Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
Agenda Report - August 1, 2012 I-02
AGENDA ITEM 4v 2 CITY OF LODI ,. COUNCIL COMMUNICATION ,m AGENDA TITLE: Adopt Resolutions and Approve Documents and Actions Regarding Refinancing 2002 Certificates of Participation (COPS) and 2004 COPS: MEETING DATE: PREPARED BY: 2002 COPS (a) Adopt Resolution of the City Council Approving Documents and Actions Related to the Refinancing of 2002 Certificates of Participation and the City's Related General Fund Lease Obligation, and (b) Adopt Resolution of the Lodi Public Financing Authority Authorizing the Issuance and Sale of 2012 Refunding Lease Revenue Bonds to Refinance Outstanding 2002 Certificates of Participation and the City's Related General Fund Lease Obligation and Approving Related Documents and Official Actions; and 2004 COPS (c) Adopt Resolution of the City Council Approving Documents and Actions Related to the Refinancing of 2004 Wastewater Certificates of Participation and the City's Related Wastewater Revenue Installment Payment Obligation, and (d) Adopt Resolution of the Lodi Public Financing Authority Authorizing the Issuance and Sale of 2012 Refunding Wastewater Revenue Bonds to Refinance the 2004 Wastewater Certificates of Participation and the City's Related Wastewater Revenue Installment Payment Obligation, and Approving Related Documents and Official Actions August 1,2012 City Attorney RECOMMENDEDACTION: Adopt Resolutions of the City Council and the Lodi Public Financing Authority to approve the refinancing of: 1) the 2002 Certificates of Participation and the City's related General Fund lease obligation in an amount not to exceed $20 million; and 2) the 2004 Wastewater Certificates of Participation and the City's related wastewater system installment payment obligation in an amount not to exceed $22 million; all in order to secure market interest savings. BACKGROUND INFORMATION: The City previously caused execution and delivery of its 2002 Certificates of Participation to refinance debt associated with the construction of improvementsto Lodi's downtown, Hutchins Street APPROVED: e Bartlam, City Manager Square and the new Public Safety Building. The 2002 Certificates of Participation securitized lease payments made by the City from its General Fund. The City previously caused execution and delivery of its 2004 Wastewater Certificates of Participation to finance construction of improvements to the Wastewater System. The 2004 Wastewater System Certificates of Participation securitized installment payments made by the City from its Wastewater Fund. Favorable market conditions have reduced prevailing interest rates and made it attractive for the City to refinance the 2002 Certificates of Participation and the 2004 Wastewater Certificates of Participation. SUMMARY OF DOCUMENTS: In order to complete the General Fund Lease and Wastewater refinancings, the City and the Lodi Public Financing Authority ("PFA") are required to approve and execute several key legal documents. The key documents are summarized below. Resolutions: The Resolutions of the City and the PFA approve the issuance of the two sets of proposed bonds, the execution of the proposed legal documents and the distribution of the Official Statements to investors. While the documents are in near -to -final form, the Resolutions authorize certain officers of the City and the PFA to make amendments, as necessary. The Resolutions specify the maximum principal amount for the bonds, maximum borrowing cost and maximum underwriter's discount. Official Statements: These documents, approved and signed by the City and PFA, most importantly describe (i) the term of the bonds, (ii) the security for the bonds, (iii) the refinancing plan, (iv) the City's Wastewater System, which is the source of repayment for the 2012 Refunding Wastewater Revenue Bonds, and the City's General Fund, which is the source of repayment for the 2012 Refunding Lease Revenue Bonds (v) potential risks to prospective investors ("RISK FACTORS"), (vi) tax status of interest on the bonds ("TAX MATTERS") and (vii) economic and demographic characteristics of the City (Appendix C). The Preliminary Official Statements (often referred to as the "POS") are distributed by the underwriterto prospective investors prior to the bond sale so that investors can make informed purchase decisions. They are the equivalent of a prospectus in the private sector. Final Official Statements are sent to purchasers after the terms of the sales are finalized. The distribution of a POS is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the POS to include all facts that would be material to an investor in the bonds. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the bonds. The Securities and Exchange Commission (the "SEC"), the agency with regulatory authority over the City and the PFA's compliance with the federal securities laws, has issued guidance as to the duties of the City Council and the PFA's Board of Directors with respect to their approval of the POS. In its "Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors" (Release No. 36761 / January 24, 1996) (the "Release"), the SEC stated that, if a member of the City Council/Board of Directors has knowledge of any facts or circumstances that an investorwould want to know about prior to investing in the bonds, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the POS. In the Release, the SEC stated that the steps that a member of the City Council/Board of Directors could take include becoming familiar with the POS and questioning staff and consultants about the disclosure of such facts. Continuina Disclosure Certificates: These certificates, attached as an appendix of the Official Statement, obligate the City to provide updated information to the bond markets on an ongoing basis. Disclosure is required annually, and on an exceptional basis for any major "material" developments. 2 Bond Purchase Contracts: These contracts are executed among the City, the PFA and the Underwriters on the day of the bond sale. They specify the actual principal amounts, interest rates and prices at which the bonds will be sold. Within the contract, the underwriters commit to purchase the bonds at closing and the PFA commits to sell the bonds at the agreed upon prices and amounts subject to certain closing conditions. Closing conditions generally relate to the execution and validity of all the required documents and the absence of material changes in the nature of the security, etc. Installment Purchase Agreement: The PFA's 2012 Refunding Wastewater Revenue Bonds will be payable from installment payments made by the City to the PFA under an Installment Purchase Agreement. The scheduled installment payments will be equal in amount to debt service on the 2012 Refunding Wastewater Revenue Bonds. The installment Purchase Agreement documents the key financial obligations of the Wastewater System, which are consistent with existing obligations of the Wastewater System related to 2003 and 2007 financings. The PFA assigns its right to receive these installment payments to the trustee for the 2012 Refunding Wastewater Revenue Bonds pursuant to the Indenture of Trust described below. The Installment Sale Agreement will specify: • the net revenues of the Wastewater System specifically pledged to the installment payments (the City is not obligated to make the installment payments from any other City funds) • the uses of the Wastewater System's gross revenues: briefly, gross revenues are first used to pay operation and maintenance expenses and then to pay the installment payments, similar 2003 and 2007 installment payment obligations and any future debt • the promise of the City to charge sufficient rates to Wastewater System customers to pay operation and maintenance expenses, the 2003/2007/2012 installment payments and any future debt with a sufficient coverage cushion (the "rate covenant") • the terms under which additional Wastewater System debt can be issued to finance additional capital improvements to the Wastewater System Lease Agreement: The PFA's 2012 Refunding Lease Revenue Bonds will be payable from lease payments made by the City to the PFA under a Lease Agreement for the lease of certain real property and improvements (the "Leased Property"). The PFA assigns its right to receive these lease payments to the trustee for the 2012 Refunding Lease Revenue Bonds pursuant to the Indenture of Trust described below. The scheduled lease payments will be equal in amount to debt service on the 2012 Refunding Lease Revenue Bonds. The City agrees in the Lease Agreement to budget and appropriate from its General Fund for the lease payments on an annual basis. In order to facilitate the lease of the Leased Property by the PFA to the City under the Lease Agreement, the City and the PFA will concurrently enter into a Site Lease, underwhich the City will lease the Leased Property to the PFA. Indentures of Trust: These are the legal documents between the PFA and a corporate bank (as trustee for the bond owners) that lays out the terms of the bonds. It will specify: • the payment dates and maturities of the bonds • the pledge of installment sale revenues and lease revenues to the respective series of bonds • the default and remedy provisions (in the event the City failed to make the installment payments under the Installment Purchase Agreement or lease payments under the Lease Agreement) • redemption and defeasance provisions, in the event that interest rates allow the City to refinancethese bonds in the future. In general, the PFA is a conduit for the installment payments and lease payments paid by the City to the bond owners. The PFA has no obligation to pay debt service on the bonds from any source of funds other than the installment payments and lease payments made by the City. 3 Escrow Deposit and Trust Agreements: These are the agreements between the City and the trustees for the 2002 and 2004 Certificates that document the deposit, investment and application of funds to refinancethe 2002 and 2004 Certificates. FISCAL IMPACT: The estimated net present value savings (i.e., after deducting the costs of the refinancing) for these two refinancings are $1.69 million for the General Fund and $1.3 million for the Wastewater Fund. The wastewater utility also has debt obligations from 2003 with the original issue amount of $5 million and 2007 with original issue amount of $30,320,000. The General Fund has no other long-term obligations. Neither fund has any upcoming anticipated financings. FUNDING AVAILABLE: The debt service for this refinancing is by definition already provided for in the City's budget, albeit at higher interest rates. Jorda Ayers Deputy City Manager/Internal Services Director Attachments: Draft City Council Resolutions Draft Lodi Public Financing Authority Resolutions PreliminaryOfficial Statement relating to the 2012 Refunding Lease Revenue Bonds Preliminary Official Statement relating to the 2012 Refund i ngWastewater Revenue Bonds 4 AGENDA ITEM ToOL CITY OF LODI 61 S� COUNCIL COMMUNICATION TM AGENDA TITLE: Adopt Resolutions and Approve Documents and Actions Regarding Refinancing 2002 Certificates of Participation (COPS) and 2004 COPS: 2002 COPS (a) Adopt Resolution of the City Council Approving Documents and Actions Related to the Refinancing of 2002 Certificates of Participation and the City's Related General Fund Lease Obligation, and (b) Adopt Resolution of the Lodi Public Financing Authority Authorizing the Issuance and Sale of 2012 Refunding Lease Revenue Bonds to Refinance Outstanding 2002 Certificates of Participation and the City's Related General Fund Lease Obligation and Approving Related Documents and Official Actions; and 2004 COPS (c) Adopt Resolution of the City Council Approving Documents and Actions Related to the Refinancing of 2004 Wastewater Certificates of Participation and the City's Related Wastewater Revenue Installment Payment Obligation, and (d) Adopt Resolution of the Lodi Public Financing Authority Authorizing the Issuance and Sale of 2012 Refunding Wastewater Revenue Bonds to Refinance the 2004 Wastewater Certificates of Participation and the City's Related Wastewater Revenue Installment Payment Obligation, and Approving Related Documents and Official Actions MEETING DATE: August 1,2012 PREPARED BY: City Attorney RECOMMENDED ACTION: Adopt Resolutions of the City Council and the Lodi Public Financing Authority to approve the refinancing of: 1) the 2002 Certificates of Participation and the City's related General Fund lease obligation in an amount not to exceed $20 million; and 2) the 2004 Wastewater Certificates of Participation and the City's related wastewater system installment payment obligation in an amount not to exceed $22 million; all in orderto secure market interest savings. BACKGROUND INFORMATION: The City previously caused execution and delivery of its 2002 Certificates of Participation to refinance debt associated with the construction of improvements to Lodi's downtown, Hutchins Street Square and the new Public Safety Building. The 2002 Certificates of Participation securitized lease payments made by the City from its General Fund. Staff initially expected to refinance the $27.360.000 Wastewater System Revenue Certificates of Participation, 2004 Series A the "2004 COPs" in their entirety. However the debt service reserve fund for the 2004 COPs was invested in an InvestmentA reement with FSA Capital Manaaement Services LLC "FSA" which currently pays the City an interest rate of 5.455 percent. Staff initiailly expected to terminate the investment agreement in connection with the refinancina of the 2004 COPS in their entiret and anticipated that FSA would be obliged to make a "Market Termination Payment" to the city because the interest rate paid by FSA is higher than prevailing rates. However, the Citv and FSA have not been able to agree on a market termination payment. As a result. it would be beneficialto the Citv to leave the InvestmentAureement outstanding at this time. In order to leave the InvestmentA reement outstanding, the Cily must leave the final maturity of the 2004 COPs which mature October 1, 2024 outstanding. As a result the Cily will be able to realize most of the economic benefits of the proposed refunding at this time while preserving the ability to terminate the InvestmentA reement and refinance the October 1 2024 maturity of the 2004 COPs when the City Council determines it is in the economic interests of the Citv to do so. �. ` ont color: Red w... { Formatted: Justified The distribution of a POS is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the POS to include all facts that would be material to an investor in the bonds. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the bonds. The Securities and Exchange Commission (the "SEC"), the agency with regulatory authority over the City and the PFAs compliance with the federal securities laws, has issued guidance as to the duties of the City Council and the PFA's Board of Directors with respect to their approval of the POS. In its "Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors" (Release No. 36761 / January 24, 1996) (the "Release"), the SEC stated that, if a member of the City Council/Board of Directors has knowledge of any facts or circumstances that an investorwould want to know about priorto investing in the bonds, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the POS. In the Release, the SEC stated that the steps that a member of the City Council/Board of Directors could take include becoming familiar with the POS and questioning staff and consultants about the disclosureof such facts. Continuing Disclosure Certificates: These certificates, attached as an appendix of the Official Statement, obligate the City to provide updated information to the bond markets on an ongoing basis. Disclosure is required annually, and on an exceptional basis for any major "material" developments. Bond Purchase Contracts: These contracts are executed among the City, the PFA and the Underwriters on the day of the bond sale. They specify the actual principal amounts, interest rates and prices at which the bonds will be sold. Within the contract, the underwriters commit to purchase the bonds at closing and the PFA commits to sell the bonds at the agreed upon prices and amounts subject to certain closing conditions. Closing conditions generally relate to the execution and validity of all the required documents and the absence of material changes in the nature of the security, etc. Installment Purchase Agreement: The PFAs 2012 Refunding Wastewater Revenue Bonds will be payable from installment payments made by the City to the PFA under an Installment Purchase Agreement. The scheduled installment payments will be equal in amount to debt service on the 2012 Refunding Wastewater Revenue Bonds. The Installment Purchase Agreement documents the key financial obligations of the Wastewater System, which are consistent with existing obligations of the Wastewater System related to 2003 and 2007 financings. The PFA assigns its right to receive these installment payments to the trustee for the 2012 Refunding Wastewater Revenue Bonds pursuant to the Indentureof Trust described below. The InstallmentSaleAgreementwill specify: o the net revenues of the Wastewater System specifically pledged to the installment payments (the City is not obligated to make the installment payments from any other City funds) the uses of the Wastewater System's gross revenues: briefly, gross revenues are first used to pay operation and maintenance expenses and then to pay the installment payments, similar 2003 and 2007 installment payment obligations and any future debt • the promise of the City to charge sufficient rates to Wastewater System customers to pay operation and maintenance expenses, the 2003/2007/2012 installment payments and any future debt with a sufficient coverage cushion (the "rate covenant") • the terms under which additional Wastewater System debt can be issued to finance additional capital improvements to the Wastewater System Lease Agreement: The PFA's 2012 Refunding Lease Revenue Bonds will be payable from lease