of Site Lease, dated as of September 1, 2017 (together, the "2007 Lease Termination Agreements"). 2 Section 3. Public Offering. The Underwriter agrees to make an initial bona fide public offering of all of the Bonds, at not in excess of the initial public offering yields or prices set forth on Exhibit A. Following the initial public offering of the Bonds, the offering prices may be changed from time to time by the Underwriter, provided that the Underwriter shall not change any of the principal amounts or the interest rates set forth on Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. The Bonds are subject to redemption as set forth in Exhibit A. Section 4. Official Statement; Continuing Disclosure. (a) The Authority and the City have delivered to the Underwriter the Preliminary Official Statement dated , 2017 (the "Preliminary Official Statement") and will deliver to the Underwriter a final official statement dated the date of this Purchase Contract (as amended and supplemented from time to time pursuant to Section 5(i) of this Purchase Contract, the "Official Statement"). Subsequent to its receipt of the Authority's and the City's 15c2-12 Certificate, in substantially the form attached hereto as Exhibit B, deeming the Preliminary Official Statement final for purposes of Rule 15c2- 12 of the Securities and Exchange Commission ("Rule 15c2-12"), the Underwriter has distributed copies of the Preliminary Official Statement. The Authority and the City hereby ratify the use by the Underwriter of the Preliminary Official Statement and authorize the Underwriter to use and distribute in printed and/or electronic format the Official Statement (including all information previously permitted to have been omitted by Rule 15c2-12, and any supplements and amendments thereto as have been approved by the Authority and the City as evidenced by the execution and delivery of such document by an officer of the Authority and the City), the Indenture, the Ground Lease, the Escrow Agreement, the Assignment Agreement, the Lease Agreement, this Purchase Contract, the Continuing Disclosure Certificate (hereinafter defined) and all information contained therein, and all other documents, certificates and written statements furnished by the Authority and the City to the Underwriter in connection with the transactions contemplated by this Purchase Contract, in connection with the offer and sale of the Bonds by the Underwriter. The Underwriter hereby agrees to deliver a copy of the Official Statement to the MSRB through the Electronic Municipal Marketplace Access website of the MSRB on or before the Closing Date and otherwise to comply with all applicable statutes and regulations in connection with the offering and sale of the Bonds, including, without limitation, MSRB Rule G-32 and Rule 15c2-12. The Authority and the City agree to deliver to the Underwriter as many copies of the Official Statement as the Underwriter will reasonably request as necessary to comply with paragraph (b)(4) of Rule 15c2-12. The Authority and the City agree to deliver the final Official Statement within seven business days after the execution hereof, or such earlier date identified by the Underwriter to be necessary to allow the Underwriter to meet its obligations under Rule 15c2-12 and Rule G-32 of the MSRB. (b) The Underwriter agrees to: (1) provide the Authority with final pricing information on the Bonds on a timely basis prior to the Closing and (2) take any and all other actions necessary to comply with applicable Securities and Exchange Commission rules and MSRB rules governing the offering, sale and delivery of the Bonds to ultimate purchasers. (c) In connection with issuance of the Bonds, and in order to assist the Underwriter with complying with the provisions of Rule 15c2-12, the City, on behalf of itself and the Authority, will execute a continuing disclosure certificate (the "Continuing Disclosure Certificate"), under which the City will undertake to provide certain financial and operating data as required by Rule 3 15c2-12. The form of the Continuing Disclosure Certificate is attached as an appendix to the Preliminary Official Statement and will be attached as an appendix to the final Official Statement. Section 5. Representations, Warranties and Covenants of the Authority. The Authority hereby represents, warrants and agrees with the Underwriter that: (a) The Authority is a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "State") and has all necessary power and authority to adopt the Authority Resolution (as hereinafter defined), to enter into and perform its duties under the Indenture, the Assignment Agreement, the Lease Agreement, the Ground Lease and this Purchase Contract (the "Authority Agreements") and, when executed and delivered by the respective parties thereto, each Authority Agreement will constitute legal, valid and binding obligation of the Authority enforceable in accordance with its respective terms. (b) The board of directors (the "Board") of the Authority has taken official action by a resolution adopted on , 2017 (the "Authority Resolution") adopted by a majority of the members of the Board at a regular meeting duly called, noticed and conducted, at which a quorum was present and acting throughout, authorizing the execution, delivery and due performance of the Authority Agreements and the Official Statement and the taking of any and all such action as may be required on the part of the Authority to carry out, give effect to and consummate the transactions contemplated hereby. (c) By all necessary official action, the Authority has duly authorized the preparation and delivery of the Preliminary Official Statement and the preparation, execution and delivery of the Official Statement, has duly authorized and approved the execution and delivery of, and the performance of its obligations under, the Bonds and the Authority Agreements, and the consummation by it of all other transactions contemplated by the Authority Resolution, the Authority Agreements, the Preliminary Official Statement and the Official Statement. When executed and delivered by their respective parties, the Authority Agreements (assuming due authorization, execution and delivery by and enforceability against the other parties thereto) will be in full force and effect and each will constitute legal, valid and binding agreements or obligations of the Authority, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors rights generally, the application of equitable principles, the exercise of judicial discretion and the limitations on legal remedies against public entities in the State. (d) The statements and information contained in the Official Statement relating to the Authority and the Bonds (other than information relating to DTC and its book -entry only system) are correct and complete in all material respects, and the information contained in the Official Statement (other than information relating to DTC and its book -entry only system) does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make such statements therein, in the light of the circumstances under which they were made, not misleading. (e) As of the date hereof, there is no action, suit, proceeding or investigation before or by any court, public board or body pending against the Authority or, to the best knowledge of the Authority, threatened, wherein an unfavorable decision, ruling or finding would: (i) affect the creation, organization, existence or powers of the Authority, or the titles of its members or officers; (ii) in any way question or affect the validity or enforceability of Authority Agreements or the Bonds, or (iii) in any way question or affect the Authority Agreements or the transactions contemplated 4 by the Authority Agreements, the Official Statement, or any other agreement or instrument to which the Authority is a party relating to the Bonds. (f) There is no consent, approval, authorization or other order of, or filing or registration with, or certification by, any regulatory authority having jurisdiction over the Authority required for the execution and delivery of this Purchase Contract or the consummation by the Authority of the other transactions contemplated by the Official Statement or the Authority Agreements. (g) Any certificate signed by any official of the Authority authorized to do so will be deemed a representation and warranty by the Authority to the Underwriter as to the statements made therein. (h) Except as previously disclosed to the Underwriter, the Authority is not in default, and at no time has the Authority defaulted in any material respect, on any bond, note or other obligation for borrowed money or any agreement under which any such obligation is or was outstanding. (1) If between the date of this Purchase Contract and the date which is 25 days following the End of the Underwriting Period (as defined below), any event will occur which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Authority will immediately notify the Underwriter, and if, in the opinion of the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Authority will at its expense supplement or amend the Official Statement in a form and in a manner approved by the Underwriter. "End of the Underwriting Period" will mean the later of: (i) the Closing Date, and (ii) the date the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public, provided that unless the Underwriter notifies the Authority on or prior to the Closing Date that it retains, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public, the End of the Underwriting Period will be deemed to have occurred on the Closing Date. (2) After the Closing, the Authority will not participate in the issuance of any amendment of or supplement to the Official Statement to which, after being furnished with a copy, the Underwriter reasonably objects in writing or which is disapproved by Underwriter's Counsel (hereinafter defined). If any event relating to or affecting the Authority occurs as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will use its best efforts to assist the Underwriter in preparing (at the expense of the Authority for 90 days after the date of the Closing, and thereafter at the expense of the Underwriter) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time 5 the Official Statement is delivered to a purchaser, not misleading. For the purposes of this subsection, the Authority will furnish such information with respect to itself as the Underwriter may from time to time reasonably request. (j) Except as disclosed in the Official Statement, the Authority has not previously failed to comply in all material respects with any undertakings under Rule 15c2-12 during the past five years. Section 6. Representations, Warranties and Covenants of the City. The City hereby represents, warrants and agrees with the Underwriter that: (a) The City is a general law city and municipal corporation, organized and existing under the Constitution and the laws of the State and has all necessary power and authority to adopt its resolution adopted on , 2017 (the "City Resolution"), to enter into and perform its duties under the Ground Lease, the Lease Agreement, the Indenture, the Continuing Disclosure Certificate, the Escrow Agreement, the Lease Termination Agreements and this Purchase Contract (the "City Agreements") and, when executed and delivered by the respective parties thereto, the City Agreements will constitute legal, valid and binding obligations of the City enforceable in accordance with their respective terms. (b) The city council (the "City Council") of the City has taken official action by adopting the City Resolution by a majority of the members of the City Council at a meeting duly called, noticed and conducted, at which a quorum was present and acting throughout, authorizing the execution, delivery and due performance of the City Agreements and the Official Statement and the taking of any and all such action as may be required on the part of the City to carry out, give effect to and consummate the transactions contemplated hereby. (c) By all necessary official action, the City has duly adopted the City Resolution, has duly authorized the preparation and delivery of the Preliminary Official Statement and the preparation, execution and delivery of the Official Statement, has duly authorized and approved the execution and delivery of, and the performance of its obligations under, the City Agreements, and the consummation by it of all other transactions contemplated by the City Resolution, the City Agreements, the Preliminary Official Statement and the Official Statement. When executed and delivered by their respective parties, the City Agreements (assuming due authorization, execution and delivery by and enforceability against the other parties thereto) will be in full force and effect and each will constitute legal, valid and binding agreements or obligations of the City, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors rights generally, the application of equitable principles, the exercise of judicial discretion and the limitations on legal remedies against public entities in the State. (d) At the time of the City's acceptance hereof