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Home My WebLink AboutCC AG PKT 2011-02-28 #E AGENDA STAFF REPORT DATE: February 28, 2011 TO: Honorable Mayor and City Council THRU: Patrick Importuna, City Manager /Executive Director FROM: Robbeyn Bird, Director of Administrative Services/Treasurer SUBJECT: ISSUANCE OF SEWER IMPROVEMENT BONDS SUMMARY OF REQUEST: That City Council /Seal Beach Public Financing Authority approve Resolution No. 6112 and SBPFA Resolution No. PFA 11 -01 approving, authorizing, and directing execution of certain financing documents and directing certain related actions in connection with refinancing certain improvements to the City's wastewater system BACKGROUND: In 2000, the City issued $4,230,000 of Certificates of Participation to finance sewer improvements. The amount currently outstanding is $3,460,000 at an interest rate of 5.6 %. At the November 8, 2010 City Council meeting, staff requested that the City Council authorize the City Manager to pursue refunding the 2000 Sewer Improvement Bonds Certificates of Participation. At that time, refunding the prior bonds at an estimated interest rate of 3.77 %, it was estimated that the City Sewer Enterprise Fund would save $20,000 annually, or about $290,000 net present value. However, since November 8, 2010, the interest rates have risen. FINANCIAL IMPACT: The City will save a significant amount by refinancing the existing debt with new debt at an interest rate of 4.8% producing net present value savings of $250,000 and actual savings over $20,000 /yr. ANALYSIS: At the December 13, 2010 Joint City Council /SBPFA meeting, the City Council approved moving forward with a public offering to refund these bonds with the provision that there be a minimum of $220,000 in net present value savings. Agenda Item E Page 2 During the time that has elapsed since the December meeting and tonight's meeting, interest rates have been fluctuating making it difficult to meet the parameters dictated by the City Council. Subsequently, Southwest Securities, the underwriter for this refinancing, has presented another option to the City. Bank of America can provide a private placement bond at an interest rate of 4.8 %. Attached to this report is a synopsis of the savings that the City will obtain by refinancing the existing debt at a lower interest rate with the same amortization period as the current debt. RECOMMENDATION: It is recommended that the City Council /Seal Beach Public Financing Authority approve Resolution No. 6112 and SBPFA Resolution No. PFA 11 -01 approving, authorizing, and directing execution of certain financing documents and directing certain related actions in connection with refinancing certain improvements to the City's wastewater system refunding the 2000 Certificates of Participation and issue new debt at a lower interest rate resulting in a substantial savings to the City. SUBMITTED BY: NOTED AND APPROVED: Robb CPA Patrick P. Impo ,,ifa, ,1, Director of Administrative Services/Treasurer City Manager /Executive Director Attachments: A. City Resolution No. 6112 B. SBPFA Resolution No. PFA 11 -01 C. Installment Sale Agreement D. Irrevocable Refunding Instructions E. Assignment Agreement RESOLUTION NUMBER 6112 A RESOLUTION OF THE SEAL BEACH CITY COUNCIL APPROVING, AUTHORIZING AND DIRECTING EXECUTION OF CERTAIN FINANCING DOCUMENTS AND DIRECTING CERTAIN RELATED ACTIONS IN CONNECTION WITH REFINANCING CERTAIN IMPROVEMENTS TO THE CITY'S WASTEWATER SYSTEM WHEREAS, the City of Seal Beach (the "City ") and the Redevelopment Agency of the City of Seal Beach have entered into a Joint Exercise of Powers Agreement, dated May 8, 2000, establishing the Seal Beach Public Financing Authority (the "Authority ") for the purpose of, among others, financing and refinancing the acquisition, construction and improvement of certain public capital improvements; WHEREAS, the Authority and the City desire to refinance the $4,230,000 Certificates of Participation (2000 Sewer System Project), outstanding in the amount of $3,460,000, evidencing the direct, undivided fractional interests of the owners thereof in certain installment payments to be made by the City as the purchase price for certain property pursuant to an installment sale agreement with the Authority (the "2000 COPs "); WHEREAS, pursuant to an Installment Sale Agreement, between the City and the Authority (the "Installment Sale Agreement "), the City will purchase certain improvements to the wastewater system (the "2000 Wastewater Project ") from the Authority; WHEREAS, in consideration of payment by Bank of America, N.A. ( "BofA ") of the purchase price of the 2000 Wastewater Project, the Authority will assign all its right title and interest in the Installment Sale Agreement (including the right to receive all installment payments from the City) to BofA, pursuant to an Assignment Agreement, between the Authority and BofA (the "Assignment Agreement "); and WHEREAS, the City has duly considered such transactions and wishes at this time to approve certain matters relating to these transactions in the public interest of the City; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEAL BEACH, Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Installment Sale Agreement. The City Council hereby approves the form of the Installment Sale Agreement on file with the City Clerk, with such additions thereto and changes therein as the Mayor or the City Manager, or the written designee of any of them (each, an "Authorized Officer") deems necessary, desirable or appropriate upon consultation with special counsel, the execution by the City of which shall be conclusive evidence of the approval of any such additions and changes. The Authorized Officers and all other appropriate officials of the City are hereby authorized and directed to execute, and the City Clerk is hereby authorized to attest, as appropriate, the Installment Sale Agreement and such other agreements, documents and certificates as may be necessary or desirable to effectuate the purposes of this resolution and the financing herein authorized, including, without limitation, such other agreements, documents and certificates as may be required by the Installment Sale Agreement. The City Council hereby authorizes the performance by the City of its obligations under the Installment Sale Agreement. Resolution Number 6112 Section 3. Irrevocable Refunding Instructions The City Council hereby approves the form of the Irrevocable Refunding Instructions (the "Refunding Instructions "), from the Authority and the City to Bank of New York Mellon Trust Company, N.A. (successor in interest to BNY Western Trust Company as trustee for the 2000 COPs), as escrow agent, on file with the City Clerk. Each Authorized Officer is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Refunding Instructions in substantially said form, with such changes therein as such Authorized Officer executing the same may approve (such approval to be conclusively evidenced by the execution and delivery thereof). Section 4. Qualified Tax - Exempt Obligations. The Installment Payments are hereby designated by the City as "Qualified Tax - Exempt Obligations" for purposes of Section 265(b)(3) of the Internal Revenues Code of 1986, as amended. In that connection, the City represents and covenants that it, together with all its subordinate entities or entities that issue obligations on its behalf, or on behalf of which it issues obligations, during the current calendar year, (i) has not issued and will not issue tax - exempt obligations designated as Qualified Tax - Exempt Obligations in an aggregate amount, including the Installment Payments, exceeding $10,000,000, and (ii) has not issued, does not reasonably anticipate issuing, and will not issue, tax - exempt obligations in an aggregate amount exceeding $10,000,000 (including the Installment Payments, but excluding (a) private activity bonds that are not qualified 501(c)(3) Bonds and (b) current refunding issues to the extent that the amount of the current refunding issue does not exceed the outstanding amount of the prior issue), unless the City first obtains a written opinion of the special counsel approving the Installment Payments that such designation or issuance, as applicable, will not adversely affect the status of the Installment Payments as Qualified Tax - Exempt Obligations. The City represents and covenants that, during any time or in any manner as might affect the status of the Installment Payments as Qualified Tax - Exempt Obligations, no entity has been or will be formed or availed of in order to avoid the purposes of subparagraph (C) or (D) of Section 265(b)(3) of the Internal Revenues Code of 1986, as amended. The City further represents that the Installment Payments are not being issued as part of a direct or indirect composite issue that combines issues or lots of tax - exempt obligations of different issuers. Section 5. Other Acts. The Authorized Officers and all other officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all instruments which they may deem necessary or proper in order to effectuate the purposes of this Resolution and the documents approved hereby, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 6. Effective Date. This resolution shall take effect from and after its passage and adoption by the City. (Intentionally Left Blank) Resolution Number 6112 PASSED, APPROVED and ADOPTED by the City Council at a regular meeting held on the 28th day of February , 2011 by the following vote: AYES: Council Members NOES: Council Members ABSENT: Council Members ABSTAIN: Council Members Mayor ATTEST: City Clerk STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk of the City of Seal Beach, do hereby certify that the foregoing resolution is the original copy of Resolution Number 6112 on file in the office of the City Clerk, passed, approved, and adopted by the City Council at a regular meeting held on the 28th day of February , 2011. City Clerk 3 RESOLUTION NUMBER PFA 11 -01 A RESOLUTION OF THE SEAL BEACH PUBLIC FINANCING AUTHORITY APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF DOCUMENTS RELATING TO THE REFINANCING OF CERTAIN IMPROVEMENTS TO THE CITY'S WASTEWATER SYSTEM AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, the City of Seal Beach (the "City ") and the Redevelopment Agency of the City of Seal Beach have entered into a Joint Exercise of Powers Agreement, dated May 8, 2000, establishing the Seal Beach Public Financing Authority (the "Authority ") for the purpose of, among others, financing and refinancing the acquisition, construction and improvement of certain public capital improvements; WHEREAS, the Authority and the City desire to refinance the $4,230,000 Certificates of Participation (2000 Sewer System Project), outstanding in the amount of $3,460,000, evidencing the direct, undivided fractional interests of the owners thereof in certain installment payments to be made by the City as the purchase price for certain property pursuant to an installment sale agreement with the Authority (the "2000 COPs "); WHEREAS, pursuant to an Installment Sale Agreement, between the City and the Authority (the "Installment Sale Agreement "), the City will purchase certain improvements to the wastewater system (the "2000 Wastewater Project ") from the Authority; WHEREAS, in consideration of payment by Bank of America, N.A. ( "BofA ") of the purchase price of the 2000 Wastewater Project, the Authority will assign all its right title and interest in the Installment Sale Agreement (including the right to receive all installment payments from the City) to BofA, pursuant to an Assignment Agreement between the Authority and BofA (the "Assignment Agreement "); and WHEREAS, the Board of Directors (the "Board ") of the Authority has duly considered these transactions and wishes at this time to approve these transactions; NOW, THEREFORE, BE IT RESOLVED, BY THE BOARD OF DIRECTORS OF THE SEAL BEACH PUBLIC FINANCING AUTHORITY, as follows: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Installment Sale Agreement. The Board hereby approves the form of the Installment Sale Agreement, by and between the Authority and the City on file with the Secretary of the Authority (the "Secretary"), together with such additions thereto and changes therein as the Executive Director or the Chair of the Authority, or the written designee of any of them (each, an "Authorized Officer "), deem necessary, desirable or appropriate upon consultation with special counsel to the Authority, the execution of which by the Authority shall be conclusive evidence of the approval of any such additions and changes. The Authorized Officers, each acting alone, are hereby authorized and directed to execute, and the Secretary is hereby authorized and directed to attest, the final form of the Installment Sale Agreement for and in the name of and on behalf of the Authority. The Authority hereby authorizes the performance by the Authority of its obligations under the Installment Sale Agreement; provided however, that the Installment Sale Agreement shall only be entered into by the Authority and the City, and the 2000 COPs shall be refunded, only if such Resolution Number PFA 11 -01 refunding results in present value savings, as determined by the Authorized Officers, of at least $220,000. Section 3. Assignment