payments made by the City to the PFA under a Lease Agreement for the lease of certain real property and improvements (the "Leased Property"). The PFA assigns its right to receive these lease payments to the trustee for the 2012 Refunding Lease Revenue Bonds pursuant to the Indenture of Trust described below. The scheduled lease payments will be equal in amount to debt service on the 2012 Refunding Lease Revenue Bonds. The City agrees in the Lease Agreement to budget and appropriate from its General Fund for the lease payments on an annual basis. In order to facilitate the lease of the Leased Property by the PFA to the City underthe Lease Agreement, the City and the PFA will concurrently enter into a Site Lease, under which the City will lease the Leased Propertyto the PFA. Indentures of Trust: These are the legal documents between the PFA and a corporate bank (as trustee for the bond owners) that lays out the terms of the bonds. Itwill specify: • the payment dates and maturities of the bonds • the pledge of installment sale revenues and lease revenues to the respective series of bonds • the default and remedy provisions (in the event the City failed to make the installment payments under the Installment Purchase Agreement or lease payments under the Lease Agreement) • redemption and defeasance provisions, in the event that interest rates allow the City to refinancethese bonds in the future. In general, the PFA is a conduitfor the install mentpayments and lease payments paid by the City to the bond owners. The PFA has no obligation to pay debt service on the bonds from any source of funds other than the installment payments and lease payments made by the City. Escrow Deposit and Trust Asreements: These are the agreements between the City and the trustees for the 2002 and 2004 Certificates that document the deposit, investment and application of funds to refinancethe 2002 and 2004 Certificates. FISCAL IMPACT: The estimated net present value savings (i.e., after deducting the costs of the refinancing) for these two refinancings are 1.96 million for the -General -Fund -and- 1.2 million for. the__ --i Deleted: 1.69 Wastewater Fund. The wastewater utility also has debt obligations from 2003 with the original issue Deleted: 1.3 amount of $5 million and 2007 with original issue amount of $30,320,000. The General Fund has no other long-term obligations. Neitherfund has any upcoming anticipated financings. FUNDING AVAILABLE: The debt service for this refinancing is by definition already provided for in the City's budget, albeit at higher interest rates. W. �4 - R. WNW. a 1� RESOLUTION NO. 2012- A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING DOCUMENTS AND OFFICIAL ACTIONS RELATING TO THE REFINANCING OF AN OUTSTANDING INSTALLMENT PAYMENT OBLIGATION OF THE CITY OF LODI RELATING TO ITS WASTEWATER SYSTEM AND THE ISSUANCE AND SALE OF REFUNDING WASTEWATER REVENUE BONDS BY THE LODI PUBLIC FI NANCI NG AUTHORITY WHEREAS, the City of Lodi (the "City") owns and operates facilities and propertyfor the collection, treatment and disposal of wastewater within the service area of the City (the "System"); and WHEREAS, the City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement') with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments"), and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the System (the "2004 Project"); and WHEREAS, under current economic conditions, it is possible for the City to refinance the 2004 Installment Payments and achieve savings for the benefit of the customers of the WHEREAS, in order to provide funds to refinance the 2004 Installment Payments, the Authority proposes to issue its 2012 Refunding Wastewater Revenue Bonds (the "Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Lave'); and WHEREAS, in order to provide revenues which are sufficient to pay debt service on the Bonds, the City proposes to sell the 2004 Project to the Authority and the Authority proposes to sell the 2004 Project back to the City under an Installment Purchase Agreement, with the purchase price to be paid by the City in semiannual installments during the term of the Bonds; and WHEREAS, the obligations of the City under the proposed Installment Purchase Agreement will be secured by a pledge of and lien on the net revenues of the System, on a Deleted: COPs -------- Deleted: ("FSA") -------- . Deleted: which .[Deleted: . Deleted: In (Deleted: COPs Deleted:. parity with a pledge of and lien on the net revenues securing a 2003 installment payment obligation„__a 2007 installment payment obligation and the 2004 Installment Payments _, - Deleted: and corresoondinato the 2004 Certificates maturina on October 1, 2024; and WHEREAS, the City Council wishes at this time to take action approving such financing transactions and all related documents and actions. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as follows: Section 1. Approval of Refinancing Plan; Authorization of Bonds. The City Council hereby approves the refinancing plan described in the recitals of this Resolution. To that end, the City Council hereby approves the issuance of the Bonds by the Authority under the Bond Law in the aggregate principal amount of not to exceed $22,000,000. Section 2. Approval of Installment Purchase Agreement. The City Council hereby approves the Installment Purchase Agreement between the Authority and the City, underwhich the City agrees to sell the 2004 Project to the Authority and the Authority agrees to sell the 2004 Project back to the City for a purchase price to be paid in semiannual installment payments. As provided in the Installment Purchase Agreement, the installment payments thereunder shall be payable from and secured by a pledge of and lien on the net revenues of the System on a parity with a pledge of and lien on the net revenues securing a 2003 installment payment obligation and a 2007 installment payment obligation. The Installment PurchaseAgreement is hereby approved in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the City Manager, the Deputy City Manager/Internal Services Director or the City Attorney (each, an "Authorized Officer"). An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of the Installment Purchase Agreement, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 3. Approval of Escrow Deposit and Agreement. The City Council hereby approves an Escrow Deposit and Trust Agreement between the City and the 2004 Trustee, as escrow bank, providing for the deposit, investment and application of funds to refinance the 2004 Installment Payments and defease and prepay the 2004 Certificates. The City Council authorizes the Citv Manaaer to determine whether it is in the best interests of the Citv to refinance all of the 2004 Installment Pavments or to leave the 2004 Installment Pavments corresponding to the final maturity of the 2004 Certificates outstanding. The Escrow Deposit and Trust Agreement is hereby approved in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by an Authorized Officer. An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of the Escrow Deposit and Trust Agreement, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 4. Sale of Bonds; Approval of Bond Purchase Agreement. The City Council hereby approves the negotiated sale of the Bonds by the Authority to JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter'). The Bonds shall be sold pursuantto the terms and provisions of a Bond Purchase Agreement among the Authority, the City and the Underwriter in substantially the form on file with the City Clerk together with any changes therein or additions thereto -2- deemed advisable by an Authorized Officer. The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal component of the outstanding 2004 Installment Payments beinq refinanced, as such savings shall be verified and conclusively determined by the City's financial advisor (the "Minimum Savings Requirement'). The Underwriter's discount shall not exceed 1.0%. The final form of the Bond Purchase Agreement shall be executed in the name and on behalf of the City by an Authorized Officer. Section 5. Official Statement; Continuing Disclosure Certificate. The City Council hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the Preliminary Official Statement describing the Bonds in the form on file with the City Clerk, together with such modifications thereof as may be approved by an Authorized Officer. An Authorized Officer is hereby authorized and directed to (a) execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official Statement to be nearly final as of its date within the meaning of such Rule, (b) approve any changes in or additions to cause the Official Statementto be put in final form, and (c) execute the final Official Statement for and in the name and on behalf of the City. The City Council hereby authorizes the distribution of the Preliminary Official Statement and the Final Official Statement by the Underwriter. The City Council hereby approves execution by an Authorized Officer of a Continuing Disclosure Certificate in substantially the form attached as an appendix to the Preliminary Official Statement. Section 6. Official Actions. The Mayor, the City Manager, the Deputy City Manager/Internal Services Director, the City Clerk, the City Attorney and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution, including any documentation relating to municipal bond insurance if an Authorized Officer concludes, after consultation with the City's bond counsel, the City's financial advisor and the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in this Resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in case such officer is absent or unavailable. Section 7. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: August 1, 2012 I hereby certify that Resolution No. 2012- was passed and adopted by the City Council of the City of Lodi in a regular/special joint meeting held August 1, 2012, by the following vote: AYES: COUNCIL MEMBERS — NOES: COUNCIL MEMBERS- -3- ABSENT: COUNCIL MEMBERS — ABSTAIN: COUNCIL MEMBERS - RANDIJOHL City Clerk 2012- -4- 50863-02 JH:CKL RESOLUTION NO. 2012- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LODI PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE AND SALE OF REFUNDING WASTEWATER REVENUE BONDS TO REFINANCEAN INSTALLMENT PAYMENT OBLIGATION OF THE CITY OF LODI, AND APPROVING RELATED DOCUMENTSAND OFFICIAL ACTIONS 6-5-12 6-13-12 7-17-12 7-25-12 8-1-12 WHEREAS, the City of Lodi (the "City") owns and operates facilities and property for the collection, treatment and disposal of wastewater within the service area of the City (the "System"); and WHEREAS, the City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments"), and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the System (the "2004 Project"); and WHEREAS, under current economic conditions, it is possible for the City to refinance the 2004 Installment Payments and achieve savings for the benefit of the customers of the System; and WHEREAS, the debt service reserve fund for the 2004 Certificates was invested WHEREAS, in order to leave the Investment Agreement outstanding, the Citv gave the final maturity of the 2004 Certificates (which matures October 1. 2024) WHEREAS, in order to provide funds to refinance the 2004 Installment Payments, the Authority proposes to issue its 2012 Refunding Wastewater Revenue Bonds (the "Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Law"); and WHEREAS, in order to provide revenues which are sufficient to pay debt service on the Bonds, the City proposes to sell the 2004 Project to the Authority and the Authority proposes to sell the 2004 Project back to the City under an Installment Purchase Agreement, with the purchase price to be paid by the City in semiannual installments during the term of the Bonds; and WHEREAS, the Authority proposes to sell the Bonds on a negotiated basis to JP Morgan Securities LLC and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter'); and WHEREAS, the Board of Directors of the Authority wishes at this time to take action approving such financing transactions and all related documents and actions; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi Public Financing Authority as follows: Section 1. Approval of Refinancing Plan; Authorization of Bonds. The Board of Directors hereby approves the refinancing plan described in the recitals of this Resolution. To that end, the Board of Directors hereby authorizes the issuance of the Bonds under the Bond Law in the aggregate principal amount of not to exceed $20,000,000. Section 2. Approval of Related Financing Agreements. The Board of Directors hereby approves each of the following agreements required to implement the financing plan to be accomplished by the Bonds, in substantially the respectiveforms on file with the Secretary together with any changes therein or additions thereto deemed advisable by the Executive Director, the Treasurer or the General Counsel (each, an "Authorized Officer"), and the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such changes or additions. (a) Indenture of Trust between the Authority and Union Bank, N.A., as trustee, prescribing the terms and conditions upon which the Bonds will be issued. (b) Installment Purchase Agreement between the Authority and the City, under which the City agrees to sell the 2004 Project to the Authority and the Authority agrees to sell the 2004 Project back to the City in consideration of semiannual installment payments. (c) Bond Purchase Agreement among the Authority, the City and the Underwriter, under which the Underwriter agrees to purchase the Bonds from the Authority. An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the Authority to execute, and the Secretary is hereby authorized and directed to attest the final form of each of the foregoing agreements, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 3. Sale of Bonds. The Board of Directors hereby approves the negotiated sale of the Bonds to the Underwriter. The Bonds shall be sold upon the terms and conditions set forth in the Bond Purchase Agreement that is approved under Section 2. The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal component of the outstanding 2004 Installment Payments to refinanced, as such savings shall be verified and conclusively determined by the City's -2- financial advisor (the "Minimum Savings Requirement"). The Underwriter's discount shall not exceed 1.0%. The final form of the Bond Purchase Agreement shall be executed in the name and on behalf of the Authority by an Authorized Officer. Section 4. Official Statement. The Board of Directors hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the Preliminary Official Statement describing the Bonds in the form on file with the Secretary, together with such modifications thereof as may be approved by an Authorized Officer. An Authorized Officer is hereby authorized and directed to (a) execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official Statement to be nearly final as of its date within the meaning cf such Rule, (b) approve any changes in or additions to cause the Official Statement to be put in final form, and (c) execute the Final Official Statement for and in the name and on behalf of the Authority. The Board of Directors hereby authorizes the distribution of the Preliminary Official Statement and the Final Official Statement by the Underwriter. Section 5. Official Actions. The Chair, the Executive Director, the Treasurer, the Secretary, the General Counsel and all other officers of the Authority are each authorized and directed in the name and on behalf of the Authority to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution, including any documentation relating to municipal bond insurance if an Authorized Officer concludes, after consultation with the Authority's bond counsel, the Authority's financial advisor and the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in this Resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. Section 6. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. -3- hereby certify that Resolution No. 2012-_ was passed and adopted by the Board of Directors of the Lodi Public Financing Authority in a regular meeting held August 1, 2012, by the following vote: AYES: BOARD MEMBERS — NOES: BOARD MEMBERS — ABSENT: BOARD MEMBERS — ABSTAIN: BOARD MEMBERS— Secretary -4- [Jones Hall Letterhead] September _, 2012 Lodi Public Financing Authority 221 West Pine Street Lodi, CA 95240 OPINION: $ Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds Members of the Board of Directors of the Authority: We have acted as bond counsel to the Lodi Public Financing Authority (the "Authority') in connection with the issuance by the Authority of the captioned bonds dated the date hereof (the 'Bonds"). In such capacity, we have examined such law and such certified proceedings, certifications and other documents as we have deemed necessary to render this opinion. The Bonds are issued pursuant to Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the 'Bond Law"), the Indenture of Trust, dated as of September 1, 2012 (the "Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee "), and a resolution (the "Resolution") of the Board of Directors of the Authority adopted 2012. Under the Indenture, the Authority has pledged certain revenues (the "Revenues") for the payment of principal, premium (if any), and interest on the Bonds when due, including lease payments made by the City of Lodi (the "City") under a Lease Agreement dated as of September 1, 2012 (the "Lease Agreement") between the Authority and the City. Regarding questions of fact material to our opinion, we have relied on representations of the Authority contained in the Indenture and the City contained in the Lease Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Authority is a duly created and validly existing joint exercise of powers authority with the power to adopt the Resolution, enter into the Indenture and perform the agreements on its part contained therein, and issue the Bonds. 