and at all times subsequent thereto up to and including the time of the Closing, the information and statements in the Official Statement (other than any information concerning the Authority, the Depository Trust Company and the book -entry system for the Bonds or provided by the Underwriter) do not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (e) As of the date hereof, there is no action, suit, proceeding or investigation before or by any court, public board or body pending against the City or, to the best knowledge of the City, C.1 threatened, wherein an unfavorable decision, ruling or finding would: (i) affect the creation, organization, existence or powers of the City, or the titles of its members or officers; (ii) in any way question or affect the validity or enforceability of City Agreements or the Bonds, or (iii) in any way question or affect the Purchase Contract or the transactions contemplated by the Purchase Contract, the Official Statement, or any other agreement or instrument to which the City is a party relating to the Bonds. (f) There is no consent, approval, authorization or other order of, or filing or registration with, or certification by, any regulatory authority having jurisdiction over the City required for the execution and delivery of this Purchase Contract or the consummation by the City of the other transactions contemplated by the Official Statement or the City Agreements. (g) Any certificate signed by any official of the City authorized to do so will be deemed a representation and warranty by the City to the Underwriter as to the statements made therein. (h) Except as previously disclosed to the Underwriter, the City is not in default, and at no time has the City defaulted in any material respect, on any bond, note or other obligation for borrowed money or any agreement under which any such obligation is or was outstanding. (1) Except as disclosed in the Official Statement or otherwise disclosed in writing to the Underwriter, there has not been any materially adverse change in the financial condition of the City since June 30, 2016, and there has been no occurrence or circumstance or combination thereof that is reasonably expected to result in any such materially adverse change. (2) If between the date of this Purchase Contract and the date which is 25 days following the End of the Underwriting Period, any event will occur which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City will immediately notify the Underwriter, and if, in the opinion of the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will at its expense supplement or amend the Official Statement in a form and in a manner approved by the Underwriter. (3) After the Closing, the City will not participate in the issuance of any amendment of or supplement to the Official Statement to which, after being furnished with a copy, the Underwriter reasonably objects in writing or which is disapproved by Underwriter's Counsel. If any event relating to or affecting the City occurs as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the City will use its best efforts to assist the Underwriter in preparing (at the expense of the City for 90 days after the date of the Closing, and thereafter at the expense of the Underwriter) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not 7 misleading. For the purposes of this subsection, the City will furnish such information with respect to itself as the Underwriter may from time to time reasonably request. (j) Except as disclosed in the Official Statement or otherwise disclosed in writing to the Underwriter, the City has not previously failed to comply in all material respects with any undertakings under Rule 15c2-12 in the past five years. The report of Lumesis, Inc. dated , 2017 (the "Continuing Disclosure Due Diligence Report") identifies all of the issues for which the Authority, the City and other related entities were obligated to provide continuing disclosure under Rule 15c2-12 during the past five years and all of the material event filings that were required with respect to such issues during the five-year period. (k) The City does not need the consent of its auditor to include its comprehensive annual financial report for the fiscal year ended June 30, 2016 as an appendix to the Official Statement. (1) The City will comply with the defeasance and redemption provisions of the 2007 Trust Agreement and the security deposit and prepayment provisions of the 2007 Lease Agreement in connection with the refinancing of the 2007 Certificates. (m) The City covenants with the Underwriter that the City will cooperate with the Underwriter (at the cost and written directions of the Underwriter), in qualifying the Bonds for offer and sale under the securities or Blue Sky laws of such jurisdiction of the United States as the Underwriter may reasonably request; provided, however, that the City shall not be required to consent to suit or to service of process, or to qualify to do business, in any jurisdiction. The City consents to the use by the Underwriter of the City Agreements, the Preliminary Official Statement and the Official Statement in the course of its compliance with the securities or Blue Sky laws of the various jurisdictions related to the offering and sale of the Bonds. Section 7. The Closing. (a) At 8:00 A.M., Pacific time, on , 2017, or on such earlier or later time or date as may be agreed upon by the Underwriter, the Authority and the City (the "Closing"), the Authority will deliver the Bonds to the Underwriter, through the book -entry system of The Depository Trust Company ("DTC"). Prior to the Closing, the Authority and the City will deliver, at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation ("Bond Counsel") in Newport Beach, California, or such other place as is mutually agreed upon by the Underwriter and the Authority, the other documents described in this Purchase Contract. On the date of the Closing, the Underwriter will pay the purchase price of the Bonds as set forth in Section 1 of this Purchase Contract in immediately available funds to the order of the Trustee. (b) The Bonds will be issued in fully registered form and will be prepared and delivered as one Bond for each maturity registered in the name of a nominee of DTC. It is anticipated that CUSIP identification numbers will be inserted on the Bonds, but neither the failure to provide such numbers nor any error with respect thereto will constitute a cause for failure or refusal by the Underwriter to accept delivery of the Bonds in accordance with the terms of this Purchase Contract. Section 8. Conditions to Underwriter's Obligations. The Underwriter has entered into this Purchase Contract in reliance upon the representations and warranties of the Authority and the City contained herein and to be contained in the documents and instruments to be delivered on the date of the Closing, and upon the performance by the Authority and the City of their respective obligations to be performed hereunder and under such documents and instruments to be delivered at or prior to the date of the Closing. The Underwriter's obligations under this W Purchase Contract are and will also be subject to the sale, issuance and delivery of the Bonds as well as the following conditions: (a) The representations and warranties of the Authority and the City contained in this Agreement will be true and correct in all material respects on the date of this Purchase Contract and on and as of the date of the Closing as if made on the date of the Closing; (b) As of the date of the Closing, the Official Statement may not have been amended, modified or supplemented, except in any case as may have been agreed to by the Underwriter; (c) (i) As of the date of the Closing, the Authority Resolution, the City Resolution, the Authority Agreements and the City Agreements will be in full force and effect, and will not have been amended, modified or supplemented, except as may have been agreed to by the Underwriter, (ii) the Authority will perform or have performed all of its obligations required under or specified in the Authority Resolution, the Authority Agreements and this Purchase Contract to be performed at or prior to the date of the Closing; and (iii) the City will perform or have performed all of its obligations required under or specified in the City Resolution, the City Agreements and this Purchase Contract to be performed at or prior to the date of the Closing; (d) As of the date of the Closing, all necessary official action of the Authority relating to the Authority Agreements, the Authority Resolution and the Official Statement, and all necessary official action of the City relating to the City Agreements, the City Resolution, and the Official Statement, will have been taken and will be in full force and effect and will not have been amended, modified or supplemented in any material respect, except as may have been agreed to by the City and Underwriter; and (e) As of or prior to the date of the Closing, the Underwriter will have received each of the following documents: (1) Certified copies of the Authority Resolution, the City Resolution and a resolution of the Public Financing Authority approving the Lease Termination Agreements (the "Public Financing Authority Resolution"). (2) Duly executed copies of the Indenture, the Assignment Agreement, the Lease Agreement, the Ground Lease, the Escrow Agreement, the Continuing Disclosure Certificate, the Lease Termination Agreements and this Purchase Contract. (3) The Preliminary Official Statement and the Official Statement, with the Official Statement duly executed on behalf of the Authority and the City. (4) An approving opinion of Bond Counsel, dated as of the Closing, as to the validity of the Bonds and the exclusion of interest on the Bonds from federal gross income and State income taxation, addressed to the Authority and the City substantially in the form attached as an appendix to the Official Statement, and a reliance letter with respect thereto addressed to the Underwriter and the Trustee. (5) A supplemental opinion of Bond Counsel, addressed to the Underwriter, to the effect that: (i) The Purchase Contract has been duly executed and delivered by the Authority and the City and is valid and binding upon the Authority and the City, 9 subject to laws relating to bankruptcy, insolvency, reorganization or creditors' rights generally and to the application of equitable principles; (ii) The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended; and (iii) The statements contained in the Official Statement on the cover and under the headings "INTRODUCTION," "THE REFUNDING PLAN," "THE SERIES 2017 BONDS," "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS" and "TAX MATTERS," and in "APPENDIX B - SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS" and "APPENDIX D — PROPOSED FORM OF BOND COUNSEL OPINION," insofar as such statements purport to describe certain provisions of the Bonds, the Ground Lease, the Lease Agreement, the Escrow Agreement and the Indenture, or to state legal conclusions and the opinion of Bond Counsel regarding the tax-exempt nature of the Bonds, present a fair and accurate summary of the provisions thereof. (6) An opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, as disclosure counsel to the City, addressed to the Underwriter, to the effect that: During the course of our work on this matter, no facts have come to our attention that cause us to believe that the Official Statement (excluding therefrom the financial statements, any financial or statistical data, or forecasts, charts, numbers, estimates, projections, assumptions or expressions of opinion included in the Official Statement and the appendices to the Official Statement other than Appendix A as to which no opinion need be expressed) as of the date of the Official Statement contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (7) An opinion or opinions of the City Attorney, dated as of the Closing addressed to the Authority, the City, the Trustee and the Underwriter, in form and substance acceptable to the Underwriter, to the effect that: (i) The City is a municipal corporation and general law city duly organized and validly existing under the laws and the Constitution of the State of California. The City Council is the governing body of the City. (ii) The City has all necessary power and authority to adopt the City Resolution, to enter into and perform its duties under the City Agreements, and, when executed and delivered by the respective parties thereto, the City Agreements will each constitute a legal, valid and binding obligation of the City enforceable in accordance with its respective terms, except as such enforcement may be limited by bankruptcy, moratorium and the exercise of equitable principles where equitable remedies are sought. (iii) The City Resolution was duly adopted at a meeting of the City Council, which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the City Resolution is in full force and effect and has not been modified, amended or rescinded since the date of its adoption. 