Agreement The Board hereby approves the form of the Assignment Agreement, between the Authority and BofA, on file with the Secretary. Each Authorized Officer is 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 therein as such Authorized Officer executing the same may approve (such approval to be conclusively evidenced by the execution and delivery thereof). Section 4. Selection of Escrow Agent. The Board hereby approves of the appointment of Bank of New York Mellon Trust Company, N.A., as escrow agent (the "Escrow Agent") for the 2000 COPs, and authorizes the Authorized Officers to negotiate the fees for escrow agent services in the name of and on behalf of the Authority. Section 5. Irrevocable Refunding Instructions. The Board hereby approves the form of the Irrevocable Refunding Instructions (the "Refunding Instructions ") from the Authority and the City to Bank of New York Mellon Trust Company, N.A. (successor in interest to BNY Western Trust Company, as trustee for the 2000 COPs), as escrow agent, on file with the Secretary. Each Authorized Officer is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Refunding Instructions in substantially said form, with such changes therein as such Authorized Officer executing the same may approve (such approval to be conclusively evidenced by the execution and delivery thereof). Section 6. Special counsel. The appointment of Richards, Watson & Gershon, A Professional Corporation, to act as special counsel is hereby approved. Section 7. Other Acts. The Authorized Officers and all other officers of the Authority are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all instruments which they may deem necessary or proper in order to effectuate the purposes of this Resolution and the documents approved hereby, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 8. Effective Date. This resolution shall take effect from and after its passage and adoption by the Authority. PASSED, APPROVED AND ADOPTED by the Seal Beach Public Financing Authority this 28th day of February , 2011 by the following vote: AYES: Authority Members NOES: Authority Members ABSENT: Authority Members ABSTAIN: Authority Members Chair ATTEST: Secretary/City Clerk 2 Resolution Number PFA 11 -01 STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk of the City of Seal Beach, California, do hereby certify that the foregoing Resolution is the original copy of Resolution Number PFA 11 -01 on file in the office of the City Clerk, passed, approved, and adopted by the Seal Beach Public Financing Authority of the City of Seal Beach at a regular meeting thereof held on the 28th day of February , 2011. Secretary/City Clerk 1306016 3 INSTALLMENT SALE AGREEMENT Dated as of March 1, 2011 between the SEAL BEACH PUBLIC FINANCING AUTHORITY, as Seller and the CITY OF SEAL BEACH, as Purchaser TABLE OF CONTENTS ARTICLE I Definitions; Rules of Interpretation SECTION 1.1. Definitions 2 SECTION 1.2. Interpretation 9 ARTICLE II Representations, Covenants and Warranties SECTION 2.1. Representations, Covenants and Warranties of the City 9 SECTION 2.2. Representations, Covenants and Warranties of Authority 11 ARTICLE III ARTICLE IV Sale of 2000 Sewer Project Installment Payments SECTION 4.1. Sale of 2000 Sewer Project 12 SECTION 4.2. Term 12 SECTION 4.3. Title 12 SECTION 4.4. Installment Payments 12 SECTION 4.5. Pledge and Application of Net Revenues 13 SECTION 4.6. Special Obligation of the City; Obligations Absolute 14 SECTION 4.7. Additional Payments 15 SECTION 4.8. Establishment of Rate Stabilization Fund 15 ARTICLE V Covenants of the City SECTION 5.1. Disclaimer of Warranties; Maintenance, Utilities and Taxes. 16 SECTION 5.2. Release and Indemnification Covenants 16 SECTION 5.3. Sale or Eminent Domain of Enterprise 17 SECTION 5.4. Insurance 17 SECTION 5.5. Records and Accounts 18 SECTION 5.6. Rates and Charges 18 SECTION 5.7. Superior and Subordinate Obligations 19 SECTION 5.8. Issuance of Parity Obligations 19 SECTION 5.9. Governmental Loans 19 SECTION 5.10. Operation of Sewer System in Efficient and Economical Manner 20 SECTION 5.11. Assignment and Amendment. 20 Section 5.13. Tax Covenants 20 ARTICLE VI Events of Default SECTION 6.1. Events of Default Defined 23 SECTION 6.2. Remedies on Default 24 SECTION 6.3. No Remedy Exclusive 24 SECTION 6.4. Agreement to Pay Attorneys' Fees and Expenses 25 SECTION 6.5. No Additional Waiver Implied by One Waiver 25 ARTICLE VII Prepayment of Installment Payments SECTION 7.1. Security Deposit 25 SECTION 7.2. Optional Prepayment 26 SECTION 7.3. Mandatory Prepayment From Proceeds of Insurance, Sale or Condemnation 26 -i- ARTICLE VIII Miscellaneous SECTION 8.1. Further Assurances 26 SECTION 8.2. Notices 26 SECTION 8.3. Governing Law 26 SECTION 8.4. Binding Effect 27 SECTION 8.5. Severability of Invalid Provisions 27 SECTION 8.6. Article and Section Headings and References 27 SECTION 8.7. Payment on Non - Business Days 27 SECTION 8.8. Execution of Counterparts 27 SECTION 8.9. Waiver of Personal Liability 27 APPENDIX A Schedule of Installment Payments APPENDIX B Description of 2000 Sewer Project -ii- INSTALLMENT SALE AGREEMENT This INSTALLMENT SALE AGREEMENT (this "Agreement "), dated as of March 1, 2011, is between the SEAL BEACH PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "Authority "), as seller, and the CITY OF SEAL BEACH, a municipal corporation duly organized and existing under the laws of the State of California (the "City "), as purchaser. BACKGROUND: 1. The City presently operates facilities and property for the collection of wastewater within the service area of the City (the "Enterprise "), and the City wishes to raise funds to refinance certain outstanding obligations of the Enterprise. 2. The Authority has previously financed the acquisition and construction of certain improvements to the Enterprise through the execution and delivery of $4,230,000 Certificates of Participation (2000 Sewer System Project) evidencing the direct, undivided fractional interests of the owners thereof in 2000 Installment Payments (defined below) to be made by the City as the purchase price for certain property pursuant to a 2000 Installment Sale Agreement (defined below) with the Authority (the "2000 COPs "). 3. In connection with the execution and delivery of the 2000 COPs, the Authority and the City entered into an Installment Sale Agreement dated as of June 1, 2000 (the "2000 Installment Sale Agreement "), under which the City is obligated to make certain installment payments (the "2000 Installment Payments ") and certain additional payments to the Authority in order to provide the Authority with sufficient revenues to pay debt service on the 2000 COPs. 4 The Authority and the City at this time desire to prepay and discharge the 2000 Installment Sale Agreement by refunding, in full, the 2000 COPs. 5. Pursuant to this Installment Sale Agreement, between the City and the Authority (this "Installment Sale Agreement "), the City will purchase certain improvements to the wastewater system (the "2000 Sewer Project ") from the Authority; 6. The City and the Authority have duly authorized the execution of this Installment Sale Agreement. AGREEMENT: In consideration of the foregoing and the material covenants hereinafter contained, the City and the Authority formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS; RULES OF INTERPRETATION SECTION 1.1. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms set forth in this Installment Sale Agreement shall have the meanings assigned to them in this Section 1.1. "Additional Payments" means the amounts payable by the City under Section 4.7 of the Installment Sale Agreement. "Additional Revenues" means, with respect to the issuance of any Parity Obligations, any or all of the following amounts: (a) An allowance for Net Revenues from any additions or improvements to or extensions of the Enterprise to be made with the proceeds of such Parity Obligations and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12 -month period selected by the City, were not in service, all in an amount equal to 90% of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first 36- month period in which each addition improvement or extension is respectively to be in operation, all as shown by the certificate or opinion of a qualified independent professional engineer employed by the City. (b) An allowance for Net Revenues arising from any increase in the charges made for service from the Enterprise which has been adopted prior to the incurring of such Parity Obligations but which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12 -month period selected by the City, was not in effect, in an amount equal to the total amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or 12 -month period, all as shown by the certificate or opinion of an Independent Accountant or qualified independent professional engineer employed by the City. "Annual Debt Service" means, as of the date of any calculation and with respect to the Installment Payments or any Parity Obligations, as the case may be, the sum obtained for the current or any future Bond Year during the Term of the Installment Sale Agreement by totaling the following amounts for such Bond Year: (a) the aggregate amount of the Installment Payments coming due and payable in such Bond Year pursuant hereto, except to the extent payable from any security deposit pursuant to Section 7.1 of the Installment Sale Agreement; (b) the principal amount of all outstanding Parity obligations, if any, coming due and payable by their terms in such Bond Year; (c) the amount of interest which would be due during such Bond Year on the aggregate principal amount of all outstanding Parity Obligations, if any, which would be outstanding in such Bond Year if such Parity Obligations are retired as scheduled; and (d) loan payments to be made to a Governmental Agency under a Governmental Loan, if any, coming due and payable by its terms in such Bond Year; -2- . provided that, as to any such Installment Payments or Parity Obligations bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Annual Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Installment Payments or Parity Obligations plus 1%; and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; and provided further that, as to any such Installment Payments or Parity Obligations or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Installment Payments or Parity Obligations or portions thereof, such accreted discount shall be treated as interest in the calculation of Annual Debt Service; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Annual Debt Service shall be deducted from the amount of principal due at the final maturity of the Installment Payments or Parity Obligations for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted; and provided further that there shall be excluded from this definition any principal or interest payable on Installment Payments or Parity Obligations which has been defeased or discharged. "Assignment Agreement" means the Assignment Agreement, dated as of March 1, 2011, by and between the Authority and the Bank, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms. "Authority" means the Seal Beach Public Financing Authority, a joint exercise of powers authority duly organized and existing under the laws of the State of California and the Agreement. "Authorized Representative" means: (a) with respect to the Authority, its Executive Director, Chair or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director or Chair and filed with the City; and (b) with respect to the City, its City Manager, Director of Administrative Services and Mayor or any other person designated as an Authorized Representative of the City by a Written Certificate of the City signed by its City Manager or Director of Administrative Services and Mayor and filed with the Authority. "Bank" means Bank of America, N.A., solely in its capacity as assignee under the Assignment Agreement, and its successors and assigns. "Bond Year" means each twelve -month period extending from June 2 in one calendar year to June 1 of the succeeding calendar year, both dates inclusive; except that the first Bond -3- Year with respect to the Installment Payments commences on the Closing Date and extends to and including June 1, 2011. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on which commercial banks located in San Francisco are authorized or required by law to close. "City" means the City of Seal Beach, a municipal corporation duly organized and existing under the laws of the State of California. "Closing Date" means March 2, 2011. "Enterprise" means the entire wastewater system of the City, including but not limited to all facilities, properties and improvements at any time owned or operated by the City for the collection of wastewater from residents served thereby, and any necessary lands, rights, entitlements and other property useful in connection therewith. "Event of Default" means any of the events specified in Section 7.01. "Federal Securities" means: (a) any 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), for which the full faith and credit of the United States of America are pledged; and (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America. "Fiscal Consultant" means any consultant or firm of such consultants appointed by the City and who, or each of whom: (a) is judged by the City to have experience in matters relating to the financing of wastewater system enterprises; (b) is in fact independent and not under domination of the City; (c) does not have any substantial interest, direct or indirect, with the City other than as purchaser of any Parity Obligations; and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. "Fiscal Year" means any twelve -month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve- month period selected and designated by the City as its official fiscal year period. "Governmental Agency" means the State, and the United States of America, acting through any of its agencies, to the extent that the State or such agency has loaned money to the City for the Enterprise. "Governmental Loan" means any loan made by a Governmental Agency to the City that is secured by a pledge of Net Revenues and incurred by the City to finance improvements to the Enterprise pursuant to Section 5.9 of the Installment Sale Agreement. "Gross Revenues" means all gross charges received for, and all other gross income and receipts derived by the City from, the ownership and operation of the Enterprise or otherwise arising from the Enterprise, including but not limited to investment earnings thereon; but excluding (a) developer impact fees, (b) the proceeds of any ad valorem property taxes levied for the purpose of paying general obligation bonds of the City relating to the Enterprise, and (c) the proceeds of any special assessments or special taxes levied upon real property within any -4- improvement district served by the City levied for the purpose of paying special assessment bonds or special tax obligations of the City relating to the Enterprise. "Independent Accountant" means any certified public accountant or firm of certified public accountants appointed and paid by the Authority or the City, and who, or each of whom (a) is in fact independent and not under domination of the Authority or the City; (b) does not have any substantial interest, direct or indirect, in the Authority or the City; and (c) is not connected with the Authority or the City as an officer or employee of the Authority or the City but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the City. "Installment Payment Date" means, with respect to any Interest Payment Date, the 3rd Business Day immediately preceding such Interest Payment Date. "Installment Payments" means all payments required to be paid by the City on any date under Section 4.4 of the Installment Sale Agreement, including any amounts payable upon delinquent installments and including any prepayment thereof under Section 7.2 or 7.3 of the Installment Sale Agreement, but does include Additional Payments. "Installment Sale Agreement" means this Installment Sale Agreement, dated as of March 1, 2011, between the City and the Authority, together with any duly authorized and executed amendments thereto. "Interest Payment Dates" means each June 1 and December 1, commencing June 1, 2011, so long as any Installment Payments remain unpaid. "Maximum Annual Debt Service" means, as of the date of any calculation and with respect to the Installment Payments or any Parity Obligations, as the case may be, the maximum sum obtained for the current or any future Bond Year during the Term of the Installment Sale Agreement by totaling the following amounts for such Bond Year: (a) the aggregate amount of the Installment Payments coming due and payable in such Bond Year pursuant hereto, except to the extent payable from any security deposit pursuant to Section 7.1 of the Installment Sale Agreement; (b) the principal amount of all outstanding Parity Obligations, if any, coming due and payable by their terms in such Bond Year; (c) the amount of interest which would be due during such Bond Year on the aggregate principal amount of all outstanding Parity Obligations, if any, which would be outstanding in such Bond Year if such Parity Obligations are retired as scheduled; and (d) loan payments to be made to a Governmental Agency under a Governmental Loan, if any, coming due and payable by its terms in such Bond Year; provided that, as to any such Installment Payments or Parity Obligations bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Annual Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Installment Payments or Parity Obligations plus 1 %; and -5- (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; and provided further that, as to any such Installment Payments or Parity Obligations or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Installment Payments or Parity Obligations or portions thereof, such accreted discount shall be treated as interest in the calculation of Annual Debt Service; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Annual Debt Service shall be deducted from the amount of principal due at the final maturity of the Installment Payments or Parity Obligations for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted; and provided further that there shall be excluded from this definition any principal or interest payable on Installment Payments or Parity Obligations which has been defeased or discharged. "Moody's" means Moody's Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority or the City. "Net Revenues" means, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and Maintenance Costs becoming payable during such period. "Operation and Maintenance Costs" means the reasonable and necessary costs and expenses paid by the City for maintaining and operating the Enterprise,. including but not limited to (a) costs of utilities, including the costs of electricity and other forms of energy supplied to the Enterprise, (b) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Enterprise in good repair and working order, and (c) the reasonable administrative costs of the City attributable to the operation and maintenance of the Enterprise, including insurance and other costs described in Article V of the Installment Sale Agreement; but in all cases excluding (i) debt service payable on obligations incurred by the City with respect to the Enterprise, including but not limited to the Installment Payments and any Parity Obligations, (ii) depreciation, replacement and obsolescence charges or reserves therefor, and (iii) amortization of intangibles or other bookkeeping entries of a similar nature. "Overdue Rate" means the rate of interest applicable to the remaining unpaid principal balance of the Installment Payments, which shall be [8 %) per annum. "Parity Obligations" means (a) any bonds, notes, leases, installment sale agreements or other obligations of the City payable from and secured by a pledge of and lien upon any of the Net Revenues on a parity with the Installment Payments, entered into or issued under and in -6- accordance with Section 5.8 of the Installment Sale Agreement, and (b) any Governmental Loan that is treated as a Parity Obligation under Section 5.9 of the Installment Sale Agreement. "Parity Obligations Documents" means, collectively, the indenture of trust, trust agreement, installment sale agreement, or other document authorizing the issuance or incurrence of any Parity Obligations or any securities which evidence Parity Obligations. "Permitted Investments" means any of the following which at the time of investment are determined by the Authority to be legal investments under the laws of the State of California for the moneys proposed to be invested therein: (a) Federal Securities. (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export -Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, and Federal Housing Administration; (c) bonds, notes or other evidences of indebtedness rated AAA by S &P and Aaa by Moody's issued by the Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (d) U.S. dollar denominated deposit accounts (including those with the Bank or with any affiliate of the Bank), federal funds and banker's acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A -1 or A -1+ by S &P and P -1 by Moody's, and maturing no more than 360 days after the date of purchase; (e) commercial paper which is rated at the time of purchase in the single highest classification, A -1+ by S &P and P -1 by Moody's and which matures not more than 270 days after the date of purchase; (f) investments in a money market fund rated AAAm or AAAm -G or better by S &P, which may include funds for which the Bank or its affiliates provide investment advisory or other management services; (g) any pre - refunded bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the refunding escrow, in the highest rating category of S &P and Moody's or (ii)(A) which are fully secured as to principal and interest and redemption premium (if any) by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium (if any) in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates under such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant, to pay principal of and interest and redemption premium (if any) on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate; -7- (h) investment agreements; (i) the Local Agency Investment Fund established under Section 16429.1 of the Government Code of the State of California; and (j) any other investment permitted pursuant to Section 53601 of the California Government Code. "Rate Stabilization Fund" means any fund established and held by the City as a fund for the stabilization of rates and charges imposed by the City with respect to the Enterprise, which fund is established, held and maintained in accordance with Section 4.8 of the Installment Sale Agreement. "S &P" means Standard & Poor's, a division of the McGraw Hill Companies, of New York, New York, its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S &P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority or the City. "Special Counsel" means (a) Richards Watson & Gershon, A Professional Corporation, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Authority of nationally- recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. "Tax Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said Tax Code. "Term" means, when used with respect to the Installment Sale Agreement, the time during which the Installment Sale Agreement is in effect, as provided in Section 4.2 thereof. "2000 COPs" means the $4,230,000 original principal amount of Certificates of Participation (2000 Sewer System Project) evidencing the direct, undivided fractional interest of the owners thereof in 2000 Installment Payments to be made by the City as the purchase price for certain property pursuant to the 2000 Installment Sale Agreement with the Authority. "2000 Installment Payments" means the installment payments made by the City to the Authority under the 2000 Installment Sale Agreement. "2000 Installment Sale Agreement" means the Installment Sale Agreement dated as of June 1, 2000 between the Authority and the City. "2000 Trust Agreement" means the Trust Agreement relating to the 2000 COPs dated as of June 1, 2000 between the Authority and the 2000 Trustee. "2000 Trustee" means BNY Western Trust Company, as trustee under the 2000 Trust Agreement. "2000 Sewer Project" means the facilities, improvements and other property financed with the proceeds of the 2000 COPs. -8- "Sewer Enterprise Fund" means the fund or funds established and held by the City with respect to the Enterprise for the receipt and deposit of Gross Revenues. "Written Certificate," "Written Request" and "Written Requisition" of the Authority or the City mean, respectively, a written certificate, request or requisition signed in the name of the Authority or the City by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. SECTION 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and do not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES SECTION 2.1. Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Authority and the Bank as follows: (a) Due Organization and Existence. The City is a municipal corporation duly organized and validly existing under the laws of the State of California, has full legal right, power and authority under said laws to enter into this Agreement and to carry out and consummate all transactions contemplated hereby and thereby, and by proper action the City Council of the City has duly authorized the execution and delivery of this Agreement. (b) Due Execution. The officers of the City executing this Agreement are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement has been duly authorized, executed and delivered by the City and constitutes the legal, valid and binding agreement of the City enforceable against the City in accordance with its terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. -9- (d) No Conflicts. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and the fulfillment of or compliance with the terms and conditions hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the City is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement or the financial condition, assets, properties or operations of the City, including but not limited to the performance of the City's obligations under this Agreement. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the City or of the voters of the City, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Agreement, or the consummation of any transaction herein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending, and notice of which has been served on and received by the City or, to the best knowledge of the City, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Agreement, or upon the financial condition, assets, properties or operations of the City, and the City is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state,. municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement, or the financial conditions, assets, properties or operations of the City, including but not limited to the payment and performance of the, City's obligations under this Agreement. (g) Encumbrances. There are no easements, encumbrances or interests with respect to the Enterprise or the 2000 Sewer Project that prohibit or materially impair the execution, delivery and performance of this Installment Sale Agreement or the acquisition or use of the 2000 Sewer Project or the use of the Enterprise. (h) Prior Indebtedness. The City has not issued or incurred any obligations which are currently outstanding having any priority in payment out of the Gross Revenues or the Net Revenues over the payment of the Installment Payments as provided herein. -10- SECTION 2.2. Representations, Covenants and Warranties of Authority. The Authority represents, covenants and warrants to the City and the Bank as follows: (a) Due Organization and Existence. The Authority is a joint exercise of powers authority organized and existing under the laws of the State of California, and has power to enter into this Agreement and to perform the duties and obligations imposed on it hereunder. The Board of Directors of the Authority has duly authorized the execution and delivery of this Agreement. (b) Due Execution. The representatives of the Authority executing this Agreement are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding agreements of the Authority, enforceable against the Authority in accordance with their respective terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. (d) No Conflicts. The execution and delivery hereof, and of the Assignment Agreement, the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof ,and thereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the Authority is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Authority, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially adversely affect the consummation of the transactions contemplated hereby or thereby or the financial condition, assets, properties or operations of the Authority, including but not limited to the performance of the Authority's obligations under this Agreement or the Assignment Agreement. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the Authority, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery hereof, or the consummation of any transaction herein or therein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending and notice of which has been served on and received by the Authority or, to the best knowledge of the Authority, threatened against or affecting the Authority or the assets, properties or operations of the -11- Authority which, if determined adversely to the Authority or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Agreement or the Assignment Agreement, or upon the financial condition, assets, properties or operations of the Authority, and the Authority is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement or the Assignment Agreement or the financial conditions, assets, properties or operations of the Authority, including but not limited to the performance of the Authority's obligations hereunder and under the Assignment Agreement. (g) Encumbrances. To the best knowledge of the Authority, there are no easements, encumbrances or interests with respect to the Enterprise that prohibit or materially impair the execution, delivery and performance of this Installment Sale Agreement or the acquisition or use of the Enterprise. ARTICLE III [Reserved] ARTICLE IV SALE OF 2000 SEWER PROJECT; INSTALLMENT PAYMENTS SECTION 4.1. Sale of 2000 Sewer Project. The City does hereby grant, assign and transfer to the Authority, all estate, right, title and interest of the City in the 2000 Sewer Project. The Authority hereby accepts such grant, assignment and transfer. The Authority hereby sells the 2000 Sewer Project to the City, and the City hereby purchases the 2000 Sewer Project from the Authority, upon the terms and conditions set forth in this Agreement. SECTION 4.2. Term. The Term of this Agreement commences on the Closing Date, and ends on June 1, 20[29], or such earlier date on which the City shall have paid all Installment Payments and all other amounts due and payable hereunder. SECTION 4.3. Title. Title to the Enterprise, including the 2000 Sewer Project, and each component thereof, shall be deemed conveyed by the Authority to and vested in the City on the Closing Date. The Authority and the City will execute, deliver and cause to be recorded any and all documents reasonably required by the City to consummate the transfer of title to the Enterprise, including the 2000 Sewer Project to the City. Such title shall be held by the City in trust pending the satisfaction of the payment obligations under this Agreement. SECTION 4.4. Installment Payments. (a) Obligation to Pay. The City hereby agrees to pay to the Authority, as the purchase price of the 2000 Sewer Project hereunder, the aggregate principal amount of $[principal amount], together with interest at [4.80% per annum] (calculated on the basis of a 360 -day year of twelve 30 -day months) on the unpaid principal balance thereof, payable in -12- semiannual installment payments in the respective amounts and on the respective Installment Payment Dates specified in Appendix A hereto. The City shall deposit the Installment Payment coming due and payable on any Interest Payment Date with the Bank, as assignee of the Authority under the Assignment Agreement, on the related Installment Payment Date (as set forth in Exhibit A hereto) in an amount which is equal to the full amount of such Installment Payment. The Installment Payments are secured by and payable solely from the sources specified in Section 4.5. (b) Effect of Prepayment. If the City prepays all remaining Installment Payments in full under Section 7.2 or Section 7.3, the City's obligations under this Agreement shall thereupon cease and terminate, including but not limited to the City's obligation to pay Installment Payments therefor under this Section 4.4; provided, however, that the City's obligations to compensate and indemnify the Bank under Sections 4.7 and 5.2 will survive such prepayment. If the City prepays the Installment Payments in part but not in whole under Section 7.2 or Section 7.3, the principal component and interest component of each succeeding Installment Payment will be reduced as provided in such Sections. (c) Rate on Overdue Payments. If the City fails to make any of the payments required in this Section 4.4 and Section 4.8, the payment in default will continue as an obligation of the City until fully paid, and the City agrees to pay the same with interest thereon, from the date of default to the date of payment, at the Overdue Rate. (d) Assignment. The City understands and agrees that certain rights of the Authority, including but not limited to the right of the Authority to receive payment of the Installment Payments, have been assigned by the Authority to the Bank pursuant to the Assignment Agreement, and the City hereby consents to such assignment. The Authority hereby directs the City, and the City hereby agrees, to pay to the Bank, all payments payable by the City under this Section 4.4 and all amounts payable by the City under Article VII. SECTION 4.5. Pledge and Application of Net Revenues. (a) Pledge of Net Revenues. All of the Net Revenues and all moneys on deposit in the Sewer Enterprise Fund are hereby irrevocably pledged, charged and assigned to the punctual payment of the Installment Payments. Such pledge, charge and assignment constitute a first priority lien on the Net Revenues and such other moneys for the payment of the Installment Payments in accordance with the terms hereof, on a parity with the pledge and lien which secures any Parity Obligations. (b) Deposit of Net Revenues Into Sewer Enterprise Fund; Transfers to Make Payments. The City has previously established the Sewer Enterprise Fund, which the City will continue to hold and maintain for the purposes and uses set forth herein. The City shall deposit all of the Gross Revenues in the Sewer Enterprise Fund immediately upon receipt. The City shall apply amounts in the Sewer Enterprise Fund as set forth in this Agreement and any Parity Obligations Documents. Amounts on deposit in the Sewer Enterprise Fund shall be applied by the City to pay when due the following amounts in the following order of priority: (i) all Operation and Maintenance Costs; (ii) the Installment Payments and all payments of principal of and interest on any Parity Obligations; -13- (iii) the amount of any deficiency in any reserve fund established for Parity Obligations, the notice of which deficiency has been given to the City in accordance with the related Parity Obligations Documents, respectively; (iv) any other payments required to comply with the provisions of this Agreement (including Additional Payments) and any Parity Obligations Documents; and (v) any other purposes authorized under subsection (d) of this Section 4.5. (c) No Preference or Priority. Payment of the Installment Payments and the principal of and interest on any Parity Obligations shall be made without preference or priority among the Installment Payments and such Parity Obligations. If the amount of Net Revenues on deposit in the Sewer Enterprise Fund is at any time insufficient to enable the City to pay when due the Installment Payments and the principal of and interest on any Parity Obligations, such payments shall be made on a pro rata basis. (d) Other Uses of Gross Revenues Permitted. The City shall manage, conserve and apply the Gross Revenues on deposit in the Sewer Enterprise Fund in such a manner that all deposits required to be made under the preceding subsection (b) will be made at the times and in the amounts so required. Subject to the foregoing sentence, so long as no Event of Default has occurred and is continuing, the City may, after making the payments described in subsections (i) through (iv) of subsection (b) above, use and apply moneys in the Sewer Enterprise Fund for (i) the payment of any subordinate obligations or any unsecured obligations, (ii) the acquisition and construction of improvements to the Enterprise, (iii) the prepayment of any other obligations of the City relating to the Enterprise, or (iv) any other lawful purposes of the City. (e) Budget and Appropriation of Installment Payments. During the Term of this Agreement, the City shall adopt all necessary budgets and make all necessary appropriations of the Installment Payments from the Net Revenues. If any Installment Payment requires the adoption by the City of any supplemental budget or appropriation, the City shall promptly adopt the same. The covenants on the part of the City contained in this subsection (e) constitute duties imposed by law and it is the duty of each and every public official of the City to take such actions 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 subsection (e). SECTION 4.6. Special Obligation of the City; Obligations Absolute. The City's obligation to pay the Installment Payments and any other amounts coming due and payable hereunder is a special obligation of the City limited solely to the Net Revenues. Under no circumstances is the City required to advance moneys derived from any source of income other than the Net Revenues and other sources specifically identified herein for the payment of the Installment Payments and such other amounts. No other funds or property of the City are liable for the payment of the Installment Payments and any other amounts coming due and payable hereunder. The obligations of the City to pay the Installment Payments from the Net Revenues and to perform and observe the other agreements contained herein are absolute and unconditional and are not subject to any defense or any right of set -off, counterclaim or recoupment arising out of any breach by the Authority or the Bank of any obligation to the City or otherwise with -14- respect to the Enterprise, whether hereunder or otherwise, or out of indebtedness or liability at any time owing to the City by the Authority or the Bank. Until all of the Installment Payments, all of the Additional Payments and all other amounts coming due and payable hereunder are fully paid or prepaid, the City (a) will not suspend or discontinue payment of any Installment Payments, Additional Payments or such other amounts, (b) will perform and observe all other agreements contained in this Agreement, and (c) will not terminate this Agreement for any cause, including, without limiting the generality of the foregoing, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Enterprise, sale of the Enterprise, the taking by eminent domain of title to or temporary use of any component of the Enterprise, commercial frustration of purpose, any change in the tax or