2. The City is a duly created and validly existing general law city with the power to enter into the Lease Agreement and perform the agreements on its part contained therein. Lodi Public Financing Authority September _, 2012 Page 2 3. The Indenture has been duly authorized, executed and delivered by the Authority, and constitutes a valid and binding obligation of the Authority, enforceable against the Authority. 4. The Lease Agreement has been duly authorized, executed and delivered by the Authority and the City, and constitutes a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City. 5. The Indenture creates a valid lien on the Revenues and other funds pledged by the Indenture for the security of the Bonds, on a parity with other bonds (if any) issued or to be issued under the Indenture. 6. The Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligations of the Authority, payable solely from the Revenues and other funds provided therefor in the Indenture. 7. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 8. Interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof. Respectfully submitted, Lodi Public Financing Authority September _, 2012 Page 3 A Professional Law Corporation ESCROW DEPOSIT AND TRUST AGREEMENT Relating to $26,745,000 Certificates of Participation (2002 Public Improvement Financing Project) This ESCROW DEPOSIT AND TRUST AGREEMENT (this "Agreement"), dated as of September 1, 2012, is between the CITY OF LODI, a general law city and municipal corporation organized and existing under the Constitution and laws of the State of California (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, acting as escrow agent for the Prior Certificates described below (the "Escrow Agent") and as successor trustee (the "Prior Trustee") for the Prior Certificates. BACKGROUND: 1. The City previously entered into a Trust Agreement dated as of January 1, 2002 (the "Prior Trust Agreement"), with the Lodi Public Improvement Corporation and the Prior Trustee, under which $26,745,000 aggregate principal amount of Certificates of Participation (2002 Public Improvement Financing Project) (the "Prior Certificates") were executed and delivered for the purpose of financing and refinancing various municipal facilities of the City. 2. In order to take advantage of prevailing bond market conditions, the City wishes to refinance the Prior Certificates. 3. To that end, the City has proposed to lease certain real property to the Lodi Public Financing Authority (the "Authority") in consideration of the payment by the Authority of an upfront rental payment that is sufficient to provide funds to refinance the Prior Certificates. 4. In order to raise funds for such purpose, and pursuant to an Indenture of Trust, dated as of September 1, 2012 (the "Refunding Bonds Indenture"), the Authority proposes to issue and sell its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount (the "Refunding Bonds"). 5. The City wishes to appoint the Escrow Agent for the purpose of establishing an irrevocable escrow fund to be funded, invested, held and administered for the purpose of providing for the payment in full of the principal and interest and premium (if any) with respect to the outstanding Prior Certificates, and to provide certain directions to the Prior Trustee with respect to the Prior Certificates. 6. As a result of the deposit and investment of funds in accordance with this Agreement, the Prior Certificates will be discharged and defeased in accordance with the provisions of Section 15.01 of the Prior Trust Agreement and prepaid in accordance with the provisions of Section 4.03 of the Prior Trust Agreement. AGREEMENT: In consideration of the premises and the material covenants contained herein, the City and U.S. Bank National Association, as Escrow Bank and Prior Trustee, hereby agree as follows: SECTION 1. Appointment of Escrow Agent; Establishment of Escrow Fund. The City hereby appoints the Escrow Agent to act as escrow agent for purposes of administering the funds required to defease and prepay the Prior Certificates in accordance with the Prior Trust Agreement. The Escrow Agent is directed to establish an escrow fund (the "Escrow Fund") to be held by the Escrow Agent in trust as an irrevocable escrow securing the payment of the Prior Certificates as set forth below. All cash and securities in the Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the principal of and interest and premium (if any) with respect to the Prior Certificates in accordance with the Prior Trust Agreement. If at any time the Escrow Agent receives actual knowledge that the cash and securities in the Escrow Fund will not be sufficient to make any payment required by Section 4 in respect of the Prior Certificates, the Escrow Agent shall notify the City of such fact and the City shall immediately cure such deficiency from any source of legally available funds. The Escrow Agent has no liability for any such insufficiency. SECTION 2. Deposit and Investment of Amounts in Escrow Fund. On August 2012 (the "Closing Date"), the Authority, pursuant to the Refunding Bonds Indenture, will cause to be transferred to the Escrow Agent for deposit into the Escrow Fund the amount of $ in immediately available funds, to be derived from the proceeds of the Refunding Bonds. In addition, the City hereby directs the Prior Trustee to transfer to the Escrow Agent for deposit into the Escrow Fund the amount of $ , to be derived from moneys related to the Prior Certificates that are available as a result of the defeasance of the Prior Certificates. On the Closing Date, the Escrow Agent shall invest $ of the amounts deposited in the Escrow Fund in the federal securities listed on Exhibit A; the federal securities listed on Exhibit A are "Defeasance Securities" as defined in the Prior Trust Agreement. The Escrow Agent shall hold the remaining $ in cash, uninvested. SECTION 3. Application of Amounts in Escrow Fund. The Escrow Agent is hereby instructed to withdraw from the Escrow Fund and transfer to the Prior Trustee an amount required to pay the principal of and interest and prepayment premium (if any) on the Prior Certificates, in accordance with the schedule attached as Exhibit B hereto. Following the payment and prepayment of the Prior Certificates in full, the Escrow Bank shall transfer any amounts remaining on deposit in the Escrow Fund to U.S. Bank National Association, as trustee for the Refunding Bonds, for deposit in the Bond Fund established under the Refunding Bonds Indenture, to be applied to pay interest next coming due and payable on the Refunding Bonds. SECTION 4. Irrevocable Election to Prepay Prior Certificates; Defeasance Notice. The City has irrevocably elected to pay and prepay all of the outstanding Prior 2 Certificates on the date set forth in Exhibit B, in accordance with the provisions of the Prior Trust Agreement. The City previously directed the Prior Trustee to give notice of the prepayment of the Prior Certificates in accordance with the requirements of the Prior Trust Agreement, at the expense of the City, using the form set forth in Exhibit C. The City further hereby directs the Prior Trustee to file on the Closing Date the notice attached as Exhibit D on the Municipal Securities Rulemaking Board's EMMA system. SECTION 5. Compensation to Escrow Agent. The City shall pay the Escrow Agent full compensation for its services under this Agreement, including out-of-pocket costs such as publication costs, prepayment expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the Escrow Fund be deemed to be available for said purposes. The Escrow Agent has no lien upon or right of set off against the cash and securities at any time on deposit in the Escrow Fund. SECTION 6. Immunities and Liability of Escrow Bank. The Escrow Bank undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Bank. The Escrow Bank shall not have any liability hereunder except to the extent of its negligence or willful misconduct. In no event shall the Escrow Bank be liable for any special, indirect or consequential damages. The Escrow Bank shall not be liable for any loss from any investment made by it in accordance with the terms of this Agreement. The Escrow Bank may consult with legal counsel of its own choice and the Escrow Bank shall not be liable for any action taken or not taken by it in good faith in reliance upon the opinion or advice of such counsel. The Escrow Bank shall not be liable for the recitals or representations contained in this Agreement and shall not be responsible for the validity of this Agreement, the sufficiency of the Escrow Fund or the moneys and securities to pay the principal, interest and prepayment premium with respect to the Prior Certificates. Whenever in the administration of this Agreement the Escrow Bank deems it necessary or desirable that a matter be proved or established prior to taking or not taking any action, such matter may be deemed to be conclusively proved and established by a certificate of an authorized representative of the City and shall be full protection for any action taken or not taken by the Escrow Bank in good faith reliance thereon. The Escrow Bank may conclusively rely as to the truth and accuracy of the statements and correctness of any opinions or calculations provided to it in connection with this Agreement and shall be protected in acting, or refraining from acting, upon any notice, instruction, request, certificate, document, opinion or other writing furnished to the Escrow Bank in connection with this Agreement and believed by the Escrow Bank to be signed by the proper party, and it need not investigate any fact or matter stated therein. None of the provisions of this Agreement shall require the Escrow Bank 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 Escrow Bank may execute any of 3 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. The Escrow Bank may at any time resign by giving 30 days written notice of resignation to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release the resigning Escrow Bank from its obligations hereunder by written instrument, a copy of which instrument shall be delivered to the resigning Escrow Bank and the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Escrow Bank may petition any court of competent jurisdiction for the appointment of a successor. Any bank, corporation or association into which the Escrow Bank may be merged or converted or with which it may be consolidated, or any bank, corporation or association resulting from any merger, conversion or consolidation to which the Escrow Bank shall be a party, or any bank, corporation or association succeeding to all or substantially all of the corporate trust business of the Escrow Bank shall be the successor of the Escrow Bank hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except on the part of any of the parties hereto where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. The City shall indemnify, defend and hold harmless the Escrow Bank and its officers, directors, employees, representatives and agents, from and against and reimburse the Escrow Bank for any and all claims, obligations, liabilities, losses, damages, actions, suits, judgments, reasonable costs and expenses (including reasonable attorneys' and agents' fees and expenses) of whatever kind or nature regardless of their merit, demanded, asserted or claimed against the Escrow Bank directly or indirectly relating to, or arising from, claims against the Escrow Bank by reason of its participation in the transactions contemplated hereby except to the extent caused by the Escrow Bank's negligence or willful misconduct. The provisions of the foregoing sentence shall survive the termination of this Agreement or the earlier resignation or removal of the Escrow Bank. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e-mail (provided, that for purposes of this Agreement, an e-mail does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such e-mail shall constitute a notice, request or other communication hereunder), facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Bank 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 Escrow Bank e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank's understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are 4 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 Escrow Bank, including without limitation the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. SECTION 7. Termination of Agreement. Upon payment in full of the principal of and interest and prepayment premium on the Prior Certificates and all fees, expense and charges of the Escrow Bank as described above, this Agreement shall terminate and the Escrow Bank shall be discharged from any further obligation or responsibility hereunder. SECTION 8. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 9. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent and as Prior Trustee By Authorized Officer CITY OF LODI 0 5 City Manager EXHIBIT A ESCROW SECURITIES First Type of CUSIP Purchase Maturity Int Pmt Par Purchase Interest Security or ID Date Date Date Amount Rate Price Class A-1 EXHIBIT B ESCROW REQUIREMENTS Interest Prepaid Prepayment Total Payment Date Payment Principal Premium Payment 10/1/12 $0 B-1 EXHIBIT C FORM OF NOTICE OF PREPAYMENT $26,745,000 Certificates of Participation (2002 Public Improvement Financing Project) NOTICE IS HEREBY GIVEN, by the City of Lodi (the "City") that all of the captioned certificates of participation (the "2002 Certificates") have been called for prepayment under and within the meaning of the Trust Agreement, dated as of January 1, 2002 (the "2002 Trust Agreement"), on October 1, 2012 (the "Prepayment Date"), at a prepayment price equal to the par amount thereof together with accrued interest thereon to the prepayment date, without premium (the "Prepayment Price"). The 2002 Certificates consist of the following: Maturity Date (October 1) Principal Amount Interest Rate CUSIP 2013 $690,000 4.50% 540236DV5 2014 715,000 4.50 540236DW3 2015 745,000 4.50 540236DX1 2016 775,000 5.00 540236DY9 2017 815,000 4.75 540236DZ6 2018 855,000 4.75 540236EA0 2019 895,000 4.75 540236EB8 2020 935,000 4.75 540236EC6 2021 985,000 4.75 540236ED4 2026 5,695,000 5.00 540236EE3 2031 7,265,000 5.00 540236EF9 The CUSIP number of the 2002 Certificates has been assigned by an independent service and is included in this notice solely for the convenience of the Owners and neither U.S. Bank National Association, as trustee for the 2002 Certificates (the "2002 Trustee") or the City of Lodi shall be liable for any inaccuracies in such numbers. Prepayment of the 2002 Certificates as described in this notice shall be conditioned upon the receipt by the 2002 Trustee from the City of the funds necessary for the proposed prepayment on or before the Prepayment Date. Payment of the Prepayment Price of the 2002 Certificates called for prepayment will become due and payable on the Prepayment Date upon presentation and surrender thereof in the following manner: C-1 If by Mail: (REGISTERED CERTIFICATES) U. S. Bank Trust National Association Corporate Trust Services P. O. Box 64111 St. Paul, MN 55164-0111 If by Hand or Overnight Mail: U.S. Bank Corporate Trust Services 60 Livingston Avenue 1st FL - Bond Drop Window St. Paul, MN 55107 Please call Bondholder Services at (800) 934-6802 with any questions. Holders of the 2002 Certificates presenting their 2002 Certificates in person for same day payment must surrender their bond(s) by 1:00 P.M. CST on the Prepayment Date and a check will be available for pick up after 2:00 P.M. CST. Checks not picked up by 4:30 P.M. CST will be mailed out to the certificate holders via first class mail. If payment of the Prepayment Price is to be made to the registered owner of the 2002 Certificate, you are not required to endorse the 2002 Certificate to collect the Prepayment Price. Interest on the principal amount designated to be prepaid shall cease to accrue on and after the Prepayment Date. IMPORTANT NOTICE Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act"), 28% will be withheld if tax identification number is not properly certified. Dated: August 27, 2012 U.S. BANK NATIONAL ASSOCIATION C-2 EXHIBIT D FORM OF NOTICE OF DEFEASANCE $26,745,000 Certificates of Participation (2002 Public Improvement Financing Project) NOTICE IS HEREBY GIVEN, by the City of Lodi (the "City") that the captioned certificates of participation (the "2002 Certificates") have been defeased and discharged under and within the meaning of the Trust Agreement, dated as of January 1, 2002, relating to the 2002 Certificates (the "2002 Trust Agreement"). Funds for the payment of the 2002 Certificates have been deposited with U.S. Bank National Association, as escrow bank, and the sufficiency of the funds and investments for the purpose of paying the principal of and interest on the 2002 Certificates has been verified by Causey Demgen & Moore, certified public accountants. As a consequence of the foregoing actions and in accordance with the 2002 Trust Agreement, all obligations of U.S. Bank National Association, as successor trustee for the 2002 Certificates, the Lodi Public Improvement Corporation and the City with respect to the 2002 Certificates has ceased and terminated, except the obligation to use moneys set aside in escrow as described above and, if necessary, from other legally available funds of the City. The outstanding 2002 Certificates consist of the following: Maturity Date Principal Amount Interest Rate CUSIP 2013 $690,000 4.50% 540236DV5 2014 715,000 4.50 540236DW3 2015 745,000 4.50 540236DX1 2016 775,000 5.00 540236DY9 2017 815,000 4.75 540236DZ6 2018 855,000 4.75 540236EAO 2019 895,000 4.75 540236EB8 2020 935,000 4.75 540236EC6 2021 985,000 4.75 540236ED4 2026 5,695,000 5.00 540236EE3 2031 7,265,000 5.00 540236EF9 The CUSIP number of the 2002 Certificates has been assigned by an independent service and is included in this notice solely for the convenience of the Owners and neither U.S. Bank National Association, as trustee for the 2002 Certificates (the "2002 Trustee") or the City of Lodi shall be liable for any inaccuracies in such numbers. The City has irrevocably elected to prepay all of the outstanding 2002 Certificates on October 1, 2012, at a prepayment price equal to the