10 (iv) The execution and delivery by the City of the City Agreements, the Official Statement and the other instruments contemplated by any of such documents to which the City is a party, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States or any department, division, agency or instrumentality of either thereof, or any applicable court or administrative decree or order or any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound in a manner which would materially adversely affect the City's performance under the City Agreements. (v) All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the City of its obligations under the City Agreements have been obtained and are in full force and effect. (vi) To the best of the City Attorney's knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the City (A) affecting the existence of the City or the titles of its City Council members or its officers to their respective offices, (B) seeking to restrain or to enjoin the issuance or sale of the Bonds, (C) in any way contesting or affecting the validity or enforceability of the City Resolution or the City Agreements, (D) in any way contesting the powers of the City to issue or sell the Bonds or its authority with respect to the City Resolution or the City Agreements, (E) in any way contesting or affecting any of the rights, powers, duties or obligations of the City with respect to the money or property pledged or to be pledged under the Indenture, the Lease Agreement or the Ground Lease or (F) in any way questioning the accuracy of the statements in the Official Statement. (vii) The Authority is a joint exercise of powers authority organized and validly existing under the laws of the State of California. The Board of Directors of the Authority is the governing body of the Authority. (viii) The Authority has all necessary power and authority to adopt the Authority Resolution, to enter into and perform its duties under the Authority Agreements and, when executed and delivered by the respective parties thereto, the Authority Agreements will each constitute legal, valid and binding obligation of the Authority enforceable in accordance with its respective terms, except as such enforcement may be limited by bankruptcy, moratorium and the exercise of equitable principles where equitable remedies are sought. (ix) The Authority Resolution was duly adopted at a regular meeting of the Board of Directors, which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the Authority Resolution is in full force and effect and has not been modified, amended or rescinded since the date of its adoption. 11 (x) To the best of the City Attorney's knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Authority (A) affecting the existence of the Authority or the titles of its Board members or its officers to their respective offices, (B) seeking to restrain or to enjoin the issuance or sale of the Bonds, (C) in any way contesting or affecting the validity or enforceability of the Authority Resolution or the Authority Agreements, (D) in any way contesting the powers of the Authority to issue or sell the Bonds or its authority with respect to the Authority Resolution or the Authority Agreements, (E) in any way contesting or affecting any of the rights, powers, duties or obligations of the Authority with respect to the money or property pledged or to be pledged under the Indenture, the Lease Agreement or the Ground Lease or (F) in any way questioning the accuracy of the statements in the Official Statement. (xi) The execution and delivery by the Authority of the Authority Agreements, the Official Statement and the other instruments contemplated by any of such documents to which the Authority is a party, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States or any department, division, agency or instrumentality of either thereof, or any applicable court or administrative decree or order or any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound in a manner which would materially adversely affect the Authority's performance under the Authority Agreements. (xii) All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the Authority of its obligations under the Authority Agreements have been obtained and are in full force and effect. (8) A letter of Jones Hall, A Professional Law Corporation ("Underwriter's Counsel"), addressed to the Underwriter, in form and substance acceptable to the Underwriter. (9) An executed certificate of the Authority and the City, dated as of the date of the Preliminary Official Statement, in the form attached as Exhibit B. (10) An executed closing certificate of the Authority, dated as of the Closing, in the form attached as Exhibit C. (11) An executed closing certificate of the City, dated as of the Closing, in the form attached as Exhibit D. (12) The opinion of counsel of the Trustee and the Escrow Agent, dated as of the Closing, addressed to the Authority, the City and the Underwriter to the effect that: (i) The Trustee is a national banking association duly organized and validly existing under the laws of the jurisdiction of its organization, and has the 12 corporate power to execute and deliver, and to perform its obligations under, the Indenture, the Assignment Agreement, and the Escrow Agreement. (ii) The Indenture, the Assignment Agreement, and the Escrow Agreement have been duly authorized, executed and delivered by the Trustee, and, assuming due authorization, execution and delivery by the other parties thereto, the Indenture, the Assignment Agreement, and the Escrow Agreement constitute valid and legally binding agreements of the Trustee enforceable in accordance with their terms, subject to laws relating in bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and the application of equitable principles if equitable remedies are sought. (13) A certificate of the Trustee and the Escrow Agent, dated as of the Closing, in the form attached as Exhibit E. (14) A tax certificate duly signed on behalf of the Authority and the City in form and substance acceptable to Bond Counsel and the Underwriter. (15) Evidence of required filings with the California Debt and Investment Advisory Commission. (16) Evidence of one or more of the CLTA or ALTA title insurance policies required under the Lease Agreement for the real property described therein. (17) A copy of the executed Blanket Issuer Letter of Representations by and between the Authority and DTC relating to the book -entry system. (18) Evidence that the Bonds have received the rating set forth on the cover of the Official Statement. (19) A defeasance opinion of Bond Counsel. (20) A copy of the Continuing Disclosure Due Diligence Report. (21) A certificate of Fieldman, Rolapp & Associates, Inc., the City's municipal advisor, in the form and substance attached hereto as Exhibit F. (22) Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request to evidence compliance by the Authority and the City with legal requirements, the truth and accuracy, as of the date of the Closing, of the representations of the Authority and the City herein contained and of the Official Statement and the due performance or satisfaction by the Authority and the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the Authority and the City. All of the opinions, letters, certificates, instruments and other documents mentioned in this Purchase Contract will be deemed to be in compliance with the provisions of this Purchase Contract if, but only if, they are in form and substance satisfactory to the Underwriter. If the Authority and the City are unable to satisfy the conditions to the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds contained in this Purchase Contract or if the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds will 13 be terminated for any reason permitted by this Purchase Contract, this Purchase Contract will terminate and neither the Underwriter, the Authority nor the City will be under further obligations hereunder, except that the respective obligations of the Authority, the City and the Underwriter set forth in Section 12 of this Purchase Contract will continue in full force and effect. Section 9. Conditions to Authority's and City's Obligations. The performance by the Authority and the City of their respective obligations under this Purchase Contract are conditioned upon: (i) the performance by the Underwriter of its obligations hereunder and (ii) receipt by the Authority and the City of opinions addressed to the Authority and the City, and receipt by the Underwriter of opinions addressed to the Underwriter, and the delivery of certificates being delivered on the date of the Closing by persons and entities other than the Authority and the City. Section 10. Establishment of Issue Price. (a) The Underwriter agrees to assist the Authority in establishing the issue price of the Bonds and shall execute and deliver to the Authority at Closing an "issue price" or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit G, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Authority and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. [All actions to be taken by the Authority under this section to establish the issue price of the Bonds may be taken on behalf of the Authority by the Authority's municipal advisor identified herein and any notice or report to be provided to the Authority may be provided to the Authority's municipal advisor.] (b) The Authority will treat the first price at which 10% of each maturity of the Bonds (the 10% test") is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Contract, the Underwriter shall report to the Authority the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the Authority the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public. (c) The Underwriter confirms that any selling group agreement and any retail distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such retail distribution agreement, as applicable, to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the Underwriter that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public and (B) comply with the hold -the -offering -price rule, if applicable, in each case if and for so long as directed by the Underwriter. The Authority acknowledges that, in making the representation set forth in this subsection, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the hold -the -offering -price rule, if applicable, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a retail distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the hold - 14 the -offering -price rule, if applicable, as set forth in the retail distribution agreement and the related pricing wires. The Authority further acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a retail distribution agreement, to comply with its corresponding agreement regarding the hold - the -offering -price rule as applicable to the Bonds. (d) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to the Underwriter shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (1) "public" means any person other than an underwriter or a related party, (2) "underwriter" means (A) any person that agrees pursuant to a written contract with the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public), (3) a purchaser of any of the Bonds is a "related party" to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other), and (4) "sale date" means the date of execution of this Purchase Contract by all parties. Section 11. Termination Events. The Underwriter will have the right to terminate the Underwriter's obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the Bonds by notifying the Authority and the City of its election to do so if, after the execution hereof and prior to the Closing, any of the following events occurs: (a) the marketability of the Bonds or the market price thereof, in the opinion of the Underwriter, has been materially and adversely affected by any decision issued by a court of the United States (including the United States Tax Court) or of the State of California, by any ruling or regulation (final, temporary or proposed) issued by or on behalf of the Department of the Treasury of the United States, the Internal Revenue Service, or other governmental agency of the United States, or any governmental agency of the State of California, or by a tentative decision or announcement by any member of the House Ways and Means Committee, the Senate Finance Committee, or the Conference Committee with respect to contemplated legislation or by legislation enacted by, pending in, or favorably reported to either the House of Representatives or either House of the Legislature of the State of California, or formally proposed to the Congress of the United States by the President of the United States or to the Legislature of the State of California 15 by the Governor of the State of California in an executive communication, affecting the tax status of the Authority or the City, its property or income, its bonds (including the Bonds) or the interest thereon or any tax exemption granted or authorized by the Internal Revenue Code of 1986, as amended; (b) the United States becomes engaged in hostilities that result in a declaration of war or a national emergency, or any other outbreak of hostilities occurs, or a local, national