law other laws of the United States of America or the State of California or any political subdivision of either thereof, or any failure of the Authority or the Bank to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement. The foregoing provisions of this Section 4.6 do not release the Authority from the performance of any of the agreements on its part contained herein, and if the Authority fails to perform any such agreements, the City may institute such action against the Authority as the City deems necessary to compel performance, so long as such action does hot abrogate the obligations of the City contained in the preceding paragraph. The City may, however, at its cost and expense and in its name or in the name of the Authority, prosecute or defend any action or proceeding or take any other action involving third persons which the City deems reasonably necessary in order to secure or protect the City's rights hereunder, and in such event the Authority shall cooperate fully with the City and shall take such action necessary to effect the substitution of the City for the Authority in such action or proceeding if the City may request. SECTION 4.7. Additional Payments. In addition to the Installment Payments, the City shall pay when due the following amounts to the following parties: (a) to the Authority, all costs and expenses incurred by the Authority to comply with the provisions of this Agreement; (b) to the Authority and the Bank, all amounts required to indemnify the Authority and the Bank under Section 5.2 hereof; and (c) all costs and expenses of auditors, engineers and accountants for professional services relating to the Enterprise. The Additional Payments shall be payable from, but shall not be secured by a pledge or lien upon, the Net Revenues. The rights of the Bank and the Authority under this Section 4.7, and the obligations of the City under this Section 4.7, shall survive the termination of this Agreement. SECTION 4.8. Establishment of Rate Stabilization Fund. The City has the right at any time to establish a fund to be held by it and administered in accordance with this Section 4.8, for the purpose of stabilizing the rates and charges imposed by the City with respect to the Enterprise. From time to time the City may deposit amounts in the Rate Stabilization Fund, from any source of legally available funds, including but not limited to Net Revenues which are released from the pledge and lien which secures the Installment Payments and any Parity Debt, as the City may determine. Amounts so transferred from the Sewer Enterprise Fund to the Rate Stabilization Fund in any Fiscal Year shall be deducted from Gross Revenues for that Fiscal Year. The Rate Stabilization Fund shall be accounted for as a separate fund, although -15- amounts credited to it may be commingled with other funds of the City. The City may, but is not be required to, withdraw amounts on deposit in the Rate Stabilization Fund and deposit such amounts in the Sewer Enterprise Fund in any Fiscal Year for the purpose of paying the Installment Payments or the principal of and interest on any Parity Debt coming due and payable in such Fiscal Year. Amounts so transferred from the Rate Stabilization Fund to the Sewer Enterprise Fund in any Fiscal Year constitute Gross Revenues for that Fiscal Year (except as otherwise provided herein), and will be applied for the purposes of the Sewer Enterprise Fund. Amounts on deposit in the Rate Stabilization Fund are not pledged to and do not otherwise secure the Installment Payments or any Parity Debt. All interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the option of the City, be applied for any other lawful purposes. The City has the right at any time to withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any other lawful purposes of the City. ARTICLE V COVENANTS OF THE CITY SECTION 5.1. Disclaimer of Warranties; Maintenance, Utilities and Taxes. (a) The Authority and the Bank make no warranty or representation, either express or implied, as to the value, design, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the City of the 2000 Sewer Project or any component thereof, or any other representation or warranty with respect to any of the 2000 Sewer Project or any component thereof. In no event is the Authority or the Bank liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Agreement for the existence, furnishing, functioning or use of the Project. (b) Throughout the Term of this Agreement, all improvement, repair and maintenance of the Enterprise 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 Enterprise, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Enterprise resulting from ordinary wear and tear. The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Enterprise 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 Agreement as and when the same become due. SECTION 5.2. Release and Indemnification Covenants. The City agrees to indemnify the Authority and the Bank and their respective officers, agents, successors and assigns, against all claims, losses and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on or about the Enterprise by the City, (b) any breach or default on the part of the City in the performance of any of its obligations under this Agreement, (c) any act or omission of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Enterprise, (d) any act or omission of any lessee of the City with respect to the Enterprise, and (e) any loss of the federal income tax exemption of the interest portion of Installment Payments -16- and any interest or penalties imposed by the Internal Revenue Service on the Bank in connection therewith, any such amount with respect to past Installment Payments to be paid to the Bank in a single lump sum payment upon demand of the Bank, and any such amount with respect to future Installment Payments to be paid as an increase in the interest portion of Installment Payments such that the after tax yield to the Bank shall remain the same following the loss of the federal income tax exemption as it was before such loss of tax exemption. No indemnification is made under this Section 5.2 or elsewhere in this Agreement for willful misconduct or negligence under this Agreement by the Authority or the Bank, or their respective officers, agents, employees, successors or assigns. The provisions of this Section 5.2 shall survive the expiration of the Term of this Agreement. SECTION 5.3. Sale or Eminent Domain of Enterprise. Except as provided herein, the City covenants that the Enterprise shall not be encumbered, sold, leased, pledged, have any charge placed thereon, or otherwise be disposed of, as a whole or substantially as a whole, if such encumbrance, sale, lease, pledge, charge or other disposition would materially impair the ability of the City to pay the Installment Payments or the principal of or interest on any Parity Obligations, or would materially adversely affect its ability to comply with the terms of this Agreement or any Parity Obligations Documents. The City may not enter into any agreement which impairs the operation of the Enterprise or any part of it necessary to secure adequate Net Revenues to pay the Installment Payments or any Parity Obligations, or which otherwise would impair the rights of the Bank with respect to the Net Revenues. If any substantial part of the Enterprise is sold, the payment therefor shall either (a) be used for the acquisition or construction of improvements to the Enterprise, or (b) be applied on a pro rata basis to (i) prepay the Installment Payments on the next available prepayment date under Section 7.3, and (ii) redeem any Parity Obligations in accordance with the related Parity Obligations Documents. Any amounts received as awards as a result of the taking of all or any part of the Enterprise by the lawful exercise of eminent domain, if and to the extent that such right can be exercised against such property of the City, shall either (a) be used for the acquisition or construction of improvements to the Enterprise, or (b) be applied on a pro rata basis to (i) prepay the Installment Payments on the next available prepayment date under Section 7.3, and (ii) redeem any Parity Obligations in accordance with the related Parity Obligations Documents. SECTION 5.4. Insurance. The City shall at all times maintain with responsible insurers all such insurance on the Enterprise as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Enterprise. The City shall apply any amounts collected from insurance against accident to or destruction of any portion of the Enterprise, at its option, either (a) to repair or rebuild such damaged or destroyed portion of the Enterprise, or (b) to prepay on a pro rata basis (i) the Installment Payments on the next available prepayment date under Section 7.3, and (ii) any Parity Obligations in accordance with the related Parity Obligations Documents. The City shall also maintain, with responsible insurers, worker's compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the City and the Authority. Any policy of insurance required under this Section 5.4 may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of self - insurance by the City or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance: -17- SECTION 5.5. Records and Accounts. The City shall keep books of record and accounts of the Enterprise in which complete and correct entries shall be made of all transactions relating to the Enterprise. Said books shall, upon prior request, be subject to the reasonable inspection of the Bank, upon not less than 2 Business Days' prior notice to the City. The City shall cause the books and accounts of the Enterprise to be audited annually by an Independent Accountant not more than 9 months after the close of each Fiscal Year, and shall make a copy of such report available for inspection at the office of the City. Such report may be part of a combined financial audit or report covering all or part of the City's finances. Within two hundred seventy (270) days following the end of each Fiscal Year of the City during the term hereof, the City will provide the Bank with a copy of its audited financial statements for such Fiscal Year. Such audited financial statements shall include the City's Comprehensive Annual Financial Report, including such information as is required by applicable Government Accounting Standard's Board pronouncements and applicable State law, and including the financial statements of the Enterprise. Within ten (10) days of receipt of a request of the Bank, the City will provide the Bank with a copy of its annual budget of the Enterprise and any interim updates or modifications to such budget. SECTION 5.6. Rates and Charges. (a) Covenant Regarding Gross Revenues. The City shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the City to become due and payable in such Fiscal Year; (ii) All Installment Payments and all payments of principal of and interest on any Parity Obligations as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such Installment Payments or the principal of and interest on such Parity Obligations are payable from the proceeds of Parity Obligations, or from any source of legally available funds of the City (other than the Gross Revenues of the Enterprise) that have been deposited for such purpose before the beginning of that Fiscal Year; (iii) All payments required to meet any other obligations of the City which are charges, liens, encumbrances upon, or which are otherwise payable from, the Gross Revenues or the Net Revenues during such Fiscal Year, except to the extent other sources of funds are reserved or encumbered therefore. (b) Covenant Regarding Net Revenues. In addition, the City shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year that are sufficient, after making allowances for contingencies and errors in estimates, to yield Net Revenues that are at least equal to 125% of the amount described in the preceding clause (a)(ii) and (iii) for such Fiscal Year. For purposes of this paragraph, the amount of Net Revenues for a Fiscal Year will be computed on the basis that (1) any transfers into the Sewer Enterprise Fund in that Fiscal Year from the Rate Stabilization Fund are included in the calculation of Net Revenues, as provided in Section 4.8, and (2) any deposits into the Rate Stabilization Fund in that Fiscal Year are deducted from the -18- amount of Net Revenues, but only to the extent such deposits are made from Gross Revenues received by the City during that Fiscal Year. SECTION 5.7. Superior and Subordinate Obligations. The City may not issue or incur any additional bonds or other obligations during the Term of this Agreement having any priority in payment of principal or interest out of the Gross Revenues or the Net Revenues senior to the Installment Payments. Nothing herein is intended or shall be construed to limit or affect the ability of the City to issue, enter into or incur (a) Governmental Loans payable on a parity basis to payments due hereunder or in connection with any Parity Obligations, (b) Parity Obligations under Section 5.8, or (c) obligations which are either unsecured or which are secured by an interest in the Net Revenues which is junior and subordinate to the pledge of and lien upon the Net Revenues established hereunder. SECTION 5.8. Issuance of Parity