par amount thereof together with accrued interest thereon to the prepayment date, without premium. Please call Bondholder Services at (800) 934-6802 with any questions. D-1 Dated: September 5, 2012 U.S. BANK NATIONAL ASSOCIATION D-2 CITY OF LODI LETTERHEAD August 1, 2012 BY EMAIL (myrna.presto-choroski(c)-a) Myrna Presto-Choroski Vice President U.S. Bank National Association One California Street Suite 1000, SF-CA-SF10 San Francisco, CA 94111 Re: $26,745,000 City of Lodi Certificates of Participation (2002 Public Improvement Financing Project) Dear Myrna: As a "City Representative" under that certain Trust Agreement, dated as of January 1, 2002 (the "Prior Trust Agreement") (the "Trust Agreement') relating to the above -referenced certificates of participation (the "Certificates"), this constitutes a Written Request of the City directing U.S. Bank National Association, as trustee for the Certificates (the "Trustee"), to mail a conditional prepayment notice on August 27, 2012 in substantially the form attached to this letter according to the provisions of Sections 4.03 and 4.06 of the Trust Agreement. Please contact me with any questions. Sincerely, Jordan Ayers Deputy City Manager/Internal Services Director TO BE MAILED ON AUGUST 27, 2012 FORM OF NOTICE OF PREPAYMENT $26,745,000 Certificates of Participation (2002 Public Improvement Financing Project) NOTICE IS HEREBY GIVEN, by the City of Lodi (the "City") that all of the captioned certificates of participation (the "2002 Certificates") have been called for prepayment under and within the meaning of the Trust Agreement, dated as of January 1, 2002 (the "2002 Trust Agreement'), on October 1, 2012 (the "Prepayment Date"), at a prepayment price equal to the par amount thereof together with accrued interest thereon to the prepayment date, without premium (the "Prepayment Price"). The 2002 Certificates consist of the following: Maturity Date (October 11 Principal Amount Interest Rate CUSIP 2013 $690,000 4.50% 540236DV5 2014 715,000 4.50 540236DW3 2015 745,000 4.50 540236DX1 2016 775,000 5.00 540236DY9 2017 815,000 4.75 540236DZ6 2018 855,000 4.75 540236EAO 2019 895,000 4.75 540236EB8 2020 935,000 4.75 540236EC6 2021 985,000 4.75 540236ED4 2026 5,695,000 5.00 540236EE3 2031 7,265,000 5.00 540236EF9 The CUSIP number of the 2002 Certificates has been assigned by an independent service and is included in this notice solely for the convenience of the Owners and neither U.S. Bank National Association, as trustee for the 2002 Certificates (the "2002 Trustee") or the City of Lodi shall be liable for any inaccuracies in such numbers. Prepayment of the 2002 Certificates as described in this notice shall be conditioned upon the receipt by the 2002 Trustee from the City of the funds necessary for the proposed prepayment on or before the Prepayment Date. Payment of the Prepayment Price of the 2002 Certificates called for prepayment will become due and payable on the Prepayment Date upon presentation and surrender thereof in the following manner: If by Mail: (REGISTERED CERTIFICATES) U. S. Bank Trust National Association Corporate Trust Services P. O. Box 64111 St. Paul, MN 55164-0111 If by Hand or Overnight Mail: U.S. Bank Corporate Trust Services 60 Livingston Avenue 1st FL - Bond Drop Window St. Paul, MN 55107 Please call Bondholder Services at (800) 934-6802 with any questions. Holders of the 2002 Certificates presenting their 2002 Certificates in person for same day payment must surrender their bond(s) by 1:00 P.M. CST on the Prepayment Date and a check will be available for pick up after 2:00 P.M. CST. Checks not picked up by 4:30 P.M. CST will be mailed out to the certificate holders via first class mail. If payment of the Prepayment Price is to be made to the registered owner of the 2002 Certificate, you are not required to endorse the 2002 Certificate to collect the Prepayment Price. Interest on the principal amount designated to be prepaid shall cease to accrue on and after the Prepayment Date. IMPORTANT NOTICE Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act"), 28% will be withheld if tax identification number is not properly certified. Dated: August 31, 2012 U.S. BANK NATIONAL ASSOCIATION TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Christopher K. Lynch THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT (this "Agreement"), dated for convenience as of September 1, 2012, is between the LODI PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California (the "Authority"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). BACKGROUND: 1. The City previously caused execution and delivery of its Certificates of Participation (2002 Public Improvement Financing Project) in the aggregate initial principal amount of $26,745,000 (the "2002 Certificates") for the purpose of (i) financing the costs of constructing, furnishing and equipping a new police building and jail for the City, (ii) financing portions of other projects, (iii) refunding on a current basis the City's $3,985,000 aggregate principal amount of outstanding Certificates of Participation (1995 Public Improvement Financing Project) and refunding on an advance basis the City's $8,440,000 aggregate principal amount of outstanding Certificates of Participation (1996 Public Improvement Financing Project) and (iv) paying the costs of execution and delivery of the 2002 Certificates. 2. The City is proceeding to refinance its outstanding 2002 Certificates. 3. To that end, the City has leased the real property constituting its new police building and Carnegie Forum, including land and improvements, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under a Site Lease dated as of September 1, 2012, which has been recorded concurrently herewith (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2002 Certificates. 4. The Authority has authorized the issuance of its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of $ (the "Bonds") under an Indenture of Trust dated as of September 1, 2012 (the "Indenture"), between the Authority and the Trustee, for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with the Site Lease. 5. In order to provide revenues which are sufficient to enable the Authority to pay debt service on the Bonds, the Authority has agreed to lease the Leased Property back to the City under the Lease Agreement dated as of September 1, 2012 which has been recorded concurrently herewith (the "Lease") under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property. 6. The Authority has requested the Trustee to enter into this Agreement for the purpose of assigning certain of its rights under the Lease to the Trustee for the benefit of the Bond owners. AGREEMENT: In consideration of the material covenants contained in this Agreement, the parties hereto hereby formally covenant, agree and bind themselves as follows: SECTION 1. Defined Terms. All capitalized terms not otherwise defined herein have the respective meanings given those terms in the Indenture. SECTION 2. Assignment. The Authority hereby assigns to the Trustee, for the benefit of the Owners of all Bonds which are issued and Outstanding under the Indenture, all of the Authority's rights under the Lease (excepting only the Authority's rights under Sections 4.5, 5.10, 7.3 and 8.4 of the Lease), including but not limited to: (a) the right to receive and collect all of the Lease Payments from the City under the Lease; (b) the right to receive and collect any proceeds of any insurance maintained thereunder with respect to the Leased Property, or any eminent domain award (or proceeds of sale under threat of eminent domain) paid with respect to the Leased Property; and (c) the right to exercise such rights and remedies conferred on the Authority under the Lease as may be necessary or convenient (i) to enforce payment of the Lease Payments and any amounts required to be deposited in the Insurance and Condemnation Fund established under Section 5.07 of the Indenture, or (ii) otherwise to protect the interests of the Bond Owners in the event of a default by the City under the Lease. The Trustee shall administer all of the rights assigned to it by the Authority under this Agreement in accordance with the provisions of the Indenture, for the benefit of the Owners of Bonds. The assignment made under this Section 2 is absolute and irrevocable, and without recourse to the Authority. -2- SECTION 3. Acceptance. The Trustee hereby accepts the assignments made herein for the purpose of securing the payments due under the Lease and Indenture to, and the rights under the Lease and Indenture of, the Owners of the Bonds, all subject to the provisions of the Indenture. The recitals contained herein are those of the Authority and not of the Trustee, and the Trustee assumes no responsibility for the correctness thereof. SECTION 4. Conditions. This Agreement confers no rights and imposes no duties upon the Trustee beyond those expressly provided in the Indenture. The assignment hereunder to the Trustee is solely in its capacity as Trustee under the Indenture. SECTION 5. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which is an original and all together constitute one and the same agreement. Separate counterparts of this Agreement may be separately executed by the Trustee and the Authority, both with the same force and effect as though the same counterpart had been executed by the Trustee and the Authority. SECTION 6. Binding Effect. This Agreement inures to the benefit of and binds the Authority and the Trustee, and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 7. Governing Law. This Agreement is governed by the Constitution and laws of the State of California. IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as of the day and year first written above. Attest: Secretary LODI PUBLIC FINANCING AUTHORITY 0 Executive Director U.S. BANK NATIONAL ASSOCIATION, as Trustee By -3- Authorized Officer APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Lodi, County of San Joaquin, which is more particularly described as follows: A-1 INDENTURE OF TRUST Dated as of September 1, 2012 between U.S. BANK NATIONAL ASSOCIATION, as Trustee and the LODI PUBLIC FINANCING AUTHORITY Authorizing the Issuance of Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds TABLE OF CONTENTS ARTICLE I Definitions; Rules Of Construction Section1.01. Definitions...........................................................................................................2 Section1.02. Authorization.......................................................................................................2 Section 1.03. Interpretation......................................................................................................2 ARTICLE II The Bonds Section 2.01. Authorization of Bonds.................................................................................... Section 2.02. Terms of the Bonds......................................................................................... Section 2.03. Transfer and Exchange of Bonds.................................................................... Section 2.04. Book -Entry System.......................................................................................... Section 2.05. Registration Books.......................................................................................... Section 2.06. Form and Execution of Bonds......................................................................... Section 2.07. Bonds Mutilated, Lost, Destroyed or Stolen .................................................... ARTICLE III Application of Redemption Fund......................................................................12 Issuance of Bonds; Application of Proceeds Section 3.01. Issuance of the Bonds..................................................................................... Section 3.02. Application of Proceeds of Sale of Bonds ....................................................... Section 3.03. Establishment and Application of Costs of Issuance Fund .............................. Section 3.04. Validity of Bonds.............................................................................................. 3 3 4 5 6 7 7 ARTICLE IV Redemption of Bonds Section 4.01. Terms of Redemption......................................................................................... 9 Section 4.02. Selection of Bonds for Redemption.................................................................... 9 Section 4.03. Notice of Redemption; Rescission......................................................................9 Section 4.04. Partial Redemption of Bonds............................................................................10 Section 4.05. Effect of Redemption........................................................................................10 ARTICLE V Revenues; Funds and Accounts; Payment of Principal and Interest Section 5.01. Security for the Bonds; Bond Fund...................................................................11 Section 5.02. Allocation of Revenues.....................................................................................11 Section 5.03. Application of Interest Account.........................................................................12 Section 5.04. Application of Principal Account.......................................................................12 Section 5.05. Application of Reserve Account........................................................................12 Section 5.06. Application of Redemption Fund......................................................................12 Section 5.07. Insurance and Condemnation Fund.................................................................12 Section 5.08. Investments......................................................................................................13 Section 5.09. Valuation and Disposition of Investments.........................................................14 ARTICLE VI Covenants of the Board Section6.01. Punctual Payment............................................................................................16 Section 6.02. Extension of Payment of Bonds.......................................................................16 Section 6.03. Against Encumbrances.....................................................................................16 Section 6.04. Power to Issue Bonds and Make Pledge and Assignment...............................16 20 Section 6.05. Accounting Records.........................................................................................16 20 Section 6.06. Limitation on Additional Obligations.................................................................17 Section6.07. Tax Covenants.................................................................................................17 Section 6.08. Enforcement of Lease......................................................................................17 Section6.09. Waiver of Laws.................................................................................................17 21 Section6.10. Further Assurances..........................................................................................18 21 ARTICLE VII Events of Default and Remedies Section7.01. Events of Default..............................................................................................18 Section 7.02. Remedies Upon Event of Default.....................................................................18 Section 7.03. Application of Revenues and Other Funds After Default..................................19 Section 7.04. Trustee to Represent Bond Owners................................................................. 20 Section 7.05. Limitation on Bond Owners' Right to Sue ......................................................... 20 Section 7.06. Absolute Obligation of Board............................................................................20 Section 7.07. Termination of Proceedings..............................................................................21 Section 7.08. Remedies Not Exclusive...................................................................................21 Section 7.09. No Waiver of Default........................................................................................ 21 Section 7.10. Notice to the Bond Owners of Default.............................................................. 21 ARTICLE VIII The Trustee Section 8.01. Appointment of Trustee.................................................................................... 21 Section 8.02. Acceptance of Trusts; Removal and Resignation of Trustee ........................... 21 Section 8.03. Merger or Consolidation................................................................................... 23 Section 8.04. Liability of Trustee............................................................................................24 Section 8.05. Right to Rely on Documents.............................................................................26 Section 8.06. Preservation and Inspection of Documents......................................................27 Section 8.07. Compensation and Indemnification..................................................................27 ARTICLE IX Modification or Amendment Hereof Section 9.01. Amendments Permitted.................................................................................... 28 Section 9.02. Effect of Supplemental Indenture..................................................................... 29 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ......................................... 29 Section 9.04. Amendment of Particular Bonds.......................................................................30 ARTICLE X Defeasance Section 10.01. Discharge of Indenture..................................................................................... 30 Section 10.02. Discharge of Liability on Bonds........................................................................ 