or international calamity or crisis occurs, financial or otherwise, the effect of such outbreak, calamity or crisis being such as, in the reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market the Bonds; (c) there occurs a general suspension of trading on the New York Stock Exchange or the declaration of a general banking moratorium by the United States, New York State or California State authorities; (d) a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission is issued or made to the effect that the issuance, offering or sale of the Bonds is or would be in violation of any provision of the Securities Act of 1933, as then in effect, or of the Securities Exchange Act of 1934, as then in effect, or of the Trust Indenture Act of 1939, as then in effect; (e) legislation is enacted by the House of Representatives or the Senate of the Congress of the United States of America, or a decision by a court of the United States of America is rendered, or a ruling or regulation by or on behalf of the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter is made or proposed to the effect that the Bonds are not exempt from registration, qualification or other similar requirements of the Securities Act of 1933, as then in effect, or of the Trust Indenture Act of 1939, as then in effect; (f) in the reasonable judgment of the Underwriter, the market price of the Bonds, or the market price generally of obligations of the general character of the Bonds, might be materially and adversely affected because additional material restrictions not in force as of the date hereof is imposed upon trading in securities generally by any governmental authority or by any national securities exchange; (g) the Comptroller of the Currency, The New York Stock Exchange, or other national securities exchange, or any governmental authority, imposes, as to the Bonds or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, or financial responsibility requirements of the Underwriter; (h) a general banking moratorium is established by federal, New York or State authorities; (i) any legislation, ordinance, rule or regulation is introduced in or be enacted by any governmental body, department or agency in the State or a decision of a court of competent jurisdiction within the State is rendered, which, in the opinion of the Underwriter, after consultation with the Authority and the City, materially adversely affects the market price of the Bonds; W9 Q) any federal or California court, authority or regulatory body takes action materially and adversely affecting the collection of Base Rental Payments under the Indenture; (k) any withdrawal, downgrading or placement on credit watch negative of any underlying rating of any securities of the City by a national municipal bond rating agency that, in the opinion of the Underwriter, adversely affects the market price of the Bonds; or (1) an event occurs which in the reasonable opinion of the Underwriter makes untrue or misleading in any material respect any statement or information contained in the Official Statement (other than any information relating to the Underwriter). Section 12. Payment of Expenses. (a) The Underwriter will be under no obligation to pay, and the City will pay the following expenses incident to the performance of the Authority's and the City's obligations hereunder: (i) the fees and disbursements of the City's municipal advisor and of Bond Counsel and Disclosure Counsel; (ii) the cost of printing and delivering the Bonds, the Preliminary Official Statement and the Official Statement (and any amendment or supplement prepared pursuant to Sections 5 and 6 of this Purchase Contract); (iii) the fees and disbursements of accountants, advisers and of any other experts or consultants retained by the Authority or the City; and (iv) any other expenses and costs of the Authority and the City incident to the performance of their respective obligations in connection with the authorization, issuance and sale of the Bonds, including out-of-pocket expenses and regulatory expenses, and any other expenses agreed to by the parties. (b) The City and the Authority will be under no obligation to pay, and the Underwriter will pay, any fees of the California Debt and Investment Advisory Commission, the cost of obtaining CUSIP numbers, the cost of preparation of any "blue sky" or legal investment memoranda and this Purchase Contract; and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds (except those specifically enumerated in paragraph (a) of this section), including the fees and disbursements of Underwriter's Counsel (if any) and any advertising expenses. Section 13. Notices. Any notice or other communication to be given to the Authority or the City under this Purchase Contract may be given by delivering the same in writing to the Authority and the City at the addresses set forth on the first page of this Purchase Contract, and any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, One Montgomery Street, 35th Floor, San Francisco, CA 94104, Attn: Sara Brown. Section 14. Survival of Representations, Warranties, Agreements. All of the Authority's and the City's representations, warranties and agreements contained in this Purchase Contract will remain operative and in full force and effect regardless of: (a) any investigations made by or on behalf of the Underwriter; or (b) delivery of and payment for the Bonds pursuant 17 to this Purchase Contract. The agreements contained in this Section and in Section 12 will survive any termination of this Purchase Contract. Section 15. Benefit; No Assignment. This Purchase Contract is made solely for the benefit of the Authority, the City and the Underwriter (including its successors and assigns), and no other person will acquire or have any right hereunder or by virtue hereof. The rights and obligations created by this Purchase Contract are not subject to assignment by the Underwriter, the Authority or the City without the prior written consent of the other parties hereto. Section 16. Severability. In the event that any provision of this Purchase Contract is held invalid or unenforceable by any court of competent jurisdiction, such holding will not invalidate or render unenforceable any other provision of this Purchase Contract. Section 17. Counterparts. This Purchase Contract may be executed in any number of counterparts, all of which taken together will constitute one agreement, and any of the parties hereto may execute the Purchase Contract by signing any such counterpart. Section 18. Governing Law. This Purchase Contract will be governed by the laws of the State of California. 18 Section 19. Effectiveness. This Purchase Contract will become effective upon the execution of the acceptance hereof by an authorized officer of the Authority and the City, and will be valid and enforceable as of the time of such acceptance. Accepted: COSTA MESA FINANCING AUTHORITY By: Authorized Representative Very truly yours, STIFEL, NICOLAUS & COMPANY, INCORPORATED, as Underwriter in Time of Execution: Pacific Time CITY OF COSTA MESA 2-3 Authorized Representative Time of Execution: Pacific Time 19 Managing Director EXHIBIT A COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds MATURITY SCHEDULE Serial Bonds Principal Payment Date (October 1) Principal Rate Yield Price REDEMPTION* Optional Redemption. The Bonds maturing on or after October 1, 20_, shall be subject to optional redemption, in whole or in part, on _ 1, 20_ or any date thereafter, as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds with stated maturities on October 1, 20_ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20 and each October 1 thereafter, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (October 1) Amount 20 $ 20—* Final Maturity. Extraordinary Redemption from Insurance Proceeds. The Bonds shall be subject to redemption, in whole or in part, on any date as directed by the City in a written request provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. * Capitalized terms have the meaning given them in the Indenture. A-1 EXHIBIT B COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds 15c2-12 CERTIFICATE The undersigned hereby certifies and represents that he or she is the duly appointed and acting representative of the City of Costa Mesa (the "City") and the Costa Mesa Financing Authority (the "Authority"), and is duly authorized to execute and deliver this Certificate and further hereby certifies and reconfirms on behalf of the City and the Authority as follows: (1) This Certificate is delivered in connection with the offering and sale of the bonds captioned above (the "Bonds") in order to enable the underwriter of the Bonds to comply with Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule"). (2) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, setting forth information concerning the Bonds, the Authority and the City (the "Preliminary Official Statement"). (3) As used herein, "Permitted Omissions" means the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters, all with respect to the Bonds. (4) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of Rule 15c2-12, and the information therein is accurate and complete except for the Permitted Omissions. Dated: 2017. Lei CITY OF COSTA MESA 0 Authorized Officer COSTA MESA FINANCING AUTHORITY By: Authorized Officer EXHIBIT C COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds CLOSING CERTIFICATE OF THE AUTHORITY The undersigned hereby certifies and represents that he or she is the duly appointed and acting representative of the Costa Mesa Financing Authority (the "Authority"), and is duly authorized to execute and deliver this Certificate and further hereby certifies and reconfirms on behalf of the Authority as follows: (i) The representations, warranties and covenants of the Authority contained in the Bond Purchase Agreement dated , 2017, among the Authority, the City of Costa Mesa and Stifel, Nicolaus & Company, Incorporated, as underwriter (the "Purchase Contract'), are true and correct and in all material respects on and as of the date of the Closing with the same effect as if made on the date of the Closing. (ii) The Authority Resolution is in full force and effect at the date of the Closing and has not been amended, modified or supplemented, except as agreed to by the Authority and the Underwriter. (iii) The Authority has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to the date of the Closing. (iv) Subsequent to the date of the Official Statement and on or prior to the date of such certificate, there has been no material adverse change in the condition (financial or otherwise) of the Authority, whether or not arising in the ordinary course of the operations of the Authority, as described in the Official Statement. (v) The Official Statement, under the heading "THE AUTHORITY," does not contain any untrue or misleading statement of a material fact and does not omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. C-1 Capitalized terms used but not defined herein have the meanings given in the Bond Purchase Agreement. Dated: , 2017 C-2 COSTA MESA FINANCING AUTHORITY Authorized Officer EXHIBIT D COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds CLOSING CERTIFICATE OF THE CITY The undersigned hereby certifies and represents that he or she is the duly appointed and acting representative of the City of Costa Mesa (the "City"), and is duly authorized to execute and deliver this Certificate and further hereby certifies and reconfirms on behalf of the City as follows: (i) The representations, warranties and covenants of the City contained in the Bond Purchase Agreement dated , 2017, among the City, the Costa Mesa Financing Authority and Stifel, Nicolaus & Company, Incorporated, as underwriter (the "Purchase Contract") are true and correct and in all material respects on and as of the date of the Closing with the same effect as if made on the date of the Closing. (ii) The City Resolution is in full force and effect at the date of the Closing and has not been amended, modified or supplemented, except as agreed to by the City and the Underwriter. (iii) The City has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to the date of the Closing. (iv) Subsequent to the date of the Official Statement and on or prior to the date of such certificate, there has been no material adverse change in the condition (financial or otherwise) of the City, whether or not arising in the ordinary course of operations, as described in the Official Statement. (v) The Official Statement (other than any information it contains concerning the Authority, the Depository Trust Company and the book -entry system for the Bonds or provided by the Underwriter) does not contain any untrue or misleading statement of a material fact and does not omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. Capitalized terms used but not defined herein have the meanings given in the Purchase Contract. Dated: 2017 D-1 CITY OF COSTA MESA go Authorized Officer EXHIBIT E COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds CLOSING CERTIFICATE OF THE TRUSTEE AND ESCROW AGENT The undersigned hereby certifies and represents that he or she is the duly