Obligations. Except for obligations incurred to prepay or discharge the Installment Payments in whole, the City may not issue or incur any Parity Obligations during the Term hereof unless all of the following conditions are satisfied: (a) No Event of Default has occurred and is continuing; (b) The Net Revenues, calculated in accordance with sound accounting principles, as shown by the books of the City for the most recent completed Fiscal Year for which audited financial statements of the City are available, or for any more recent consecutive 12 month period selected by the City, in either case verified by a certificate or an opinion of an Independent Accountant, plus (at the option of the City) any Additional Revenues, at least equal 125% of Maximum Annual Debt Service (including the Parity Obligations then proposed to be issued); and (c) There must be deposited in a reserve fund for the security of such Parity Obligations, an amount equal to the least of (i) the maximum amount of debt service required to be paid by the City with respect to such Parity Obligations during any Fiscal Year, (ii) 125% of average annual debt service required to be paid by the City with respect to such Parity Obligations during each fiscal year, and (iii) 10% of the net proceeds of such Parity Obligations; and In the event the Parity Obligations are being issued solely to refund outstanding Parity Obligations, and the resulting Annual Debt Service for each Bond Year is less than the Annual Debt Service for each Bond Year prior to the issuance of the refunding Parity Obligations, the City need not comply with the provisions of paragraph (b) above. SECTION 5.9. Governmental Loans. (a) The City may borrow money from a Governmental Agency and incur a Governmental Loan to finance improvements to the Enterprise on a parity or subordinate basis to the Installment Payments. A Governmental Loan may be treated as a Parity Obligation for purposes of this Agreement, so long as the City complies with Sections 5.8 (a) and (b) of this Agreement before incurring the Governmental Loan; the City need not comply with the provisions of Section 5.8 (c) of this Agreement in order for such Governmental Loan to be treated as a Parity Obligation hereunder. (b) If Net Revenues are ever insufficient to pay the full amount of Installment Payments and other Parity Obligations then outstanding and such Governmental Loan, if such -19- Governmental Loan is treated as a Parity Obligation pursuant to (c) above, the City shall make payments on the Installment Payments and other Parity Obligations and such Governmental Loan on a pro rata basis. SECTION 5.10. Operation of Enterprise in Efficient and Economical Manner. The City covenants and agrees to operate the Enterprise in an efficient and economical manner and to operate, maintain and preserve the Enterprise in good repair and working order. SECTION 5.11. Assignment and Amendment. The Authority and the City may at any time amend or modify any of the provisions of this Agreement, but only with the prior written consent of the Bank. SECTION 5.12. Tax Covenants. . Notwithstanding any other provision of this Agreement, absent an opinion of Special Counsel that the exclusion from gross income of the interest component of the Installment Payments 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 and specifically covenant, without limiting the generality of the foregoing, as follows: (a) Private Activity. The City and the Authority will not take or omit to take any action or make any use of moneys or property which would cause the Installment Payments 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 amounts or property, regardless of the source, or take or omit to take any action which would cause the Installment Payments 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 moneys or take or omit to take any action that would cause the Installment Payments 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 requirements of Section 149(e) of the Code. (e) Hedge Bonds. The City and the Authority will make no use of the moneys or property, regardless of the source, or take any action or refrain from taking any action that would cause the Installment Payments to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of the interest component of the Installment Payments for federal income tax purposes. (f) Small Issuer Exemption from Bank Nondeductibility Restriction. The Installment Payments are hereby designated by the City as "Qualified Tax - Exempt Obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. In that connection, the City represents and covenants that it, together with all its subordinate entities or entities that issue obligations on its behalf, or on behalf of which it issues obligations, during the calendar year 2011, (i) has not issued and will not issue tax - exempt obligations designated as Qualified Tax - Exempt Obligations in an aggregate amount, including the Installment Payments, exceeding $10,000,000, and (ii) has not issued, does not reasonably anticipate issuing, and will -20- not issue, tax - exempt obligations in an aggregate amount exceeding $10,000,000 (including the Installment Payments, but excluding (a) private activity bonds that are not qualified 501(c)(3) Bonds and (b) current refunding issues to the extent that the amount of the current refunding issue does not exceed the outstanding amount of the prior issue), unless the City first obtains a written opinion of the special counsel approving the Installment Payments that such designation or issuance, as applicable, will not adversely affect the status of the Installment Payments as Qualified Tax - Exempt Obligations. The City represents and covenants that, during any time or in any manner as might affect the status of the Installment Payments as Qualified Tax - Exempt Obligations, no entity has been or will be formed or availed of in order to avoid the purposes of subparagraph (C) or (D) of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. The City further represents that the Installment Payments are not being issued as part of a direct or indirect composite issue that combines issues or lots of tax - exempt obligations of different issuers.. (g) Miscellaneous. The City and the Authority will take no action, or omit to take any action, inconsistent with the expectations stated in any tax certificate executed in connection with the Installment Payments and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section 5.12 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 to be executed and delivered Parity Obligations, the interest with respect to which has been determined by Special Counsel not to be subject to federal income taxation. SECTION 5.13. Compliance with Installment Purchase Agreement and Ancillary Agreements. The City will punctually pay the Installment Payments in strict conformity with the terms hereof, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained herein required to be observed and performed by it, and will not terminate this Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the 2000 Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Authority to observe or perform any agreement, condition, covenant or term contained herein required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Authority or any force majeure, including acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities. It is expressly understood and agreed by and among the parties to this Agreement that, subject to Section 8.5 hereof, each of the agreements, conditions, covenants and terms contained in this Agreement is an essential and material term of the purchase of and payment for the 2000 Project by the District pursuant to, and in accordance with, and as authorized under the law. SECTION 5.14. Against Competitive Facilities. To the extent permitted by law, the City covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the City any wastewater system or other system competitive with the Enterprise. -21- SECTION 5.15. Maintenance and Operation of the Enterprise. The City will maintain and preserve the Enterprise in good repair and working order at all times and will operate the Enterprise in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable. SECTION 5.16. Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Gross Revenues or the funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the Installment Payments prior or superior to the lien of the Installment Payments or which might impair the security of the Installment Payments. SECTION 5.17. Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner materially adversely impair the ability of the City to pay Installment Payments; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Enterprise to the extent that the City is a party thereto. SECTION 5.18. Protection of Security and Rights of the Authority. The City will preserve and protect the security hereof and the rights of the Authority to the Installment Payments hereunder and will warrant and defend such rights against all claims and demands of all persons. SECTION 5.19. Compliance with Governmental Regulations. The City will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Enterprise or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. SECTION 5.20. Collection of Rates and Charges. The City will have in effect at all times by -laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Enterprise and providing for the billing thereof and for a due date and a delinquency date for each bill. SECTION 5.21. Further Assurances. The City will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Authority of the rights and benefits provided to it herein. SECTION 5.22. Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into if such rescission or amendment would result in a default by the City in the payment of Installment Payments. SECTION 5.23. Budgets. On or prior to the fifteenth day of each Fiscal Year, the City shall certify to the Bank that the amounts budgeted for payment of Installment Payments are fully adequate for the payment of all Installment Payments due under this Agreement for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of Installment Payments due under this Agreement, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of Installment Payments due under this Agreement and will notify the Bank of the proceedings then taken or proposed to be taken by the District. SECTION 5.24. Observance of Laws and Regulations. To the extent necessary to assure its performance hereunder, the City will well and truly keep, observe and perform all -22- valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States of America or of the State of California. SECTION 5.25. Compliance with Contracts. The City shall comply with the terms, covenants and provisions, express or implied, of all contracts and agreements the failure to comply with which would have a material and adverse effect on the financial position of the Enterprise or on the ability of the City to make the Installment Payments or to pay any other Annual Debt Service. SECTION 5.26. Prosecution and Defense of Suits. The City shall promptly, upon request of the Bank, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Enterprise or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Authority and the Bank harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The City shall defend against every suit, action or proceeding at any time brought against the Authority or the Bank upon any claim arising out of the receipt, application or disbursement of any of the Installment Payments or involving the rights of the Authority or the Bank under this Agreement; provided that the Authority or the Bank at its election may appear in and defend any such suit, action or proceeding. The City shall indemnify and hold harmless the Authority and the Bank against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement. The City shall promptly reimburse the Authority and the Bank in the full amount of any attorneys' fees or other expenses which the Authority or the Bank may incur in litigation or otherwise in order to enforce such party's rights under this Agreement. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. Events of Default Defined. The following events constitute Events of Default hereunder: (a) Failure by the City to pay any Installment Payment when due and payable hereunder. (b) Failure by the City to pay any Additional Payment when due and payable hereunder, and the continuation of such failure for a period of 30 days. (c) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed hereunder, other than as referred to in the preceding clauses (a) or (b), for a period of 60 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Bank; provided, however, that if the City notifies the Authority and the Bank that in its reasonable opinion the failure stated in the notice can be corrected, but not within such 60 -day period, such failure will not constitute an event of default hereunder if the City commences to cure such failure within such 60 day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. -23- (d) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. (e) The occurrence of an event of default or acceleration of principal payments under any Parity Obligations Documents. SECTION 6.2. Remedies on Default. If an Event of Default occurs and is continuing, the Authority has the right, at its option and without any further demand or notice, to take any one or more of the following actions: (a) Declare all principal components of the unpaid Installment Payments, together with accrued interest thereon at the Overdue Rate from the immediately preceding Interest Payment Date on which payment was made, to be immediately due and payable, whereupon the same shall immediately become due and payable. Notwithstanding the foregoing provisions of this subsection (a), the Authority shall rescind and annul such declaration and its consequences if, before any judgment or decree for the payment of the moneys due has been obtained or entered, if (i) the City deposits with the Authority a sum sufficient to pay all principal components of the Installment Payments coming due prior to such declaration and all matured interest components (if any) of the Installment Payments, with interest on such overdue principal and interest components calculated at the Overdue Rate, and (ii) the City pays the reasonable expenses of the Authority (including any fees and expenses of its attorneys), and (iii) any and all other defaults known to the Authority (other than in the payment of the principal and interest components of the Installment Payments due and payable solely by reason of such declaration) have been made good. No such rescission and annulment will extend to or shall affect any subsequent default, or impair or exhaust any right or power consequent thereon. (b) Take whatever action at law or in equity may appear necessary or desirable to collect the Installment Payments then due or thereafter to become due during the Term of this Agreement, or enforce performance and observance of any obligation, agreement or covenant of the City under this Agreement. (c) As a matter of right, in connection with the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Authority hereunder, cause the appointment of a receiver or receivers of the Gross Revenues and other amounts pledged hereunder, with such powers as the court making such appointment may confer. SECTION 6.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive. Every such remedy is cumulative and in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. -24- No delay or omission to exercise any right or power accruing upon any default impairs any such right or power or operates as a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article VI, it is not necessary to give any notice, other than such notice as may be required in this Article VI or by law. SECTION 6.4. Agreement to Pay Attorneys' Fees and Expenses. If either party to this Agreement defaults under any of the provisions hereof and the nondefaulting party employs attorneys or incurs other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party, the reasonable fees of such attorneys and such other expenses so incurred. The provisions of this Section 6.4 survive the expiration of the Term of this Agreement. SECTION 6.5. No Additional Waiver Implied by One Waiver. If any agreement contained in this Agreement is breached by either party and thereafter waived by the other party, such waiver is limited to the particular breach so waived and does not waive any other breach hereunder. ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS SECTION 7.1. Security Deposit. Notwithstanding any other provision hereof, the City may on any date secure the payment of Installment Payments, in whole or in part, by providing to the Bank an opinion of Special Counsel addressed to the Bank to the effect that (i) the making of the security deposit will not cause the interest component of the Installment Payments to be included in gross income for federal income tax purposes and (ii) upon the making of such security deposit all obligations of the City hereunder shall have ceased and terminated except as hereinafter provided, and by irrevocably depositing with the Authority an amount of cash which, together with other available amounts, is either: (a) sufficient to pay all such Installment Payments, including the principal and interest components thereof, when due under Section 4.4(a), or (b) invested in whole or in part in non - callable Federal Securities in such amount as will, in the opinion of an Independent Accountant (which opinion is addressed and delivered to the Authority and the Bank), together with interest to accrue thereon and together with any cash which is so deposited, without reinvestment, be fully sufficient to pay all such Installment Payments when due under Section 4.4(a) or when due on any optional prepayment date under Section 7.2, as the City instructs at the time of said deposit. If the City makes a security deposit under this Section for the payment of all remaining Installment Payments, all obligations of the City hereunder, and the pledge of Net Revenues and all other security provided by this Agreement for said obligations, will thereupon cease and terminate, excepting only the obligations of the City to make, or cause to be made, all Installment Payments from the security deposit and to pay any deficiency in such security deposit. The security deposit will be deemed to be and will constitute a special fund for the payment of the Installment Payments in accordance with the provisions hereof. -25- SECTION 7.2. Optional Prepayment. The City may exercise its option to prepay the principal components of the Installment Payments in whole, but not in part, on any date on or after June 1, 20_. The City may exercise such option by payment of a prepayment price equal to the sum of (a) the aggregate principal components of the Installment Payments to be prepaid, (b) the interest component of the Installment Payment required to be paid on or accrued to such date, without premium. SECTION 7.3. Mandatory Prepayment From Proceeds of Insurance, Sale or Condemnation. The City shall prepay the Installment Payments on any date, in whole, or in part in inverse order of the Installment Payment Date, from and to the extent of any proceeds of insurance, sale or condemnation awards with respect to the Enterprise theretofore paid to the Bank for such purpose under Sections 5.3 or 5.4. The City and the Authority hereby agree that such proceeds, to the extent remaining after payment of any delinquent Installment Payments, will be deposited in the Sewer Enterprise Fund and credited towards the City's obligations under this Section 7.3. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Further Assurances. The City agrees that it will execute and deliver any and all such further agreements, instruments, financing statements or other assurances as may be reasonably necessary or requested by the Authority to carry out the intention or to facilitate the performance of this Agreement, including, without limitation, to perfect and continue the security interests herein intended to be created. SECTION 8.2. Notices. Any notice, request, complaint, demand or other communication under this Agreement must be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopier or other form of telecommunication, at its number set forth below. Notice is effective either (a) upon transmission by fax or other form of telecommunication, (b) upon actual receipt after deposit in the United States of America mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City and the Bank may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the City City of Seal Beach or the Authority: 211 Eight Street Seal Beach, California 90740 Attention: City Manager Telephone: (562) 431 -2527 x1300 Fax: (562) 493 -9857 If to the Bank: Bank of America, N.A. 555 California Street, 4 Floor San Francisco, California 94101 Attention: Contracts Administrator Telephone: (415) Fax: (415) 796 -1301 SECTION 8.3. Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of California. -26- SECTION 8.4. Binding Effect. This Agreement inures to the benefit of and is binding upon the Authority and the City and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 8.5. Severability of Invalid Provisions. If any one or more of the provisions contained in this Agreement are for any reason held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in this Agreement and such invalidity, illegality or unenforceability will not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority and the City each hereby declares that it would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or unenforceable. SECTION 8.6. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, are solely for convenience of reference and do not affect the meaning, construction or effect of this Agreement. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof; and words of the masculine gender mean and include words of the feminine and neuter genders. SECTION 8.7. Payment on Non - Business Days. Whenever any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the immediate preceding Business Day. SECTION 8.8. Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which will for all purposes be deemed to be an original and all of which together constitute but one and the same instrument. SECTION 8.9. Waiver of Personal Liability. No member of the City Council, officer, agent or employee of the City has any individual or personal liability for the payment of Installment Payments or Additional Payments or be subject to any personal liability or accountability by reason of this Agreement; but nothing herein contained relieves any such member of the City Council, officer, agent or employee from the performance of any official duty provided by law or by this Agreement. -27- IN WITNESS WHEREOF, the Authority and the City have caused this Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written. SEAL BEACH PUBLIC FINANCING AUTHORITY, as Seller By Executive Director CITY OF SEAL BEACH, as Purchaser By City Manager Signature Page to Installment Sale Agreement APPENDIX A SCHEDULE OF INSTALLMENT PAYMENTS Interest Principal Interest Total Payment Date(1) Component Component(2) Payment 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 12/1/17 6/1/18 12/1/18 6/1/19 12/1/19 6/1/20 12/1/20 6/1/21 12/1/21 6/1/22 12/1/22 6/1/23 12/1/23 6/1/24 12/1/24 6/1/25 12/1/25 6/1/26 12/1/26 6/1/27 12/1/27 6/1/28 12/1/28 6/1/29 (1) Installment Payment Dates are the third (P) Business Day immediately preceding each Interest Payment Date shown in the table. (2) Based on a rate of 4.80% per annum. A -1 APPENDIX B DESCRIPTION OF 2000 WASTEWATER PROJECT The 2000 Sewer Project consists of all of the land, improvements and other property of the Enterprise financed with the proceeds of the 2000 COPs B -1 IRREVOCABLE REFUNDING INSTRUCTIONS Relating to City of Seal Beach Certificates of Participation (2000 Sewer System Project) These IRREVOCABLE REFUNDING INSTRUCTIONS (these "Instructions "), are dated March 2, 2011, and are given by the SEAL BEACH PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority "), and the CITY OF SEAL BEACH, a municipal corporation duly organized and existing under the laws of the State of California (the "City "), to THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. (as successor in interest to BNY Western Trust Company), a national banking association organized and existing under the laws of the United States of America, acting as trustee (the "2000 Trustee ") for the 2000 COPs (as defined below). BACKGROUND: 1. The City previously financed the acquisition and construction of certain improvements to the City's wastewater enterprise (the "Wastewater Enterprise ") through the execution and delivery $4,230,000 Certificates of Participation (2000 Sewer System Project), outstanding in the amount of $3,460,000, evidencing the direct, undivided fractional interests of the owners thereof in 2000 Installment Payments (defined below) to be made by the City as the purchase price for certain property pursuant to the 2000 Installment Sale Agreement (defined below) with the Authority (the "2000 COPs "), pursuant to a Trust Agreement, dated as of June 1, 2000, between the Authority and the 2000 Trustee (the "2000 Trust Agreement "). 2. The principal of and interest with respect to the 2000 COPs were payable from certain payments made by the City pursuant to an Installment Sale Agreement dated as of June 1, 2000 (the "2000 Installment Sale Agreement "), between the Authority and the City, under which the City was obligated to make certain installment payments (the "2000 Installment Payments ") and certain additional payments to the Authority in order to provide the Authority with sufficient revenues to pay debt service on the 2000 COPs. 3. The City and the Authority have determined that it is in their best financial interests at this time to reduce the interest rate on its obligations by the current refunding and discharge of all obligations with respect to the outstanding 2000 COPs and the 2000 Installment Sale Agreement. 4. The 2000 COPs are subject to redemption, as a whole or in part, on any date on or after June 1, 2010, without premium. 5. Pursuant to an Installment Sale Agreement, dated as of March 1, 2011 (the "2011 Installment Sale Agreement "), between the City and the Authority, the City will purchase certain improvements to the wastewater system (the "2000 Wastewater Project ") from the Authority. 