appointed and acting representative of The Bank of New York Mellon Trust Company, N.A. (the "Trustee"), and is duly authorized to execute and deliver this Certificate and further hereby certifies and reconfirms on behalf of the Trustee as follows: (i) The Trustee has all necessary power to enter into the Indenture, dated as of September 1, 2017 (the "Indenture"), by and among the Costa Mesa Financing Authority (the "Authority"), the City of Costa Mesa (the "City") and the Trustee, the Assignment Agreement, dated as of September 1, 2017 (the "Assignment Agreement"), by and between the Authority and the Trustee and the Escrow Agreement, dated as of September 1, 2017 (the "Escrow Agreement"), by and between the City and the Trustee, as escrow agent; and (ii) The Indenture, the Assignment Agreement and the Escrow Agreement have been duly authorized, executed and delivered by the Trustee and the Indenture, the Assignment Agreement and the Escrow Agreement constitute the legal, valid and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought; (iii) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Trustee or the performance by the Trustee of its duties and obligations under the Indenture, the Assignment Agreement and the Escrow Agreement; (iv) The execution and delivery by the Trustee of the Indenture, the Assignment Agreement and the Escrow Agreement and compliance with the terms thereof will not conflict with, or result in a violation or breach of, or constitute a default under, any material agreement or material instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties (except that no representation, warranty or agreement need be made by such counsel with respect to any federal or State securities or blue sky laws or regulations); and (v) To the best knowledge of the Trustee, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body pending, or threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Indenture, the Assignment Agreement and the Escrow Agreement or contesting the powers of the Trustee or its authority to enter into and perform its obligations thereunder. E-1 Capitalized terms used but not defined herein have the meanings given in the Purchase Contract. Dated: , 2017 E-2 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as trustee and escrow agent IN Authorized Officer EXHIBIT F COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds CERTIFICATE OF MUNICIPAL ADVISOR The undersigned hereby states and certifies: (i) that the undersigned is an authorized officer of Fieldman Rolapp & Associates, Inc. (the "Municipal Advisor"), which has acted as municipal advisor to Costa Mesa Financing Authority (the "Authority") in connection with the issuance of the above -referenced bonds (the "Bonds"), and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; (ii) that the Municipal Advisor has reviewed the Preliminary Official Statement dated , 2017 and the final Official Statement dated , 2017 (the "Official Statement") relating to the Bonds; and (iii) that nothing has come to the attention of the Municipal Advisor which would lead it to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Dated: 12017 FIELDMAN, ROLAPP & ASSOCIATES, INC. as Municipal Advisor M F-1 Authorized Officer EXHIBIT G COSTA MESA FINANCING AUTHORITY 2017 Lease Revenue Bonds ISSUE PRICE CERTIFICATE The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated ("Stifel") hereby certifies as set forth below with respect to the sale and issuance of the above -captioned obligations (the "Bonds"). 1. Sale of the Bonds. As of the date of this certificate, for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A. 2. Defined Terms. (a) Issuer means the Costa Mesa Financing Authority. (b) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (c) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term "related party" for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (d) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Stifel's interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional Corporation in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. Exhibit G-1 Dated: 12017 STIFEL, NICOLAUS & COMPANY, INCORPORATED By: Name: Exhibit G-2 SCHEDULE A SALE PRICES (Attached) Exhibit G Schedule A Page 1 RECORDING REQUESTED BY: Costa Mesa Financing Authority AND WHEN RECORDED RETURN TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attention: Vanessa Locklin, Esq. [Space above for Recorder's use.] Attachment 9 THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11921 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. ASSIGNMENT AGREEMENT by and between COSTA MESA FINANCING AUTHORITY and U.S. BANK NATIONAL ASSOCIATION as Trustee Dated as of October 1, 2017 Relating to COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT (this "Assignment Agreement'), executed and entered into as of October 1, 2017, is by and between the COSTA MESA FINANCING AUTHORITY, a joint exercise of powers entity that is organized and existing under and by virtue of the laws of the State of California (the "Authority"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association that is organized and existing under the laws of the United States, as Trustee (the "Trustee"). RECITALS A. The City of Costa Mesa (the "City") and the Authority desire to finance and refinance a portion of the costs of the acquisition, construction and installation of certain public improvements (collectively, the "Project'). B. In order to finance and refinance the Project, the City will lease certain real property and the improvements located thereon (the "Property") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof. C. The Property is more particularly described in Exhibit A hereto. D. Under the Lease Agreement, the City is obligated to make Base Rental Payments (as such term is defined in the Lease Agreement) to the Authority. E. The Authority desires to assign without recourse certain of its rights in the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of bonds (the "Bonds") to be issued pursuant to the Indenture, dated as of the date hereof (the "Indenture"), by and among the Authority, the City and the Trustee. F. 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; 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: Section 1. Assignment. The Authority, for good and valuable consideration, the receipt of which is hereby acknowledged, does hereby sell, assign and transfer to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the owners of the Bonds, all of its right, title and interest in and to the Ground Lease and the Lease Agreement including, without limitation, its right to receive the Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided, however, that the Authority shall retain its obligations under the Lease Agreement and Ground Lease, the rights to indemnification, to give approvals and consents under the Lease Agreement and the Ground Lease and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. Section 2. Acceptance. The Trustee hereby accepts the foregoing assignment, subject to the terms and provisions of the Indenture, and all such Base Rental Payments shall be applied and the rights so assigned shall be exercised by the Trustee as provided in the Lease Agreement and the Indenture. Section 3. Conditions. This Assignment Agreement shall impose no obligations upon the Trustee beyond those expressly provided in the Indenture. The Trustee shall have the same rights, protections, immunities and indemnities hereunder as afforded to it under the Indenture. Section 4. Further Assurances. The Authority shall 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 Assignment Agreement, and for the better assuring and confirming to the Trustee, for the benefit of the owners of the Bonds, the rights intended to be conveyed pursuant hereto. Section 5. Governing Law. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE PROVISIONS HEREOF AND BY THE LAWS OF THE STATE OF CALIFORNIA AS THE SAME FROM TIME TO TIME EXIST. Section 6. Execution. This Assignment Agreement 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 Assignment Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, the Authority and the Trustee have caused this Assignment Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first above -written. ATTEST: Secretary COSTA MESA FINANCING AUTHORITY Chairperson [SIGNATURES CONTINUED ON NEXT PAGE.J S-1 [SIGNATURE PAGE CONTINUED.] U.S. BANK NATIONAL ASSOCIATION, as Trustee Authorized Officer S-2 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA COUNTY OF ORANGE On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA COUNTY OF LOS ANGELES On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC [TO COME] EXHIBIT A DESCRIPTION OF THE PROPERTY A-1 Attachment 10 CONTINUING DISCLOSURE CERTIFICATE COSTA MESA FINANCING AUTHORITY 2017 LEASE REVENUE BONDS This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Costa Mesa (the "City"), in connection with the issuance of the Costa Mesa Financing Authority's (the "Authority") $ 2017 Lease Revenue Bonds (the "Bonds"). WHEREAS, the Bonds are being issued pursuant to an Indenture, dated as of October 1, 2017 (the "Indenture"), by and among the Authority, the City and U.S. Bank National Association, as trustee (the "Trustee"); WHEREAS, the Bonds are payable from the base rental payments to be made by the City under the Lease Agreement, dated as of October 1, 2017 (the "Lease Agreement"), by and between the City, as lessee, and the Authority, as lessor; and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). NOW, THEREFORE, the City covenants as follows: SECTION 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 2 and 3 of this Disclosure Certificate. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the City Manager of the City, the Interim Finance Director of the City or their designee, or such other officer or employee as the City shall designate in writing from time to time. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 4(a) and (b) of this Disclosure Certificate. "MSRB" shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. "Official Statement" shall mean the Official Statement relating to the Bonds, dated , 2017. "Participating Underwriter" shall mean Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean the Municipal Securities Rulemaking Board, which can be found at http://emma.msrb.org. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. SECTION 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than March 15 of each year (the "Annual Report Date") following end of the City's fiscal year (currently June 30), commencing March 15, 2018 with the report for the 2016-17 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 3 of this Disclosure Certificate, with a copy to the Trustee. Not later than five (5) Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent, if other than the City. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 of this Disclosure Certificate. If the City's fiscal year changes, the City, upon becoming aware of such change, shall give notice of such change in the same manner as for a Listed Event under Section 4(c). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (b) If by five (5) Business Days prior to the Annual Report Date, the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such non -receipt. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the Annual Report Date, the Dissemination Agent shall provide a notice in substantially the form attached hereto as Exhibit A, in a timely manner to the MSRB (with a copy to the Trustee and the Participating Underwriter). (d) Unless the City has done so pursuant to Section 2(a) above, the Dissemination Agent (if other than the City) shall: (i) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a certificate with the City to the effect that the Annual Report has been provided pursuant to this Disclosure Certificate, stating, to the extent it can confirm such filing of the Annual Report, the date it was provided. SECTION 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) The City's audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final E-2 Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not included in the City's audited financial statements required pursuant to Section 3(a) hereof, the following information: (i) The principal amount of the Bonds outstanding; (ii) The City's adopted general fund budget for the City's then -current fiscal year (iii) The revenues, expenditures and change in General Fund balance for the most recent fiscal year then ended, which may be in substantially the form of Table 2 in Appendix A of the Official Statement; (iv) The City's General Fund balance sheet for the most recent fiscal year then ended, which may be in substantially the form of Table 3 in Appendix A of the Official Statement; (v) Taxable sales by category for the past ten calendar years for which information is available, which may be substantially in the form of Table 4 in Appendix A of the Official Statement; (vi) Total property assessed values within the City, which may be substantially in the form of Table 5 in Appendix A of the Official Statement; (vii) Property tax levies and collections, which may be substantially in the form of Table 6 in Appendix A of the Official Statement; (viii) Top ten property taxpayers within the City, which may be substantially in the form of Table 7 in Appendix A of the Official Statement; (ix) The total change in the City's net pension liability for the City's Miscellaneous and Police Safety Ca1PERS plans, which may be substantially in the form of the tables titled "Change in Net Pension Liability — Miscellaneous Plan" and "Change in Net Pension Liability — Police Safety Plan" in Appendix A of the Official Statement; and (x) Sensitivity of the City's net pension liability to changes in the Ca1PERS discount rate for the City's Miscellaneous, Police Safety and Fire Safety plans, which may be substantially in the form of the table title "Sensitivity of the Net Pension Liability to Changes in the Discount Rate" in Appendix A of the Official Statement. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each such other document so included by reference. SECTION 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; E-3 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposal Issue (IRS Form 5701-TEB); 6. Tender Offers; 7. Defeasances; 8. Rating changes; and 9. Bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 4, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material in a timely manner not more than ten (10) business days after occurrence: 1. unless described in Section 4(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. modifications to the rights of Bondholders; 3. Bond calls; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the Authority or the sale of all or substantially all of the assets of the City or the Authority, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and 7. appointment of a successor or additional trustee or the change of the name of a trustee. (c) If the City determines that knowledge of the occurrence of a Listed Event under subsection (b) would be material under applicable federal securities laws, and if the Dissemination Agent is other than the City, the City shall promptly notify the Dissemination Agent in writing. If the City is the Dissemination Agent, the City will, or if the Dissemination Agent is other than the City, such notice shall instruct the Dissemination Agent to, file a notice of such occurrence with the MSRB in an electronic format as prescribed by the MSRB in a timely manner not more than ten (10) Business Days after the event. (d) If the City determines that the Listed Event under subsection (b) would not be material under applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence. E-4 (e) The City hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall not be responsible for determining whether the City's instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. SECTION 5. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 6. Termination of Reporting Obligation. The obligations of the City, the Trustee and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 4(c). SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 4(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the E-5 event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel performance. No Bond holder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney's fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, if any, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. ATTEST: City Clerk CITY OF COSTA MESA E-6 City Manager EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Costa Mesa Financing Authority Name of Issue: Costa Mesa Financing Authority 2017 Lease Revenue Bonds Date of Issuance: , 2017 NOTICE IS HEREBY GIVEN that the City of Costa Mesa (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated 2017, executed by the City. [The City anticipates that the Annual Report will be filed by .] Dated: CITY OF COSTA MESA 7 Attachment 11 RESOLUTION NO. P.F.A. 17- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA PUBLIC FINANCING AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY OF LEASE TERMINATION DOCUMENTS IN CONNECTION WITH THE PREPAYMENT OF THE REFUNDING CERTIFICATES OF PARTICIPATION (PUBLIC FACILITY PROJECT) SERIES 2003 AND 2007 CERTIFICATES OF PARTICIPATION (POLICE FACILITY EXPANSION PROJECT) AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the Costa Mesa Public Financing Authority (the "Authority") previously caused the execution and delivery of the City of Costa Mesa Refunding Certificates of Participation (Public Facilities Project) Series 2003 (the "2003 COPs"), the proceeds of which refinanced the acquisition and/or construction of various public capital improvements (the "2003 Project") of the City of Costa Mesa (the "City"), and the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 COPs"), the proceeds of which financed the acquisition and/or construction of various public capital improvements (the "2007 Project") of the City; and WHEREAS, in connection with the issuance of the 2003 COPs and the 2007 COPs, certain documents were recorded in the Official Records of the County of Orange (collectively, the "Lease Documents"); and WHEREAS, the City has previously prepaid all outstanding amounts with respect to the 2003 COPs from moneys that were held in the reserve fund for the 2003 COPs; and WHEREAS, the Costa Mesa Financing Authority and the City have determined that it would be in the best interests of the City and residents of the City to authorize the preparation, sale and delivery of the "Costa Mesa Financing Authority 2017 Lease Revenue Bonds" (the "Bonds") for the purpose, among others, of refinancing the 2007 Project; and WHEREAS, the refinancing of the 2007 Project will be accomplished through the refunding of the 2007 COPs from proceeds of the Bonds and other moneys; and WHEREAS, the prepayment of the 2003 COPs and the refunding of the 2007 COPs will cause the liens evidenced by the Lease Documents to be released; and WHEREAS, the Authority desires to execute and record certain documents to effect the release of the Lease Documents; and WHEREAS, the Board of Directors of the Authority (the "Board of Directors") has been presented with the form of each document that is referred to herein, and the Board of Directors has examined and approved each document and desires to authorize and direct the execution of such documents and the consummation of the matters that are described herein; and WHEREAS, all acts, conditions and things that are required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the refinancing that is authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Authority is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such refinancing for the purpose, in the manner and upon the terms herein provided. NOW, THEREFORE, THE BOARD OF DIRECTORS OF THE COSTA MESA PUBLIC FINANCING AUTHORITY DOES HEREBY RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS: SECTION 1. Recitals. Each of the above recitals is true and correct and the Board of Directors so finds. SECTION 2. Terminations. The forms of the Termination of Site Lease, Termination of Lease/Purchase Agreement, Termination of First Amendment to Site Lease and Termination of First Amendment to Lease/Purchase Agreement (collectively, the "Termination Documents") presented at this meeting are hereby approved, and the Chairperson, Executive Director and Treasurer of the Authority, or the Chairperson's designee (the "Authorized Officers"), are each hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver such Termination Documents, in substantially said forms, with such changes, insertions and omissions therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 3. Miscellaneous. The officers, employees and agents of the Authority are hereby authorized and directed, jointly and severally, to do any and all things which they may deem necessary or advisable in order to consummate the transactions herein authorized and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. All actions that have been heretofore taken by the officers, employees and agents of the Authority with respect to the transactions that are described in this Resolution are hereby approved, confirmed and ratified. SECTION 4. Effective Date. This Resolution shall take effect from and after its date of adoption. PASSED, APPROVED, AND ADOPTED on September 19, 2017. ATTEST: Brenda Green Secretary COUNTY OF ORANGE ) CITY OF COSTA MESA ) Katrina Foley, Chairperson APPROVED AS TO FORM: Costa Mesa Public Financing Authority Counsel STATE OF CALIFORNIA ) I, BRENDA GREEN, Secretary of the Costa Mesa Public Financing Authority, DO HEREBY CERTIFY that the foregoing Resolution No. P.F.A. 17 --was duly passed and adopted by the Board of Directors of the Costa Mesa Public Financing Authority at a regular meeting held on the 19th day of September, 2017 by the following roll call vote, to wit: AYES: BOARD MEMBERS: NOES: BOARD MEMBERS: ABSENT: BOARD MEMBERS: IN WITNESS WHEREOF, I have hereby set my hand and affixed the seal of the City of Costa Mesa this _ day of 2017. BRENDA GREEN, SECRETARY Attachment 12 RECORDING REQUESTED BY: City of Costa Mesa AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Vanessa Locklin, Esq. [Space above for Recorder's use.] TERMINATION OF SITE LEASE by and between CITY OF COSTA MESA and COSTA MESA PUBLIC FINANCING AUTHORITY Dated as of October 1, 2017 TERMINATION OF SITE LEASE THIS TERMINATION OF SITE LEASE (this "Agreement"), dated as of October 1, 2017 and effective as of the date of recordation hereof, is by and between the CITY OF COSTA MESA, a municipal corporation and general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and the COSTA MESA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California (the "Authority"). RECITALS A. The City and the Authority entered into that certain Site Lease, dated as of October 1, 2003 (the "Site Lease"), which was recorded on October 14, 2003 as Instrument No. 2003-001257023 in the Official Records of the County of Orange, State of California (the "Official Records"). Pursuant to the Site Lease, the City leased certain property described therein (as shown on Exhibit A hereto) (the "Property") to the Authority. B. Pursuant to the Site Lease, the Authority made available to the City the proceeds of the City of Costa Mesa Refunding Certificates of Participation (Public Facilities Project) Series 2003 (the "2003 Certificates") in the original aggregate principal amount of $14,340,000 in order to refinance certain capital projects of the City. C. Pursuant to the Lease/Purchase Agreement, dated as of October 1, 2003 (the "Lease"), by and between the City and the Authority, which was recorded on October 14, 2003 as Instrument No. 2003-001257022 in the Official Records, the Authority subleased the Property back to the City in exchange for the payment of Lease Payments (as such term is defined in the Lease) by the City to the Authority. D. Pursuant to the Assignment Agreement, dated as of October 1, 2003, by and between the Authority and the Trustee, which was recorded on October 14, 2003 as Instrument No. 2003- 001257024 in the Official Records, the Authority assigned its right to receive the Lease Payments to The Bank of New York Mellon Trust Company, N.A. (the "Trustee"). E. The City has defeased, on July 7, 2017 (the "Defeasance Date"), all of the Lease Payments pursuant to Section 10.3 of the Lease, which will cause the defeasance of the 2003 Certificates as of the Defeasance Date in accordance with Section 14.01 of the Amended and Restated Trust Agreement, dated as of January 1, 2007, by and among the City, the Authority and the Trustee. F. The City hereby certifies that it has caused to be delivered moneys to the Trustee which were sufficient to defease all of the Lease Payments under the Lease as of the Defeasance Date (the "Defeasance Amount'). G. In order to reflect the defeasance of the Lease Payments, the City and the Authority now desire to terminate and discharge the Site Lease. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has caused the deposit of the Defeasance Amount with the Trustee. 2. Termination of Site Lease. Effective as of the date of recordation of this Agreement, the Authority and the City hereby acknowledge and agree that the Site Lease shall be terminated and, from and after the date hereof, the Authority shall have no further interest in the Property. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, this Agreement has been executed by each parry's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA an City Manager COSTA MESA PUBLIC FINANCING AUTHORITY an S-1 Executive Director A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property in the City of Costa Mesa, County of Orange, State of California, described as follows: PARCEL 1: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF FAIR DRIVE AS DESCRIBED IN A DEED TO THE COUNTY OF ORANGE, RECORDED AUGUST 2, 1950 IN BOOK 2050, PAGE 59 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY WITH THE CENTERLINE OF FAIRVIEW ROAD (FORMERLY KNOWN AS SANTA ANA ROAD) SAID INTERSECTION BEING DISTANT 0- 09' 00" WEST, 1825.85 FEET ALONG THE CENTERLINE OF FAIRVIEW ROAD FROM ITS INTERSECTION WITH THE NORTH LINE OF SAID LOT A OF THE BANNING TRACT; THENCE EASTERLY ALONG THE CENTERLINE OF SAID FAIR DRIVE, 882.27 FEET, TO A POINT ON THE EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, RECORDED MARCH 9, 1949 IN BOOK 1812, PAGE 313 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY; THENCE SOUTHERLY ALONG SAID EAST LINE, 50.00 FEET, TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE, SAID POINT BEING THE TRUE POINT OF BEGINNING OF THE LAND HEREIN DESCRIBED; THENCE CONTINUING SOUTHERLY ALONG SAID EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, 330.00 FEET TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE; THENCE EASTERLY ALONG LAST MENTIONED PARALLEL LINE, 852.00 FEET TO A LINE PARALLEL WITH SAID EAST LINE OF THE LAND DESCRIBED IN ABOVE DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE; THENCE NORTHERLY ALONG LAST MENTIONED PARALLEL LINE, 330.00 FEET TO A POINT ON A LINE 50 FEET SOUTHERLY OF, MEASURED AT RIGHT ANGLES, AND PARALLEL WITH SAID CENTERLINE OF FAIR DRIVE; THENCE WESTERLY ALONG SAID LINE, 852.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1946 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM A-1 THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. PARCEL 2: THAT PORTION OF LOT 6 IN BLOCK E OF THE BERRY TRACT, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 30, PAGE 74 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE CENTERLINE OF BAKER STREET, AS SHOWN ON SAID MAP, AND THE SOUTHERLY PROLONGATION OF THE WEST LINE OF SAID LOT 6; THENCE NORTH ALONG SAID PROLONGATION AND THE WEST LINE 412.5 FEET; THENCE EAST PARALLEL TO SAID CENTERLINE OF BAKER STREET, 211.2 FEET; THENCE SOUTH PARALLEL TO SAID WEST LINE OF LOT 6 AND ITS SOUTHERLY PROLONGATION 412.5 FEET TO THE CENTERLINE OF BAKER STREET; THENCE WEST ALONG SAID CENTERLINE 211.2 FEET TO THE POINT OF BEGINNING. EXCEPT THE SOUTH 40 FEET CONVEYED TO THE COUNTY OF ORANGE FOR BAKER STREET BY DEED RECORDED FEBRUARY 15, 1943 IN BOOK 1181, PAGE 157 OF OFFICIAL RECORDS. ALSO EXCEPT THAT PORTION LYING WITHIN TRACT NO. 11606 AS PER MAP RECORDED IN BOOK 509, PAGES 29 AND 30 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. A-2 Attachment 13 RECORDING REQUESTED BY: City of Costa Mesa AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Vanessa Locklin, Esq. [Space above for Recorder's use.] TERMINATION OF LEASE/PURCHASE AGREEMENT by and between CITY OF COSTA MESA and COSTA MESA PUBLIC FINANCING AUTHORITY Dated as of October 1, 2017 TERMINATION OF LEASE/PURCHASE AGREEMENT THIS TERMINATION OF LEASE/PURCHASE AGREEMENT (this "Agreement'), dated as of October 1, 2017 and effective as of the date of recordation hereof, is by and between the CITY OF COSTA MESA, a municipal corporation and general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and the COSTA MESA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California (the "Authority"). RECITALS A. The City and the Authority entered into that certain Site Lease, dated as of October 1, 2003 (the "Site Lease"), which was recorded on October 14, 2003 as Instrument No. 2003-001257023 in the Official Records of the County of Orange, State of California (the "Official Records"). Pursuant to the Site Lease, the City leased certain property described therein (as shown on Exhibit A hereto) (the "Property") to the Authority. B. Pursuant to the Site Lease, the Authority made available to the City the proceeds of the City of Costa Mesa Refunding Certificates of Participation (Public Facilities Project) Series 2003 (the "2003 Certificates") in the original aggregate principal amount of $14,340,000 in order to refinance certain capital projects of the City. C. Pursuant to the Lease/Purchase Agreement, dated as of October 1, 2003 (the "Lease"), by and between the City and the Authority, which was recorded on October 14, 2003 as Instrument No. 2003-001257022 in the Official Records, the Authority subleased the Property back to the City in exchange for the payment of Lease Payments (as such term is defined in the Lease) by the City to the Authority. D. Pursuant to the Assignment Agreement, dated as of October 1, 2003, by and between the Authority and the Trustee, which was recorded on October 14, 2003 as Instrument No. 2003- 001257024 in the Official Records, the Authority assigned its right to receive the Lease Payments to The Bank of New York Mellon Trust Company, N.A. (the "Trustee"). E. The City has defeased, on July 7, 2017 (the "Defeasance Date"), all of the Lease Payments pursuant to Section 10.3 of the Lease, which will cause the defeasance of the 2003 Certificates as of the Defeasance Date in accordance with Section 14.01 of the Amended and Restated Trust Agreement, dated as of January 1, 2007, by and among the City, the Authority and the Trustee. F. The City hereby certifies that it has caused to be delivered moneys to the Trustee which were sufficient to defease all of the Lease Payments under the Lease as of the Defeasance Date (the "Defeasance Amount'). G. In order to reflect the defeasance of the Lease Payments, the City and the Authority now desire to terminate and discharge the Lease. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has caused the deposit of the Defeasance Amount with the Trustee. 2. Termination of Lease. Effective as of the date of recordation of this Agreement, the Authority and the City hereby acknowledge and agree that the Lease shall be terminated and, except for the obligation of the City to pay the obligations thereunder from the moneys deposited with the Trustee, shall be of no further force or effect, and from and after the date hereof, the Authority shall have no further interest in the Property. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. [REMAINDER OF PAGE INTENTIONALL Y LEFT BLANK] 2 IN WITNESS WHEREOF, this Agreement has been executed by each party's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA City Manager COSTA MESA PUBLIC FINANCING AUTHORITY an S-1 Executive Director A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property in the City of Costa Mesa, County of Orange, State of California, described as follows: PARCEL 1: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF FAIR DRIVE AS DESCRIBED IN A DEED TO THE COUNTY OF ORANGE, RECORDED AUGUST 2, 1950 IN BOOK 2050, PAGE 59 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY WITH THE CENTERLINE OF FAIRVIEW ROAD (FORMERLY KNOWN AS SANTA ANA ROAD) SAID INTERSECTION BEING DISTANT 0- 09' 00" WEST, 1825.85 FEET ALONG THE CENTERLINE OF FAIRVIEW ROAD FROM ITS INTERSECTION WITH THE NORTH LINE OF SAID LOT A OF THE BANNING TRACT; THENCE EASTERLY ALONG THE CENTERLINE OF SAID FAIR DRIVE, 882.27 FEET, TO A POINT ON THE EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, RECORDED MARCH 9, 1949 IN BOOK 1812, PAGE 313 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY; THENCE SOUTHERLY ALONG SAID EAST LINE, 50.00 FEET, TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE, SAID POINT BEING THE TRUE POINT OF BEGINNING OF THE LAND HEREIN DESCRIBED; THENCE CONTINUING SOUTHERLY ALONG SAID EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, 330.00 FEET TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE; THENCE EASTERLY ALONG LAST MENTIONED PARALLEL LINE, 852.00 FEET TO A LINE PARALLEL WITH SAID EAST LINE OF THE LAND DESCRIBED IN ABOVE DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE; THENCE NORTHERLY ALONG LAST MENTIONED PARALLEL LINE, 330.00 FEET TO A POINT ON A LINE 50 FEET SOUTHERLY OF, MEASURED AT RIGHT ANGLES, AND PARALLEL WITH SAID CENTERLINE OF FAIR DRIVE; THENCE WESTERLY ALONG SAID LINE, 852.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1946 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM A-1 THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. PARCEL 2: THAT PORTION OF LOT 6 IN BLOCK E OF THE BERRY TRACT, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 30, PAGE 74 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE CENTERLINE OF BAKER STREET, AS SHOWN ON SAID MAP, AND THE SOUTHERLY PROLONGATION OF THE WEST LINE OF SAID LOT 6; THENCE NORTH ALONG SAID PROLONGATION AND THE WEST LINE 412.5 FEET; THENCE EAST PARALLEL TO SAID CENTERLINE OF BAKER STREET, 211.2 FEET; THENCE SOUTH PARALLEL TO SAID WEST LINE OF LOT 6 AND ITS SOUTHERLY PROLONGATION 412.5 FEET TO THE CENTERLINE OF BAKER STREET; THENCE WEST ALONG SAID CENTERLINE 211.2 FEET TO THE POINT OF BEGINNING. EXCEPT THE SOUTH 40 FEET CONVEYED TO THE COUNTY OF ORANGE FOR BAKER STREET BY DEED RECORDED FEBRUARY 15, 1943 IN BOOK 1181, PAGE 157 OF OFFICIAL RECORDS. ALSO EXCEPT THAT PORTION LYING WITHIN TRACT NO. 11606 AS PER MAP RECORDED IN BOOK 509, PAGES 29 AND 30 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. A-2 Attachment 14 RECORDING REQUESTED BY: City of Costa Mesa AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Vanessa Locklin, Esq. [Space above for Recorder's use.] TERMINATION OF FIRST AMENDMENT TO SITE LEASE by and between CITY OF COSTA MESA and COSTA MESA PUBLIC FINANCING AUTHORITY Dated as of October 1, 2017 TERMINATION OF FIRST AMENDMENT TO SITE LEASE THIS TERMINATION OF FIRST AMENDMENT TO SITE LEASE (this "Agreement"), dated as of October 1, 2017 and effective as of the date of recordation hereof, is by and between the CITY OF COSTA MESA, a municipal corporation and general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and the COSTA MESA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California (the "Authority"). RECITALS A. The City and the Authority entered into that certain Site Lease, dated as of October 1, 2003 (the "2003 Site Lease"), which was recorded on October 14, 2003 as Instrument No. 2003- 001257023 in the Official Records of the County of Orange, State of California (the "Official Records"). Pursuant to the 2003 Site Lease, the City leased certain property described therein (as shown on Exhibit A hereto) (the "Property") to the Authority. B. The City and the Authority also entered into that certain First Amendment to Site Lease, dated as of January 1, 2007 (the "2007 Site Lease"), which amends the 2003 Site Lease and which was recorded on February 6, 2007 as Instrument No. 2007000081509 in the Official Records. C. Pursuant to the 2007 Site Lease, the Authority made available to the City the proceeds of the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates") in the original aggregate principal amount of $29,960,000 in order to finance certain capital projects of the City. D. Pursuant to the Lease/Purchase Agreement, dated as of October 1, 2003 (the "2003 Lease"), by and between the City and the Authority, which was recorded on October 14, 2003 as Instrument No. 2003-001257022 in the Official Records, the Authority subleased the Property back to the City in exchange for the payment of Lease Payments (as such term is defined in the 2003 Lease) by the City to the Authority. E. Pursuant to the First Amendment to Lease/Purchase Agreement, dated as of January 1, 2007 (the "2007 Lease" and, together with the 2003 Lease, the "Lease"), by and between the City and the Authority, which was recorded on February 6, 2007 as Instrument No. 2007000081510 in the Official Records, the City increased the amount of Lease Payments payable under the Lease to reflect the City's receipt of the proceeds of the 2007 Certificates from the Authority. F. Pursuant to the Assignment Agreement, dated as of October 1, 2003, by and between the Authority and the Trustee, which was recorded on October 14, 2003 as Instrument No. 2003- 001257024 in the Official Records, the Authority assigned its right to receive the Lease Payments that are payable under the 2003 Lease to The Bank of New York Mellon Trust Company, N.A. (the "Trustee"). G. Pursuant to the First Amendment to Assignment Agreement, dated as of January 1, 2007, by and between the Authority and the Trustee, which was recorded on February 6, 2007 as Instrument No. 2007000081511 in the Official Records, the Authority assigned its right to receive the Lease Payments that are payable under the Lease to the Trustee. 1 H. The City has notified the Authority of its intention to defease, on August [31], 2017 (the "Defeasance Date"), that portion of the Lease Payments that is attributable to the 2007 Lease pursuant to Section 10.3 of the Lease, which will cause the defeasance of the 2007 Certificates as of the Defeasance Date in accordance with Section 14.01 of the Amended and Restated Trust Agreement, dated as of January 1, 2007, by and among the City, the Authority and the Trustee. I. The City hereby certifies that it has caused to be delivered moneys, which[, together with the investment proceeds thereof as described in the Escrow Agreement (2007 Certificates), dated as of October 1, 2017, by and between the City and the Trustee, as escrow agent (the "Escrow Agent"),] will be sufficient to defease that portion of the Lease Payments that is attributable to the 2007 Lease as of the Defeasance Date (the "Defeasance Amount"). J. In order to reflect the defeasance of that portion of the Lease Payments that is attributable to the 2007 Lease, the City and the Authority now desire to terminate and discharge the 2007 Site Lease. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has caused the deposit of the Defeasance Amount with the Escrow Agent. 2. Termination of 2007 Site Lease. Effective as of the date of recordation of this Agreement, the Authority and the City hereby acknowledge and agree that the 2007 Site Lease shall be terminated and, from and after the date hereof, the Authority shall have no further interest in the Property pursuant to the 2007 Site Lease. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK] 2 IN WITNESS WHEREOF, this Agreement has been executed by each parry's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA City Manager COSTA MESA PUBLIC FINANCING AUTHORITY an S-1 Executive Director A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property in the City of Costa Mesa, County of Orange, State of California, described as follows: PARCEL 1: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF FAIR DRIVE AS DESCRIBED IN A DEED TO THE COUNTY OF ORANGE, RECORDED AUGUST 2, 1950 IN BOOK 2050, PAGE 59 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY WITH THE CENTERLINE OF FAIRVIEW ROAD (FORMERLY KNOWN AS SANTA ANA ROAD) SAID INTERSECTION BEING DISTANT 0- 09' 00" WEST, 1825.85 FEET ALONG THE CENTERLINE OF FAIRVIEW ROAD FROM ITS INTERSECTION WITH THE NORTH LINE OF SAID LOT A OF THE BANNING TRACT; THENCE EASTERLY ALONG THE CENTERLINE OF SAID FAIR DRIVE, 882.27 FEET, TO A POINT ON THE EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, RECORDED MARCH 9, 1949 IN BOOK 1812, PAGE 313 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY; THENCE SOUTHERLY ALONG SAID EAST LINE, 50.00 FEET, TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE, SAID POINT BEING THE TRUE POINT OF BEGINNING OF THE LAND HEREIN DESCRIBED; THENCE CONTINUING SOUTHERLY ALONG SAID EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, 330.00 FEET TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE; THENCE EASTERLY ALONG LAST MENTIONED PARALLEL LINE, 852.00 FEET TO A LINE PARALLEL WITH SAID EAST LINE OF THE LAND DESCRIBED IN ABOVE DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE; THENCE NORTHERLY ALONG LAST MENTIONED PARALLEL LINE, 330.00 FEET TO A POINT ON A LINE 50 FEET SOUTHERLY OF, MEASURED AT RIGHT ANGLES, AND PARALLEL WITH SAID CENTERLINE OF FAIR DRIVE; THENCE WESTERLY ALONG SAID LINE, 852.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1946 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM A-1 THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. PARCEL 2: THAT PORTION OF LOT 6 IN BLOCK E OF THE BERRY TRACT, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 30, PAGE 74 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE CENTERLINE OF BAKER STREET, AS SHOWN ON SAID MAP, AND THE SOUTHERLY PROLONGATION OF THE WEST LINE OF SAID LOT 6; THENCE NORTH ALONG SAID PROLONGATION AND THE WEST LINE 412.5 FEET; THENCE EAST PARALLEL TO SAID CENTERLINE OF BAKER STREET, 211.2 FEET; THENCE SOUTH PARALLEL TO SAID WEST LINE OF LOT 6 AND ITS SOUTHERLY PROLONGATION 412.5 FEET TO THE CENTERLINE OF BAKER STREET; THENCE WEST ALONG SAID CENTERLINE 211.2 FEET TO THE POINT OF BEGINNING. EXCEPT THE SOUTH 40 FEET CONVEYED TO THE COUNTY OF ORANGE FOR BAKER STREET BY DEED RECORDED FEBRUARY 15, 1943 IN BOOK 1181, PAGE 157 OF OFFICIAL RECORDS. ALSO EXCEPT THAT PORTION LYING WITHIN TRACT NO. 11606 AS PER MAP RECORDED IN BOOK 509, PAGES 29 AND 30 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 3: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, AS DESCRIBED IN THE DEEDS RECORDED JULY 23, 1963 IN BOOK 6641, PAGE 450, OFFICIAL RECORDS AND RECORDED JUNE 19, 1964 IN BOOK 7095, PAGE 631, OFFICIAL RECORDS. EXCEPTING THEREFROM THAT PORTION DESCRIBED IN PARCEL 1 OF THE MEMORANDUM OF LEASE AGREEMENT RECORDED OCTOBER 20, 1993 AS INSTRUMENT NO. 93-0715534, OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. A-2 ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1949 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. A-3 RECORDING REQUESTED BY: City of Costa Mesa AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Vanessa Locklin, Esq. [Space above for Recorder's use.] Attachment 15 TERMINATION OF FIRST AMENDMENT TO LEASE/PURCHASE AGREEMENT by and between CITY OF COSTA MESA and COSTA MESA PUBLIC FINANCING AUTHORITY Dated as of October 1, 2017 TERMINATION OF FIRST AMENDMENT TO LEASE/PURCHASE AGREEMENT THIS TERMINATION OF FIRST AMENDMENT TO LEASE/PURCHASE AGREEMENT (this "Agreement"), dated as of October 1, 2017 and effective as of the date of recordation hereof, is by and between the CITY OF COSTA MESA, a municipal corporation and general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and the COSTA MESA PUBLIC FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California (the "Authority"). RECITALS A. The City and the Authority entered into that certain Site Lease, dated as of October 1, 2003 (the "2003 Site Lease"), which was recorded on October 14, 2003 as Instrument No. 2003- 001257023 in the Official Records of the County of Orange, State of California (the "Official Records"). Pursuant to the 2003 Site Lease, the City leased certain property described therein (as shown on Exhibit A hereto) (the "Property") to the Authority. B. The City and the Authority also entered into that certain First Amendment to Site Lease, dated as of January 1, 2007 (the "2007 Site Lease"), which amends the 2003 Site Lease and which was recorded on February 6, 2007 as Instrument No. 2007000081509 in the Official Records. C. Pursuant to the 2007 Site Lease, the Authority made available to the City the proceeds of the City of Costa Mesa 2007 Certificates of Participation (Police Facility Expansion Project) (the "2007 Certificates") in the original aggregate principal amount of $29,960,000 in order to finance certain capital projects of the City. D. Pursuant to the Lease/Purchase Agreement, dated as of October 1, 2003 (the "2003 Lease"), by and between the City and the Authority, which was recorded on October 14, 2003 as Instrument No. 2003-001257022 in the Official Records, the Authority subleased the Property back to the City in exchange for the payment of Lease Payments (as such term is defined in the 2003 Lease) by the City to the Authority. E. Pursuant to the First Amendment to Lease/Purchase Agreement, dated as of January 1, 2007 (the "2007 Lease" and, together with the 2003 Lease, the "Lease"), by and between the City and the Authority, which was recorded on February 6, 2007 as Instrument No. 2007000081510 in the Official Records, the City increased the amount of Lease Payments payable under the Lease to reflect the City's receipt of the proceeds of the 2007 Certificates from the Authority. F. Pursuant to the Assignment Agreement, dated as of October 1, 2003, by and between the Authority and the Trustee, which was recorded on October 14, 2003 as Instrument No. 2003- 001257024 in the Official Records, the Authority assigned its right to receive the Lease Payments that are payable under the 2003 Lease to The Bank of New York Mellon Trust Company, N.A. (the "Trustee"). G. Pursuant to the First Amendment to Assignment Agreement, dated as of January 1, 2007, by and between the Authority and the Trustee, which was recorded on February 6, 2007 as Instrument No. 2007000081511 in the Official Records, the Authority assigned its right to receive the Lease Payments that are payable under the Lease to the Trustee. 1 H. The City has notified the Authority of its intention to defease, on August [31], 2017 (the "Defeasance Date"), that portion of the Lease Payments that is attributable to the 2007 Lease pursuant to Section 10.3 of the Lease, which will cause the defeasance of the 2007 Certificates as of the Defeasance Date in accordance with Section 14.01 of the Amended and Restated Trust Agreement, dated as of January 1, 2007, by and among the City, the Authority and the Trustee. I. The City hereby certifies that it has caused to be delivered moneys, which[, together with the investment proceeds thereof as described in the Escrow Agreement (2007 Certificates), dated as of October 1, 2017, by and between the City and the Trustee, as escrow agent (the "Escrow Agent"),] will be sufficient to pay that portion of the Lease Payments that is attributable to the 2007 Lease as of the Defeasance Date (the "Defeasance Amount"). J. In order to reflect the defeasance of that portion of the Lease Payments that is attributable to the 2007 Lease, the City and the Authority now desire to terminate and discharge the 2007 Lease. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has caused the deposit of the Defeasance Amount with the Escrow Agent. 2. Termination of 2007 Lease. Effective as of the date of recordation of this Agreement, the Authority and the City hereby acknowledge and agree that the 2007 Lease shall be terminated and, except for the obligation of the City to pay the obligations thereunder from the moneys [and securities] deposited with the Escrow Agent, shall be of no further force or effect, and from and after the date hereof, the Authority shall have no further interest in the Property. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK] 2 IN WITNESS WHEREOF, this Agreement has been executed by each parry's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk ATTEST: Secretary CITY OF COSTA MESA City Manager COSTA MESA PUBLIC FINANCING AUTHORITY an S-1 Executive Director A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property in the City of Costa Mesa, County of Orange, State of California, described as follows: PARCEL 1: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF FAIR DRIVE AS DESCRIBED IN A DEED TO THE COUNTY OF ORANGE, RECORDED AUGUST 2, 1950 IN BOOK 2050, PAGE 59 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY WITH THE CENTERLINE OF FAIRVIEW ROAD (FORMERLY KNOWN AS SANTA ANA ROAD) SAID INTERSECTION BEING DISTANT 0- 09' 00" WEST, 1825.85 FEET ALONG THE CENTERLINE OF FAIRVIEW ROAD FROM ITS INTERSECTION WITH THE NORTH LINE OF SAID LOT A OF THE BANNING TRACT; THENCE EASTERLY ALONG THE CENTERLINE OF SAID FAIR DRIVE, 882.27 FEET, TO A POINT ON THE EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, RECORDED MARCH 9, 1949 IN BOOK 1812, PAGE 313 OF OFFICIAL RECORDS OF SAID ORANGE COUNTY; THENCE SOUTHERLY ALONG SAID EAST LINE, 50.00 FEET, TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE, SAID POINT BEING THE TRUE POINT OF BEGINNING OF THE LAND HEREIN DESCRIBED; THENCE CONTINUING SOUTHERLY ALONG SAID EAST LINE OF LAND DESCRIBED IN A DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE, 330.00 FEET TO A POINT ON A LINE PARALLEL WITH THE CENTERLINE OF SAID FAIR DRIVE; THENCE EASTERLY ALONG LAST MENTIONED PARALLEL LINE, 852.00 FEET TO A LINE PARALLEL WITH SAID EAST LINE OF THE LAND DESCRIBED IN ABOVE DEED TO SOUTHERN CALIFORNIA BIBLE COLLEGE; THENCE NORTHERLY ALONG LAST MENTIONED PARALLEL LINE, 330.00 FEET TO A POINT ON A LINE 50 FEET SOUTHERLY OF, MEASURED AT RIGHT ANGLES, AND PARALLEL WITH SAID CENTERLINE OF FAIR DRIVE; THENCE WESTERLY ALONG SAID LINE, 852.00 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1946 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM A-1 THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. PARCEL 2: THAT PORTION OF LOT 6 IN BLOCK E OF THE BERRY TRACT, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 30, PAGE 74 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE CENTERLINE OF BAKER STREET, AS SHOWN ON SAID MAP, AND THE SOUTHERLY PROLONGATION OF THE WEST LINE OF SAID LOT 6; THENCE NORTH ALONG SAID PROLONGATION AND THE WEST LINE 412.5 FEET; THENCE EAST PARALLEL TO SAID CENTERLINE OF BAKER STREET, 211.2 FEET; THENCE SOUTH PARALLEL TO SAID WEST LINE OF LOT 6 AND ITS SOUTHERLY PROLONGATION 412.5 FEET TO THE CENTERLINE OF BAKER STREET; THENCE WEST ALONG SAID CENTERLINE 211.2 FEET TO THE POINT OF BEGINNING. EXCEPT THE SOUTH 40 FEET CONVEYED TO THE COUNTY OF ORANGE FOR BAKER STREET BY DEED RECORDED FEBRUARY 15, 1943 IN BOOK 1181, PAGE 157 OF OFFICIAL RECORDS. ALSO EXCEPT THAT PORTION LYING WITHIN TRACT NO. 11606 AS PER MAP RECORDED IN BOOK 509, PAGES 29 AND 30 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 3: THAT PORTION OF LOT A OF THE BANNING TRACT, IN THE RANCHO SANTIAGO DE SANTA ANA, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PARTITIONED IN MARCH, 1890, CASE NO. 6385 IN THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, AS DESCRIBED IN THE DEEDS RECORDED JULY 23, 1963 IN BOOK 6641, PAGE 450, OFFICIAL RECORDS AND RECORDED JUNE 19, 1964 IN BOOK 7095, PAGE 631, OFFICIAL RECORDS. EXCEPTING THEREFROM THAT PORTION DESCRIBED IN PARCEL 1 OF THE MEMORANDUM OF LEASE AGREEMENT RECORDED OCTOBER 20, 1993 AS INSTRUMENT NO. 93-0715534, OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM THE OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. A-2 ALSO EXCEPTING THEREFROM, IN ACCORDANCE WITH EXECUTIVE ORDER 9908 APPROVED DECEMBER 5, 1947 (12 F. R. 8223), ALL URANIUM, THORIUM AND ALL OTHER MATERIALS DETERMINED PURSUANT TO SECTION 5(b)(1) OF THE ATOMIC ENERGY ACT OF 1949 (60 STAT. 761) TO BE PECULIARLY ESSENTIAL TO THE PRODUCTION OF FISSIONABLE MATERIAL, CONTAINED, IN WHATEVER CONCENTRATION, IN DEPOSITS IN THE LANDS COVERED BY THIS INSTRUMENT, AS RESERVED IN THE DEED FROM THE UNITED STATES OF AMERICA RECORDED AUGUST 19, 1949 IN BOOK 1891, PAGE 112 OF OFFICIAL RECORDS. A-3