6. In consideration of payment by Bank of America, N.A. ( "BofA ") of the purchase price of the 2000 Wastewater Project, the Authority has assigned all its right title and interest in the 2011 Installment Sale Agreement (including the right to receive all installment payments from the City) to BofA, pursuant to an Assignment Agreement, dated as of March 1, 2011 (the "Assignment Agreement "), between the Authority and BofA. 7. The Authority will apply a portion of the purchase price paid by BofA, together with certain other moneys, to redeem the 2000 COPs maturing on and after June 1, 2011, as set forth in Exhibit B hereto, on April 1, 2011, and to discharge the City's obligations to make the corresponding 2000 Installment Payments under the 2000 Installment Sale Agreement. 8. The Authority and the City wish to give these Instructions to the 2000 Trustee for the purpose of establishing an irrevocable escrow fund and providing the terms and conditions relating to the deposit and application of moneys and securities to provide for the prepayment of the 2000 Installment Payments under the 2000 Installment Sale Agreement (under Sections 10.01 and 10.02 of the 2000 Installment Sale Agreement) and the redemption in full of the 2000 COPs (under Section 4.01 of the 2000 Trust Agreement) on April 1, 2011. NOW, THEREFORE, the Authority and the City hereby irrevocably instruct the 2000 Trustee as follows: Section 1. Establishment of Escrow Fund. The 2000 Trustee is hereby directed to establish and hold a special fund to be known as the "Escrow Fund." All cash and securities in the Escrow Fund are hereby irrevocably pledged as a special trust fund for the prepayment of the City's obligations under the 2000 Installment Sale Agreement pursuant to Sections 10.01 and 10.02 thereof, and the redemption of the outstanding 2000 COPs in accordance with Section 4.01 of the 2000 Trust Agreement. The 2000 Trustee shall have no lien upon or right of set off against the securities and cash at any time on deposit in the Escrow Fund. Section 2. Deposit into Escrow Fund; Investment of Amounts. (a) The Authority shall cause BofA to transfer to the 2000 Trustee for deposit into the Escrow Fund the amount of $[3,229,471.89] in immediately available funds. Additionally, the 2000 Trustee shall transfer the following amounts into the Escrow Fund: (i) $[10.65] on deposit in the Installment Payment Fund established under the 2000 Trust Agreement, and (ii) $[294,401.26] on deposit in the Reserve Fund established under the 2000 Trust Agreement. As a result, the total amount on deposit in the Escrow Fund as of the date hereof shall be $[3,523,883.80]. (b) The 2000 Trustee shall invest $_ of the amounts deposited in the Escrow Fund in the securities described in Exhibit A hereto (the "Investment Security "). The Investment Security shall be deposited with and held by the 2000 Trustee in the Escrow Fund solely for the uses and purposes set forth herein. Earnings on the investment of amounts deposited in the Escrow Fund shall be credited to and deposited in the Escrow Fund. Upon the receipt by the 2000 Trustee of any cash from the maturity of the Investment Security or otherwise, the 2000 Trustee shall hold such cash uninvested until required to make a payment pursuant to Section 4 hereof The remaining amount on deposit in the Escrow Fund, being $0., shall be held by the Trustee uninvested. 2 Section 3. Proceedings for Redemption of 2000 COPs. The City hereby irrevocably elects, and directs the 2000 Trustee, to redeem, on April 1, 2011, the outstanding 2000 COPs pursuant to the provisions of Section 4.01 of the 2000 Trust Agreement. The 2000 Trustee shall give notice of this redemption on a timely basis in accordance with Section 4.03 of the 2000 Trust Agreement. Section 4. Application of Funds to Redeem 2000 COPs. The 2000 Trustee shall apply the amounts on deposit in the Escrow Fund to redeem the 2000 COPs maturing on and after June 1, 2011, on April 1, 2011, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon. Section 5. Transfer of Remaining Funds. On April 1, 2011, following the payment, prepayment and redemption described above, and payment of any amounts then owed to the 2000 Trustee, the 2000 Trustee shall withdraw any amounts remaining on deposit in the Escrow Fund or in any other funds or accounts established under the 2000 Trust Agreement and transfer those amounts, if any, to the City free and clear of any trust, lien, pledge or assignment securing the 2000 COPs or otherwise existing hereunder. Once the 2000 COPs have been redeemed and paid in full and all amounts remaining in the Escrow Fund shall be paid to the City, the Escrow Fund shall be closed. Section 6. Amendment. These Instructions shall be irrevocable by the Authority and the City. These Instructions may be amended or supplemented by the Authority and the City, but only if the Authority and the City file with the 2000 Trustee (a) an opinion of nationally recognized bond counsel engaged by the Authority or the City stating that such amendment or supplement will not, of itself, adversely affect the exclusion from gross income of interest represented by the 2000 COPs under federal income tax law, and (b) a certification of an independent accountant or independent financial adviser engaged by the Authority or the City stating that such amendment or supplement will not affect the sufficiency of funds invested and held hereunder to make the payments required by Section 4. Section 7. Concerning the 2000 Trustee. The 2000 Trustee shall not be liable for any loss from any investment made by it in accordance with the terms of these Instructions. The 2000 Trustee shall not be liable for the recitals or representations contained in these Instructions and shall not be responsible for the sufficiency of the Escrow Fund or the moneys and Investment Security to pay the principal, interest and redemption premium on the 2000 COPs. The protections, limitations from liability and indemnities provided to the 2000 Trustee under the 2000 Trust Agreement shall be afforded to the 2000 Trustee in acting pursuant to these Instructions and such provisions of the 2000 Trust Agreement are incorporated by reference herein, including, without limitation, Article IX of the 2000 Trust Agreement. None of the provisions of this Agreement shall require the 2000 Trustee to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder. The Trustee 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. 3 The 2000 Trustee agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e -mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee e -mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. 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 such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions 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. Section 8. Governing Law. These Instructions shall be construed in accordance with and governed by the Constitution and laws of the State of California. Dated: March 2, 2011 CITY OF SEAL BEACH By City Manager SEAL BEACH PUBLIC FINANCING AUTHORITY By Executive Director Accepted: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. as 2000 Trustee By: Authorized Officer 4 EXHIBIT A DESCRIPTION OF INVESTMENT SECURITY Type Coupon Maturity Par Amount Total Purchase Price A -1 EXHIBIT B Outstanding 2000 COPs Maturity Date Principal (June 1) Amount Coupon 2011 $ 100,000 2012 105,000 2013 110,000 2014 115,000 2015 120,000 2016 130,000 2017 135,000 2018 145,000 2019 150,000 2020 160,000 2026 1,170,000 2030 1,020,000 B -1 ASSIGNMENT AGREEMENT by and between SEAL BEACH PUBLIC FINANCING AUTHORITY and BANK OF AMERICA, N.A. Dated as of March 1, 2011 1328265 ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT (this "Assignment ") is made and entered into as of March 1, 2011, by and between the SEAL BEACH PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "Assignor ") and BANK OF AMERICA, N.A., a national banking association duly organized and existing under the laws of the United States of America (the "Assignee "); NOW, THEREFORE, IN CONSIDERATION 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 Assignor, for good and valuable consideration in hand received, does hereby sell, assign and transfer to the Assignee without recourse, all of its rights, title, and interest in the Installment Sale Agreement, dated as of March 1, 2011 (the "Agreement "), by and between City of Seal Beach (the "Purchaser ") and the Assignor, including the right to receive all installment payments from the Purchaser (the "Assigned Payments ") (but specifically excluding any rights to indemnification, reimbursement and receipt of notices pursuant to the Agreement), together with any and all of the other rights of the Assignor under the Agreement as may be necessary to enforce payment of such Assigned Payments when due or otherwise to protect the interests of the Assignee (collectively, the "Assigned Property "). The assignment herein is absolute and presently effective. Except as stated in the paragraph above, the Assignor hereby expressly relinquishes all right, title and interest that the Assignor had or may have had in the Agreement, the Assigned Payments and the other Assigned Property prior to the sale, transfer, delivery, assignment and conveyance provided for in this Assignment. The Assignor expressly and specifically agrees that all of the obligations imposed upon the Assignor under the Agreement are not assigned to Assignee and are not assumed by Assignee and shall be performed by the Assignor, whether such obligation arises before or after the effective date of this Assignment. In consideration of the sale, transfer, conveyance and assignment provided for in this Assignment, Assignee has paid or caused to be paid to or for the benefit of Assignor, in immediately available funds, the purchase price of $ Section 2. Power of Attorney. Assignor irrevocably constitutes and appoints Assignee and any present or future officer or agent of Assignee, or the successors or assigns of Assignee, as its lawful attorney with full power of substitution and resubstitution, and in the name of Assignor or otherwise, to collect the Assigned Payments and to sue in any court of competent jurisdiction for such Assigned Payments or any of the Assigned Property or any part thereof, or in the event of termination of or default under the Agreement by the Purchaser to recover the Assigned Property and to withdraw or settle any claims, suits or proceedings pertaining to or arising out of the Agreement or any related documentation upon any terms as Assignee in its sole discretion may deem to be in its best interest and as are consistent with the Agreement and the related documentation. 1328265 Section 3. Assigned Payments. Assignor has given written notice of this Assignment to the Purchaser and all Assigned Payments that are or become payable pursuant to the Agreement from and after the date of this Assignment shall be made directly to Assignee at Banc of America Leasing, P.O. Box 100918, Atlanta, Georgia 30384 -0918, Reference City of Seal Beach, or as otherwise directed by Assignee. Section 4. Acceptance. The Assignee hereby accepts the foregoing assignment for the purpose of securing the right assigned to it to receive all Assigned Payments from the Purchaser under the Agreement and the other rights assigned to it. Section 5. Conditions. This Assignment Agreement shall constitute a complete assignment by the Assignor of all of its rights under and pursuant to the Agreement, except as otherwise provided herein. Section 6. Further Assurances. Assignor, from time to time, at the request of Assignee, shall execute and deliver such further acknowledgments, agreements and instruments of assignment, transfer and assurance and do all such further acts and things as may be reasonably necessary or appropriate in the opinion of Assignee to give effect to the provisions hereof and to further confirm the rights, titles and interests hereby sold, assigned and transferred to Assignee. Section 7. Severability. If any part of this Assignment shall be contrary to any law that Assignee might seek to apply or enforce or should otherwise be defective, the other provisions hereof shall not be affected thereby but shall continue in full force and effect, to which end they are hereby declared severable. Section 8. Headings. The headings of the sections of this Assignment are for convenience only and shall not be used to interpret or construe this Assignment. Section 9. Parties Bound. This Assignment shall be binding on Assignor and its successors and assigns, and shall inure to the benefit of Assignee and its successors and assigns. Section 10. Governing Law. The substantive laws of the State of California shall govern the validity, construction, enforcement and interpretation of this Assignment and the rights of the parties hereunder. 1328265 2 Section 11. Counterparts. The Assignment may be executed in any number of separate counterparts by the parties hereto and each counterpart when so executed shall be deemed to be our original and all such counterparts when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their officers thereunto duly authorized as of the day and year first written above. SEAL BEACH PUBLIC FINANCING AUTHORITY By: Executive Director BANK OF AMERICA, N.A. By: Authorized Officer 1328265 3