30 Section 10.03. Deposit of Money or Securities with Trustee....................................................31 Section 10.04. Unclaimed Funds..............................................................................................31 ARTICLE XI Miscellaneous Section 11.01. Liability of Board Limited to Revenues............................................................. 32 Section 11.02. Limitation of Rights to Parties and Bond Owners ............................................. 32 Section 11.03. Funds and Accounts.........................................................................................32 Section 11.04. Waiver of Notice; Requirement of Mailed Notice .............................................. 32 Section 11.05. Destruction of Bonds........................................................................................ 33 Section 11.06. Severability of Invalid Provisions......................................................................33 Section11.07. Notices..............................................................................................................33 Section 11.08. Evidence of Rights of Bond Owners.................................................................33 Section 11.09. Disqualified Bonds............................................................................................34 Section 11.10. Money Held for Particular Bonds......................................................................34 Section 11.11. Waiver of Personal Liability.............................................................................. 34 Section 11.12. Successor Is Deemed Included in All References to Predecessor .................. 34 Section 11.13. Execution in Several Counterparts...................................................................35 Section 11.14. Payment on Non -Business Day........................................................................ 35 Section11.15. Governing Law................................................................................................. 35 APPENDIX A DEFINITIONS APPENDIX B FORM OF BOND INDENTURE OF TRUST This INDENTURE OF TRUST (this "Indenture"), dated for convenience as of September 1, 2012, is between the LODI PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California (the "Authority"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with a corporate trust office in San Francisco, California, being qualified to accept and administer the trusts hereby created (the "Trustee"). BACKGROUND: 1. The City previously caused execution and delivery of its Certificates of Participation (2002 Public Improvement Financing Project) in the aggregate initial principal amount of $26,745,000 (the "2002 Certificates") for the purpose of (i) financing the costs of constructing, furnishing and equipping a new police building and jail for the City, (ii) financing portions of other projects, (iii) refunding on a current basis the City's $3,985,000 aggregate principal amount of outstanding Certificates of Participation (1995 Public Improvement Financing Project) and refunding on an advance basis the City's $8,440,000 aggregate principal amount of outstanding Certificates of Participation (1996 Public Improvement Financing Project) and (iv) paying the costs of execution and delivery of the 2002 Certificates. 2. The City is proceeding to refinance its outstanding 2002 Certificates. 3. To that end, the City has leased the real property constituting its new police building and Carnegie Forum, including land and improvements (the "Leased Property"), to the Authority under a Site Lease dated as of September 1, 2012 (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2002 Certificates. 4. The Authority has authorized the issuance of its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of $ (the "Bonds") under this Indenture for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with the Site Lease. 5. In order to provide revenues which are sufficient to enable the Authority to pay debt service on the Bonds, the Authority has leased the Leased Property back to the City under a Lease Agreement dated as of September 1, 2012 (the "Lease"), under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property thereunder. 6. The lease payments made by the City under the Lease have been assigned by the Authority to the Trustee for the security of the Bonds under an Assignment Agreement dated as of September 1, 2012, between the Authority as assignor and the Trustee as assignee. 7. In order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof, premium (if any) and interest thereon, the Authority has authorized the execution and delivery of this Indenture. 8. The Authority has found and determined, and hereby affirms, that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture have been in all respects duly authorized. AGREEMENT: In order to secure the payment of the principal of and the interest and redemption premium (if any) on all the Outstanding Bonds under this Indenture according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the receipt of which is hereby acknowledged, the Authority and the Trustee do hereby covenant and agree with one another, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.01. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms defined in Appendix A attached to this Indenture have the respective meanings specified in that Appendix when used in this Indenture. SECTION 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Indenture, and has taken all actions necessary to authorize the execution hereof by the officers and persons signing it. SECTION 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to 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 shall not affect the meaning, construction or effect hereof. -2- (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE BONDS SECTION 2.01. Authorization of Bonds. The Authority has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines that all things, conditions and acts required by law to exist, happen or be performed precedent to and in connection with the issuance of the Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Authority is now duly empowered, under each and every requirement of law, to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of Bonds in the aggregate principal amount of $ under the Bond Law for the purposes of providing funds to pay the Site Lease Payment to the City and thereby provide funds to prepay the 2002 Certificates. The Bonds are authorized and issued under, and are subject to the terms of, this Indenture and the Bond Law. The Bonds are designated the "Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds." SECTION 2.02. Terms of the Bonds. (a) Payment Provisions. The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Bond has more than one maturity date. The Bonds shall mature on October 1 in each of the years and in the amounts, and bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Date Principal Interest Maturity Date Principal Interest (October 1) Amount Rate (October 1) Amount Rate Interest on the Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: (a) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, -3- (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest is payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than 10 days prior to such special record date. The Trustee will pay interest on the Bonds by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the United States of America by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee. SECTION 2.03. Transfer and Exchange of Bonds. (a) Transfer. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of like series, interest rate, maturity and aggregate principal amount. The Authority shall pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of Bonds. (b) Exchange. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of the same series, interest rate and maturity. The Trustee shall require the Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. The Authority shall pay the cost of printing Bonds and any -4- services rendered or expenses incurred by the Trustee in connection with any exchange of Bonds. (c) Limitations. The Trustee may refuse to transfer or exchange, under the provisions of this Section 2.03, any Bonds selected by the Trustee for redemption under Article IV, or any Bonds during the period established by the Trustee for the selection of Bonds for redemption. SECTION 2.04. Book -Entry System. (a) Original Delivery. The Bonds will be initially delivered in the form of a separate single fully registered bond (which may be typewritten) for each maturity of the Bonds. Upon initial delivery, the Trustee shall register the ownership of each Bond on the Registration Books in the name of the Nominee. Except as provided in subsection (c), the ownership of all of the Outstanding Bonds shall be registered in the name of the Nominee on the Registration Books. With respect to Bonds the ownership of which shall be registered in the name of the Nominee, the Authority and the Trustee has no responsibility or obligation to any Depository System Participant or to any person on behalf of which the Nominee holds an interest in the Bonds. Without limiting the generality of the immediately preceding sentence, the Authority and the Trustee has no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Depository System Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository of the beneficial interests in the Bonds to be redeemed if the Authority elects to redeem the Bonds in part, (iv) the payment to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any amount with respect to principal, premium, if any, or interest on the Bonds or (v) any consent given or other action taken by the Depository as Owner of the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered as the absolute owner of such Bond for the purpose of payment of principal of and premium, if any, and interest on such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers of ownership of such Bond, and for all other purposes whatsoever. The Trustee shall pay the principal of and the interest and premium, if any, on the Bonds only to the respective Owners or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to payment of principal of and interest and premium, if any, on the Bonds to the extent of the sum or sums so paid. No person other than a Bond Owner shall receive a Bond evidencing the obligation of the Authority to make payments of principal, interest and premium, if any, under this Indenture. Upon delivery by the Depository to the Authority of written notice to the effect that the Depository has determined to substitute a new Nominee in its place, and subject to the provisions herein with respect to Record Dates, such new nominee shall become the Nominee hereunder for all purposes; and upon receipt of such a notice the Authority shall promptly deliver a copy of the same to the Trustee. (b) Representation Letter. In order to qualify the Bonds for the Depository's book -entry system, the Authority shall execute and deliver to such Depository a letter representing such matters as shall be necessary to so qualify the Bonds. The execution -5- and delivery of such letter shall not in any way limit the provisions of subsection (a) above or in any other way impose upon the Authority or the Trustee any obligation whatsoever with respect to persons having interests in the Bonds other than the Bond Owners. Upon the written acceptance by the Trustee, the Trustee shall agree to take all action reasonably necessary for all representations of the Trustee in such letter with respect to the Trustee to at all times be complied with. In addition to the execution and delivery of such letter, the Authority may take any other actions, not inconsistent with this Indenture, to qualify the Bonds for the Depository's book -entry program. (c) Transfers Outside Book -Entry System. If either (i) the Depository determines not to continue to act as Depository for the Bonds, or (ii) the Authority determines to terminate the Depository as such, then the Authority shall thereupon discontinue the book -entry system with such Depository. In such event, the Depository shall cooperate with the Authority and the Trustee in the issuance of replacement Bonds by providing the Trustee with a list showing the interests of the Depository System Participants in the Bonds, and by surrendering the Bonds, registered in the name of the Nominee, to the Trustee on or before the date such replacement Bonds are to be issued. The Depository, by accepting delivery of the Bonds, agrees to be bound by the provisions of this subsection (c). If, prior to the termination of the Depository acting as such, the Authority fails to identify another Securities Depository to replace the Depository, then the Bonds shall no longer be required to be registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging Bonds shall designate, in accordance with the provisions hereof. If the Authority determines that it is in the best interests of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the Authority may notify the Depository System Participants of the availability of such certificated Bonds through the Depository. In such event, the Trustee will issue, transfer and exchange Bonds as required by the Depository and others in appropriate amounts; and whenever the Depository requests, the Trustee and the Authority shall cooperate with the Depository in taking appropriate action (y) to make available one or more separate certificates evidencing the Bonds to any Depository System Participant having Bonds credited to its account with the Depository, or (z) to arrange for another Securities Depository to maintain custody of a single certificate evidencing such Bonds, all at the Authority's expense. (d) Payments to the Nominee. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal of and interest and premium, if any, on such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the letter described in subsection (b) of this Section or as otherwise instructed by the Depository. SECTION 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall upon reasonable notice as agreed to by the Trustee, be open to inspection during regular business hours by the Authority; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. 0 SECTION 2.06. Form and Execution of Bonds. The Bonds, the form of Trustee's certificate of authentication, and the form of assignment to appear thereon, are set forth in Appendix B attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. The Chairman of the Authority shall execute, and the Secretary of the Authority shall attest each Bond. Either or both of such signatures may be made manually or may be affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases to be such officer before the Closing Date, such signature will nevertheless be as effective as if the officer had remained in office until the Closing Date. Any Bond may be signed and attested on behalf of the Authority by such persons as at the actual date of the execution of such Bond are the proper officers of the Authority, duly authorized to execute debt instruments on behalf of the Authority, although on the date of such Bond any such person was not an officer of the Authority. Only those Bonds bearing a certificate of authentication in the form set forth in Appendix B, manually executed and dated by the Trustee, are valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee is conclusive evidence that such Bonds have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. SECTION 2.07. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond is mutilated, the Authority, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. The Trustee shall cancel every mutilated Bond surrendered to it and deliver such mutilated Bond to, or upon the order of, the Authority. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory and if indemnity satisfactory to the Trustee is given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Trustee in connection therewith. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds issued under this Indenture. Notwithstanding any other provision of this Section 2.07, in lieu of delivering a new Bond for which principal has become due for a Bond which has been mutilated, lost, destroyed or stolen, the Trustee may make payment of such Bond in accordance with its terms upon receipt of indemnity satisfactory to the Trustee. -7- ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS SECTION 3.01. Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee shall authenticate and, upon the Written Request of the Authority, deliver the Bonds to the Original Purchaser. SECTION 3.02. Application of Proceeds of Sale of Bonds; Transfer of Prior Funds. Upon the receipt of payment for the Bonds on the Closing Date, the Trustee shall deposit the proceeds thereof into a temporary account, which shall be disbursed in full on the Closing Date (whereupon said temporary account shall be closed) as follows: (a) The Trustee shall deposit the amount of $ into the Costs of Issuance Fund. (b) The Trustee shall transfer the amount of $ , constituting the remainder of such proceeds and representing the full amount of the Site Lease Payment, to the 2002 Trustee for application pursuant to the Escrow Agreement. In addition to the foregoing transfers, on the Closing Date the 2002 Trustee will withdraw the amount of $ from the [specify funds] established for the 2002 Certificates and deposit such amounts into the Escrow Fund for application pursuant to the Escrow Agreement. SECTION 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the "Costs of Issuance Fund" into which the Trustee shall deposit a portion of the proceeds of sale of the Bonds under Section 3.02(a). The Trustee shall disburse amounts in the Costs of Issuance Fund from time to time to pay the Costs of Issuance upon submission of a Written Requisition of the Authority stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. Each such Written Requisition of the Authority shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. The Trustee may conclusively rely on such Written Requisitions and shall be fully protected in relying thereon. On November 1, 2012, or upon the earlier Written Request of the Authority, the Trustee shall transfer all amounts remaining in the Costs of Issuance Fund to the Interest Account and shall thereupon close the Costs of Issuance Fund. SECTION 3.04. Validity of Bonds. The recital contained in the Bonds that the same are issued under the Constitution and laws of the State of California shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance. M ARTICLE IV REDEMPTION OF BONDS SECTION 4.01. Terms of Redemption. (a) Optional Redemption. The Bonds maturing on or before October 1, 2022, are not subject to redemption prior to their respective stated maturities. The Bonds maturing on or after October 1, 2023, are subject to redemption in whole, or in part at the at the election of the Authority among maturities on such basis as shall be designated by the Authority and by lot within a maturity, at the option of the Authority, on any date on or after October 1, 2022, from any available source of funds, at a redemption price equal to 100% of the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium. The Authority must give the Trustee written notice of its intention to redeem Bonds under this subsection (a), and the manner of selecting such Bonds for redemption from among the maturities thereof, in sufficient time to enable the Trustee to give notice of such redemption in accordance with Section 4.03. (b) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds are subject to redemption as a whole, or in part on a pro rata basis among maturities, on any date, from any Net Proceeds required to be used for such purpose as provided in Section 5.07, at a redemption price equal to 100% of the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. SECTION 4.02. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds of a single maturity, the Trustee shall select the Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. SECTION 4.03. Notice of Redemption; Rescission. The Trustee shall mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to one or more Securities Depositories and to the Municipal Securities Rulemaking Board as provided in the Continuing Disclosure Certificate. Each notice of redemption shall state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed and the maturity or maturities of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein shall affect the sufficiency of the proceedings for such redemption or the cessation of accrual of IQ interest from and after the redemption date. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority. The Authority has the right to rescind any notice of the redemption of Bonds under Section 4.01(a) by written notice to the Trustee on or prior to the dated fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under this Section. SECTION 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. SECTION 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. All Bonds redeemed under the provisions of this Article shall be canceled by the Trustee upon surrender thereof and destroyed in accordance with the retention policy of the Trustee then in effect. -10- ARTICLE V REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST SECTION 5.01. Security for the Bonds; Bond Fund. (a) Pledge of Revenues and Other Amounts. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Revenues and all amounts (including proceeds of the sale of the Bonds) held in any fund or account established under this Indenture are hereby pledged to secure the payment of the principal of and interest and premium (if any) on the Bonds in accordance with their terms and the provisions of this Indenture. Said pledge constitutes a lien on and security interest in the Revenues and such amounts and shall attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act. (b) Assignment to Trustee. Under the Assignment Agreement, the Authority has transferred to the Trustee all of the rights of the Authority in the Lease (other than the rights of the Authority under Sections 4.5, 5.10, 7.3 and 8.4 thereof). The Trustee is entitled to collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee is also entitled to and shall, subject to the provisions of Article VIII, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the Lease. (c) Deposit of Revenues in Bond Fund. All Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Bond Fund" which the Trustee shall establish, maintain and hold in trust; except that all moneys received by the Trustee and required hereunder or under the Lease to be deposited in the Redemption Fund or the Insurance and Condemnation Fund shall be promptly deposited in such funds. All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in this Indenture. Any surplus remaining in the Bond Fund, after payment in full of (i) the principal of and interest on the Bonds or provision therefore under Article X, and (ii) any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the City. SECTION 5.02. Allocation of Revenues. On or before each Interest Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Bond Fund), the following amounts in the following order of priority: (a) Deposit to Interest Account. The Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding. -11- (b) Deposit to Principal Account. The Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such Interest Payment Date. SECTION 5.03. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). SECTION 5.04. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at their respective maturity dates. SECTION 5.05. Reserved. SECTION 5.06. Application of Redemption Fund. The Trustee shall establish and maintain the Redemption Fund, into which the Trustee shall deposit a portion of the Revenues received, in accordance with a Written Request of the Authority, amounts in which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and premium (if any) of the Bonds to be redeemed under Section 4.01; provided, however, that at any time prior to the selection of Bonds for redemption, the Trustee may apply such amounts to the purchase of Bonds at public or private sale, when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed under a Written Request of the Authority, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. The Trustee shall be entitled to conclusively rely on any Written Request of the Authority received under this Section 5.06, and shall be fully protected in relying thereon. SECTION 5.07. Insurance and Condemnation Fund. (a) Establishment of Fund. Upon the receipt of proceeds of insurance or eminent domain with respect to the Leased Property, the Trustee shall establish and maintain an Insurance and Condemnation Fund, to be held and applied as hereinafter set forth in this Section 5.07. (b) Application of Insurance Proceeds. Any Net Proceeds of insurance against accident to or destruction of the Leased Property collected by the City or the Authority in the event of any such accident or destruction shall be paid to the Trustee under Section 6.3 of the Lease and deposited by the Trustee promptly upon receipt thereof in the Insurance and Condemnation Fund. If the City fails to determine and notify the Trustee in writing of its determination, within 45 days following the date of such deposit, to replace, repair, restore, modify or improve the Leased Property which has been damaged or destroyed, then such Net Proceeds shall be promptly transferred by the Trustee to the Redemption Fund and applied to the redemption of Bonds under Section 4.01(b). Notwithstanding the foregoing sentence, however, if the Leased Property is damaged or destroyed in full, the Net Proceeds of such insurance shall be used by the City to rebuild or replace the Leased Property if such proceeds are not sufficient to redeem Outstanding Bonds equal in aggregate principal amount to the unpaid Lease Payments allocable to the Leased Property. All proceeds deposited in the Insurance -12- and Condemnation Fund and not so transferred to the Redemption Fund shall be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Leased Property by the City, upon receipt of a Written Request of the City which: (i) states with respect to each payment to be made (A) the requisition number, (B) the name and address of the person to whom payment is due, (C) the amount to be paid and (D) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Fund and has not been the basis of any previous withdrawal; and (ii) specifies in reasonable detail the nature of the obligation. Any balance of the proceeds remaining after such work has been completed as certified by the City under a Written Certificate to the Trustee shall be paid to the City. The Trustee shall be entitled to conclusively rely on any Written Request or Written Certificate received under this subsection (b) of this Section 5.07 and in each case, shall be fully protected in relying thereon. (c) Application of Eminent Domain Proceeds. If all or any part of the Leased Property is taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain) the Authority shall deposit or cause to be deposited with the Trustee the Net Proceeds therefrom, which the Trustee shall deposit in the Insurance and Condemnation Fund under Section 6.2(b) of the Lease and which shall be applied and disbursed by the Trustee as follows: (i) If the City has not given written notice to the Trustee, within 45 days following the date on which such Net Proceeds are deposited with the Trustee, of its determination that such Net Proceeds are needed for the replacement of the Leased Property or such portion thereof, the Trustee shall transfer such Net Proceeds to the Redemption Fund to be applied towards the redemption of the Bonds under Section 4.01(b). (ii) If the City has given written notice to the Trustee, within 45 days following the date on which such Net Proceeds are deposited with the Trustee, of its determination that such Net Proceeds are needed for replacement of the Leased Property or such portion thereof, the Trustee shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such replacement, upon the filing of Written Requisitions of the City as agent for the Authority in the form and containing the provisions set forth in Appendix C. In each case, the Trustee may conclusively rely upon any notice received under this subsection (c)(ii) of this Section and is protected in relying thereon. (d) Reliance on Independent Advice. In making any such determination whether to repair, replace or rehabilitate the Leased Property under this Section 5.07, the City may obtain, but is not required to obtain, at its expense, the report of an independent engineer or other independent professional consultant, a copy of which must be filed with the Trustee. The Trustee shall have no duty to review or examine such report. Any such determination by the City is final. SECTION 5.08. Investments. All moneys in any of the funds or accounts established with the Trustee under this Indenture shall be invested by the Trustee solely -13- in Permitted Investments. Such investments shall be directed by the Authority in a Written Request of the Authority filed with the Trustee at least 2 Business Days in advance of the making of such investments. In the absence of any such directions from the Authority, the Trustee shall invest any such moneys in Permitted Investments which constitute money market funds; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the Authority specifying a specific money market fund and, if no such Written Request of the Authority is so received, the Trustee shall hold such moneys uninvested. Permitted Investments purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. To the extent Permitted Investments are registrable, such Permitted Investments must be registered in the name of the Trustee. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Bond Fund. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder. The Trustee or any of its affiliates may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made under this Section 5.09. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. The Trustee is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or is dealing as a principal for its own account. The Trustee shall furnish the Authority periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the Authority. Upon the Authority's election, such statements will be delivered via the Trustee's Online Trust and Custody service and upon electing such service, paper statements will be provided only upon request. The Authority waives the right to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The Authority further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. SECTION 5.09. Valuation and Disposition of Investments. (a) Except as otherwise provided in subsection (b) of this Section, the Authority covenants that all investments of amounts deposited in any fund or account created by or under this Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Tax Code) shall be acquired, disposed of and valued at the Fair Market Value thereof as such term is defined in subsection (d) below. The Trustee shall have no duty in connection with the determination of Fair Market Value other than to follow the investment directions of the Authority in any Written Request of the Authority. -14- (b) Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code; provided that the Authority shall inform the Trustee in writing which funds are subject to a yield restriction. (c) For the purpose of determining the amount in any fund or account established hereunder, the value of Permitted Investments credited to such fund shall be valued by the Trustee at least annually on or before July 15. The Trustee may sell or present for redemption, any Permitted Investment so purchased by the Trustee whenever it is necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss resulting from any such Permitted Investment. (d) For purposes of this Section 5.09, the term "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, or (iii) the investment is a United States Treasury Security -- State and Local Government Series which is acquired in accordance with applicable regulations of the United States Bureau of Public Debt. (e) To the extent of any valuations made by the Trustee hereunder, the Trustee may utilize and rely upon computerized securities pricing services that may be available to it, including those available through its regular accounting system. -15- ARTICLE VI COVENANTS OF THE AUTHORITY SECTION 6.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of and interest and premium (if any) on all the Bonds in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of the Revenues and other amounts pledged for such payment as provided in this Indenture. SECTION 6.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in this Section 6.02 limits the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance does not constitute an extension of maturity of the Bonds. SECTION 6.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes. SECTION 6.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized under law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues and other amounts purported to be pledged and assigned, respectively, under this Indenture and under the Assignment Agreement in the manner and to the extent provided in this Indenture and the Assignment Agreement. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under this Indenture against all claims and demands of all persons whomsoever. SECTION 6.05. Accounting Records. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of Bonds and all funds and accounts established under this Indenture. The Trustee shall make such books of record and account available for inspection by the Authority and the City, during business hours, upon reasonable notice, and under reasonable circumstances. -16- SECTION 6.06. Limitation on Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part. SECTION 6.07. Tax Covenants. (a) Private Business Use Limitation. The Authority shall assure that the proceeds of the Bonds are not used in a manner which would cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (b) Federal Guarantee Prohibition. The Authority may not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The Authority may not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (d) Maintenance of Tax Exemption. The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (e) Rebate of Excess Investment Earnings to United States. The Authority shall calculate or cause to be calculated all amounts of excess investment earnings with respect to the Bonds which are required to be rebated to the United States of America under Section 148(f) of the Tax Code, at the times and in the manner required under the Tax Code. The Authority shall pay when due an amount equal to excess investment earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code, such payments to be made from amounts paid by the City for that purpose under Section 4.5(d) of the Lease. The Authority shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Bonds, records of the determinations made under this subsection (e). SECTION 6.08. Enforcement of Lease. The Trustee shall promptly collect all amounts (to the extent any such amounts are available for collection) due from the City under the Lease. Subject to the provisions of Article VIII, the Trustee shall enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the enforcement of all of its rights thereunder as assignee of the Authority and for the enforcement of all of the obligations of the City under the Lease. SECTION 6.09. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in this Indenture or in the Bonds, and all benefit or advantage -17- of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. SECTION 6.10. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES SECTION 7.01. Events of Default. The following events constitute Events of Default hereunder: (a) Failure to pay any installment of the principal of any Bonds when due, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Failure to pay any installment of interest on the Bonds when due. (c) Failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part contained in this Indenture or in the Bonds, if such failure has continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, has been given to the Authority by the Trustee; provided, however, if in the reasonable opinion of the Authority the failure stated in the notice can be corrected, but not within such 30 -day period, such failure shall not constitute an Event of Default if the Authority institutes corrective action within such 30 -day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (d) The commencement by the Authority of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. (e) The occurrence and continuation of an event of default under and as defined in the Lease. SECTION 7.02. Remedies Upon Event of Default. If any Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding shall, in each case, upon receipt of indemnification satisfactory to Trustee against the costs, expenses and liabilities to be incurred in connection with such action, upon notice in writing to the Authority, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Bonds contained to the contrary notwithstanding. -18- Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority deposits with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable fees, charges and expenses (including those of its legal counsel, including the allocated costs of internal attorneys) of the Trustee, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate has been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the City and the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. SECTION 7.03. Application of Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee in the following order of priority: (a) To the payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its legal counsel including outside counsel and the allocated costs of internal attorneys) incurred in and about the performance of its powers and duties under this Indenture; (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid) in accordance with the provisions of this Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on -19- such date to the persons entitled thereto, without any discrimination or preference; and SECTION 7.04. Trustee to Represent Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, this Indenture and applicable provisions of any law. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of this Indenture. SECTION 7.05. Limitation on Bond Owners' Right to Sue. Notwithstanding any other provision hereof, no Owner of any Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Lease or any other applicable law with respect to such Bonds, unless (a) such Owner has given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding have requested the Trustee in writing to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, this Indenture, the Lease or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Indenture. SECTION 7.06. Absolute Obligation of Authority. Nothing herein or in the Bonds contained affects or impairs the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest and premium (if any) on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon acceleration or call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. -20- SECTION 7.07. Termination of Proceedings. In case any proceedings taken by the Trustee or by any one or more Bond Owners on account of any Event of Default have been discontinued or abandoned for any reason or have been determined adversely to the Trustee or the Bond Owners, then in every such case the Authority, the Trustee and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. SECTION 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee, to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. SECTION 7.09. No Waiver of Default. No delay or omission of the Trustee or any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient by the Trustee or the Bond Owners. SECTION 7.10. Notice to Bond Owners of Default. Immediately upon becoming aware of the occurrence of an Event of Default, but in no event later than five Business Days following becoming aware of such occurrence, the Trustee shall promptly give written notice thereof by first class mail, postage prepaid, to the Owner of each Outstanding Bond, unless such Event of Default has been cured before the giving of such notice; provided, however that except in the case of an Event of Default described in Sections 7.01(a) or 7.01(b), the Trustee may elect not to give such notice to the Bond Owners if and so long as the Trustee in good faith determines that it is in the best interests of the Bond Owners not to give such notice. ARTICLE VIII THE TRUSTEE SECTION 8.01. Appointment of Trustee. U.S. Bank National Association is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture. The Authority will maintain a Trustee which is qualified under the provisions of the foregoing provisions of this Article VIII, so long as any Bonds are Outstanding. SECTION 8.02. Acceptance of Trusts; Removal and Resignation of Trustee. The Trustee hereby accepts the express trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: -21- (a) The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture and no implied duties or covenants shall be read into this Indenture against the Trustee. If an Event of Default has occurred (which has not been cured), the Trustee shall exercise such of the rights and powers vested in it by hereunder, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Authority may remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and shall remove the Trustee (a) if at any time requested to do so by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (b) if at any time the Trustee ceases to be eligible in accordance with Section 8.02, or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority and the City, and by giving the Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. In the event of the removal or resignation of the Trustee under subsections (b) or (d), respectively, the Authority shall promptly appoint a successor Trustee. If no successor Trustee has been appointed and accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, must signify its acceptance of such appointment by executing and delivering to the Authority, to its predecessor Trustee a written acceptance thereof, and after payment by the Authority of all unpaid fees and expenses of the predecessor Trustee, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any -22- and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to the Leased Property held by such predecessor Trustee under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the Authority shall promptly mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the Authority fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (e) Any Trustee appointed under this Indenture shall be a corporation or association organized and doing business under the laws of any state or the United States of America or the District of Columbia, shall be authorized under such laws to exercise corporate trust powers, shall have (or, in the case of a corporation or association that is a member of a bank holding company system, the related bank holding company has) a combined capital and surplus of at least $50,000,000, and shall be subject to supervision or examination by a federal or state agency, so long as any Bonds are Outstanding. If such corporation or association publishes a report of condition at least annually under law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection (e), the combined capital and surplus of such corporation or association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If the Trustee at any time ceases to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. SECTION 8.03. Merger or Consolidation. Any bank, national banking association, federal savings association, or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank, national banking association, federal savings association, or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association, federal savings association, or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, national banking association, federal savings association, or trust company shall be eligible under subsection (e) of Section 8.02 shall be the successor to such Trustee, -23- without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. SECTION 8.04. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture, the Bonds or the Lease (including any right to receive moneys thereunder or the value of or title to the premises upon which the Leased Property is located), nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations of Trustee herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. (b) The Trustee is not liable for any error of judgment made by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in accordance with the direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture or assigned to it under the Assignment Agreement. (d) The Trustee is not liable for any action taken by it and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder, or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until it shall have actual knowledge thereof, or a corporate trust officer shall have received written notice thereof at its Office from the City, the Authority or the Owners of at least 25% in aggregate principal amount of the Outstanding Bonds. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the Authority or the City of any of the terms, conditions, covenants or agreements herein, under the Lease or the Bonds or of any of the documents executed in connection with the Bonds, or as to the existence of a default or an Event of Default or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be required to ascertain or inquire as to the performance or observance by the City or the Authority of the terms, conditions, covenants or agreements set forth in the Lease, other than the covenants of -24- the City to make Lease Payments to the Trustee when due and to file with the Trustee when due, such reports and certifications as the City is required to file with the Trustee thereunder. (f) No provision of this Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents, receivers or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, receiver or attorney appointed with due care by it hereunder. (h) The Trustee has no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Bond Owners under this Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities (including but not limited to fees and expenses of its attorneys) which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (i) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of Section 8.02(a), this Section 8.04 and Section 8.05, and shall be applicable to the assignment of any rights under the Lease to the Trustee under the Assignment Agreement. (j) The Trustee is not accountable to anyone for the subsequent use or application of any moneys which are released or withdrawn in accordance with the provisions hereof. (k) The Trustee makes no representation or warranty, expressed or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or the City of the Leased Property. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease or this Indenture for the existence, furnishing or use of the Leased Property. (1) The Trustee has no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (m) The Trustee is authorized and directed to execute the Assignment Agreement in its capacity as Trustee hereunder. (n) The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail (provided, that for purposes of this Agreement, an e-mail does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such e-mail shall constitute a notice, request or other communication hereunder), facsimile transmission or other similar unsecured electronic methods, provided, -25- 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 Authority or 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 Authority and the City agree 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. (o) The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term "force majeure" means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include, but not be limited to, acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences. SECTION 8.05. Right to Rely on Documents. The Trustee shall be protected and shall incur no liability in acting or refraining from acting in reliance upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Trustee is under no duty to make any investigation or inquiry as to any statements contained or matter referred to in any paper or document but may accept and conclusively rely upon the same as conclusive evidence of the truth and accuracy of any such statement or matter and shall be fully protected in relying thereon. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the Bonds appearing in the Registration Books as the absolute owners of the Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate, Written Request or Written Requisition of the Authority or the City, and such Written Certificate, Written Request or Written Requisition shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture in reliance upon such Written Certificate, Written Request or Written Requisition, and the Trustee shall be fully protected in relying thereon, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. -26- SECTION 8.06. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its respective possession and in accordance with its retention policy then in effect and shall, upon reasonable notice to Trustee, be subject to the inspection of the Authority, the City and any Bond Owner, and their agents and representatives duly authorized in writing, during business hours and under reasonable conditions as agreed to by the Trustee. SECTION 8.07. Compensation and Indemnification. The Authority shall pay to the Trustee from time to time, on demand, the compensation for all services rendered under this Indenture and also all reasonable expenses, advances (including any interest on advances), charges, legal (including outside counsel and the allocated costs of internal attorneys) and consulting fees and other disbursements, incurred in and about the performance of its powers and duties under this Indenture. The Authority shall indemnify the Trustee, its officers, directors, employees and agents against any cost, loss, liability or expense whatsoever (including but not limited to fees and expenses of its attorneys) incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust and this Indenture, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder or under the Assignment Agreement or the Lease. As security for the performance of the obligations of the Authority under this Section 8.07 and the obligation of the Authority to make Additional Rental Payments to the Trustee, the Trustee shall have a lien prior to the lien of the Bonds upon all property and funds held or collected by the Trustee as such. The rights of the Trustee and the obligations of the Authority under this Section 8.07 shall survive the resignation or removal of the Trustee or the discharge of the Bonds and this Indenture and the Lease. -27- ARTICLE IX MODIFICATION OR AMENDMENT HEREOF SECTION 9.01. Amendments Permitted. (a) Amendments With Bond Owner Consent. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by Supplemental Indenture, which the Authority and the Trustee may enter into when the written consents of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding are filed with the Trustee. No such modification or amendment may (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture except as permitted herein, or deprive the Owners of the Bonds of the lien created by this Indenture on such Revenues and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It is not necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. (b) Amendments Without Owner Consent. This Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any Bond Owners, if the Trustee has been furnished an opinion of counsel that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Bonds, including, without limitation, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority in this Indenture contained, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority; (ii) to cure any ambiguity, inconsistency or omission, or to cure or correct any defective provision, contained in this Indenture, or in regard to matters or questions arising under this Indenture, as the Authority deems necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners, in the opinion of Bond Counsel filed with the Trustee; (iii) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, -28- and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (iv) to modify, amend or supplement this Indenture in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; or (v) to facilitate the issuance of additional obligations of the City under the Lease Agreement as provided in Section 7.5(b)(5) thereof. (c) Limitation. The Trustee is not obligated to enter into any Supplemental Indenture authorized by subsections (a) or (b) of this Section 9.01 which materially adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. (d) Bond Counsel Opinion Requirement. Prior to the Trustee entering into any Supplemental Indenture hereunder, the Authority shall deliver to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of this Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion from gross income for purposes of federal income taxes of interest on the Bonds. (e) Notice of Amendments. The Authority shall deliver or cause to be delivered a draft of any Supplemental Indenture to each rating agency which then maintains a rating on the Bonds, at least 10 days prior to the effective date of such Supplemental Indenture under this Section 9.01. SECTION 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture under this Article IX, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture under this Article may, and if the Authority so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same maturity. -29- SECTION 9.04. Amendment of Particular Bonds. The provisions of this Article IX do not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. ARTICLE X DEFEASANCE SECTION 10.01. Discharge of Indenture. Any or all of the Outstanding Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem such Bonds; or (c) by delivering all of such Bonds to the Trustee for cancellation. If the Authority also pays or causes to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Written Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any of such Bonds shall not have been surrendered for payment, this Indenture and the pledge of Revenues and other assets made under this Indenture with respect to such Bonds and all covenants, agreements and other obligations of the Authority under this Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied, subject to Section 10.02. In such event, upon the Written Request of the Authority, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the City all moneys or securities or other property held by it under this Indenture which are not required for the payment or redemption of any of such Bonds not theretofore surrendered for such payment or redemption. The Trustee is entitled to conclusively rely on any such Written Certificate or Written Request and, in each case, is fully protected in relying thereon. SECTION 10.02. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited -30- with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The Authority may at any time surrender to the Trustee, for cancellation by Trustee, any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SECTION 10.03. Deposit of Money or Securities with Trustee. Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established under this Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) non -callable Federal Securities, the principal of and interest on which when due will, in the written opinion of an Independent Accountant filed with the City, the Authority and the Trustee, provide money sufficient to pay the principal of and interest and premium (if any) on the Bonds to be paid or redeemed, as such principal, interest and premium become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee has been made for the giving of such notice; provided, in each case, that (i) the Trustee shall have been irrevocably instructed (by the terms of this Indenture or by Written Request of the Authority) to apply such money to the payment of such principal, interest and premium (if any) with respect to such Bonds, and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel to the effect that such Bonds have been discharged in accordance with this Indenture (which opinion may rely upon and assume the accuracy of the Independent Accountant's opinion referred to above). The Trustee shall be entitled to conclusively rely on such Written Request or opinion and shall be fully protected, in each case, in relying thereon. SECTION 10.04. Unclaimed Funds. Notwithstanding any provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for 2 years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or 2 years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Authority free from the trusts created by this Indenture, and all liability of the Trustee with respect to -31- such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee shall (at the cost of the Authority) first mail to the Owners of Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS SECTION 11.01. Liability of Authority Limited to Revenues. Notwithstanding anything in this Indenture or in the Bonds contained, the Authority is not required to advance any moneys derived from any source other than the Revenues, the Additional Rental Payments and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. Nevertheless, the Authority may, but is not required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. SECTION 11.02. Limitation of Rights to Parties and Bond Owners. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the City and the Owners of the Bonds. SECTION 11.03. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate industry standards to the extent practicable, and with due regard for the requirements of Section 6.05 and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations under this Indenture. SECTION 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Indenture any notice is required to be given by mail, such requirement may be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. -32- SECTION 11.05. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee, and the delivery to the Authority, of any Bonds, the Trustee shall destroy such Bonds as may be allowed by law and deliver a certificate of such destruction to the Authority. SECTION 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. SECTION 11.07. Notices. All notices or communications to be given under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, confirmed by telephone, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City or the Trustee 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 Authority City of Lodi or the City. 221 West Pine Street Lodi, CA 95240 Attention: City Manager Fax: (209) 333-6710 If to the Trustee: U.S. Bank National Association Attn.: Corporate Finance 100 California Street, Suite 1000 San Francisco, CA 94111 Fax: 415-677-3768 SECTION 11.08. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and the Authority if made in the manner provided in this Section 11.08. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other -33- officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon. SECTION 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds. In case of a dispute as to such right, the Trustee shall be entitled to rely upon the advice of counsel in any decision by Trustee and shall be fully protected in relying thereon. Upon request, the Authority shall certify to the Trustee those Bonds disqualified under this Section 11.09, and the Trustee may conclusively rely on such certifications. SECTION 11.10. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, premium, if any, or principal due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04 but without any liability for interest thereon. SECTION 11.11. Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest or premium (if any) on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture. SECTION 11.12. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority, the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. -34- SECTION 11.13. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. SECTION 11.14. Payment on Non -Business Day. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and with the same effect as if made on such preceding non -Business Day. SECTION 11.15. Governing Law. This Indenture shall be governed by and construed in accordance with the laws of the State of California. -35- IN WITNESS WHEREOF, the LODI PUBLIC FINANCING AUTHORITY has caused this Indenture to be signed in its name by its Treasurer and attested to by its Secretary, and U.S. BANK NATIONAL ASSOCIATION, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. Attest: Secretary LODI PUBLIC FINANCING AUTHORITY By Executive Director U.S. BANK NATIONAL ASSOCIATION, as Trustee By Authorized Officer -36- APPENDIX A DEFINITIONS "Additional Rental Payments" means the amounts of additional rental which are payable by the City under Section 4.5 of the Lease or which are otherwise identified as Additional Rental Payments under the Lease. "Assignment Agreement" means the Assignment Agreement dated as of September 1, 2012, between the Authority as assignor and the Trustee as assignee, as originally executed or as thereafter amended. "Authority" means the Lodi Public Financing Authority, a joint exercise of powers authority duly organized and existing under the laws of the State of California. "Authorized Representative" means: (a) with respect to the Authority, its Chair, Executive Director, Treasurer, General Counsel or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director and filed with the City and the Trustee; and (b) with respect to the City, its City Manager, Deputy City Manager/Internal Services Director, City Attorney or any other person designated as an Authorized Representative of the City by a Written Certificate of the City signed by its City Manager and filed with the Authority and the Trustee. "Bond Counsel" means (a) Jones Hall, A Professional Law 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. "Bond Fund" means the fund by that name established and held by the Trustee under Section 5.01. "Bond Law" means Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code. "Bond Year" means each twelve-month period extending from October 2 in one calendar year to October 1 of the succeeding calendar year, both dates inclusive; except that the first Bond Year commences on the Closing Date and extends to and including October 1, 2012. "Bonds" means the $ aggregate principal amount of Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds authorized by and at any time Outstanding under this Indenture. "Business Day" means a day (other than a Saturday or a Sunday) on which banks are not required or authorized to remain closed in the City in which the Office of the Trustee is located. "City" means the City of Lodi, a general law city and municipal corporation organized and existing under the Constitution and laws of the State of California. "Closing Date" means the date of delivery of the Bonds to the Original Purchaser. A-1 "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds and the refunding of the 2002 Certificates, including but not limited to: printing expenses; rating agency fees; filing and recording fees; initial fees, expenses and charges of the Trustee and their respective counsel, including the Trustee's first annual administrative fee; fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals; fees and charges for preparation, execution and safekeeping of the Bonds; and any other cost, charge or fee in connection with the original issuance of the Bonds and the refunding of the 2002 Certificates. "Costs of Issuance Fund" means the fund by that name established and held by the Trustee under Section 3.03. "Depository" means (a) initially, DTC, and (b) any other Securities Depositories acting as Depository under Section 2.04. "Depository System Participant" means any participant in the Depository's book - entry system. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Escrow Agreement" means the Escrow Deposit and Trust Agreement dated as of the Closing Date, between the City and the 2002 Trustee, relating to the payment and prepayment of the 2002 Certificates and the discharge of the City's obligations relating thereto. "Event of Default" means any of the events specified in Section 7.01. "Excess Investment Earnings" means an amount required to be rebated to the United States of America under Section 148(f) of the Tax Code due to investment of gross proceeds of the Bonds at a yield in excess of the yield on the Bonds. "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; (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 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 Authority as its official fiscal year period. "Indenture" means this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture under the provisions hereof. A-2 "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. "Insurance and Condemnation Fund" means the fund by that name established and held by the Trustee under Section 5.07. "Interest Account" means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. "Interest Payment Date" means each April 1 and October 1, commencing April 1, 2013, so long as any Bonds remain unpaid. "Lease" means the Lease Agreement dated as of September 1, 2012, between the Authority as lessor and the City as lessee of the Leased Property, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of this Indenture. "Lease Payment Date" means, with respect to any Interest Payment Date, the Business Day immediately preceding such Interest Payment Date. "Lease Payments" means the amounts payable by the City under Section 4.3(a) of the Lease, including any prepayment thereof and including any amounts payable upon a delinquency in the payment thereof. "Leased Property" means the real property described in Appendix A to the Lease, together with all improvements and facilities at any time situated thereon. "Net Proceeds" means amounts derived from any policy of casualty insurance or title insurance with respect to the Leased Property, or the proceeds of any taking of the Leased Property or any portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof. "Nominee" means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository designated under Section 2.04(a). "Office" means the corporate trust office of the Trustee in St. Paul, Minnesota, or such other or additional offices as the Trustee may designate in writing to the Authority from time to time as the corporate trust office for purposes of the Indenture; except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business is conducted. "Original Purchaser" means JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus, as original purchasers of the Bonds upon their delivery by the Trustee on the Closing Date. A-3 "Outstanding", when used as of any particular time with reference to Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.02, including Bonds (or portions thereof) described in Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee under this Indenture. "Owner", whenever used herein with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. "Permitted Encumbrances" means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may permit to remain unpaid under Article V of the Lease; (b) the Site Lease, the Lease and the Assignment Agreement; (c) any right or claim of any mechanic, laborer, material man, supplier or vendor not filed or perfected in the manner prescribed by law; (d) that certain Lease Agreement (A-06-194) dated as of March 28, 2006, by and between the County of San Joaquin and the City (as modified by an Assignment and Assumption of Lease, dated as of July 1, 2008, among the County, the City and the Judicial Council of California, Administrative Office of the Courts); (e) the exceptions disclosed in the title insurance policy with respect to the Leased Property issued as of the Closing Date by Stewart Title Guaranty Company; and (f) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the City certifies in writing will not materially impair the use of the Leased Property for its intended purposes. "Permitted Investments" means any of the following: (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. (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. (c) Any direct or indirect obligations of an agency or department of the United States of America whose obligations represent the full faith and credit of the United States of America, or which are rated A or better by S&P. (d) Interest-bearing deposit accounts (including certificates of deposit) in federal or State chartered savings and loan associations or in federal or State of California banks (including the Trustee), provided that: (i) the unsecured obligations of such commercial bank or savings and loan association are rated A or better by S&P; or (ii) such deposits are fully insured by the Federal Deposit Insurance A-4 Corporation or secured at all times by collateral described in (a) or (b) above. (e) Commercial paper rated "A-1+" or better by S&P. (f) Federal funds or bankers acceptances with a maximum term of one year of any bank which an unsecured, uninsured and unguaranteed obligation rating of "A-1+" or better by S&P. (g) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of at least AAAm-G, AAAm or AAm, which funds may include funds for which the Trustee, its affiliates, parent or subsidiaries provide investment advisory or other management services. (h) Obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated A or better by S&P, or (b) fully secured as to the payment of principal and interest by Permitted Investments described in clauses (a) or (b). (i) Obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P. Q) Bonds or notes issued by any state or municipality which are rated A or better by S&P. (k) Any investment agreement with, or guaranteed by, a financial institution the long-term unsecured obligations or the claims paying ability of which are rated A or better by S&P at the time of initial investment, by the terms of which all amounts invested thereunder are required to be withdrawn and paid to the Trustee in the event either of such ratings at any time falls below A. (1) The Local Agency Investment Fund of the State of California, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name. "Principal Account" means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. "Record Date" means, with respect to any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established and held by the Trustee under Section 5.06. A-5 "Registration Books" means the records maintained by the Trustee under Section 2.05 for the registration and transfer of ownership of the Bonds. "Revenues" means: (a) all amounts received by the Authority or the Trustee under or with respect to the Lease, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding (i) any amounts described in Section 7.5(b)(v) of the Lease, and (ii) any Additional Rental Payments; and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under this Indenture. "Securities Depositories" means DTC; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the Authority designates in written notice filed with the Trustee. "Site Lease" means the Site Lease dated as of September 1, 2012, between the City as lessor and the Authority as lessee, as amended from time to time in accordance with its terms. "Site Lease Payment" means the amount of $ which is payable by the Authority to the City on the Closing Date under Section 3 of the Site Lease. "S&P" means Standard & Poor's, a division of the McGraw Hill Companies, of New York, New York, its successors and assigns. "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "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 Code. "Term" means, with reference to the Lease, the time during which the Lease is in effect, as provided in Section 4.2 thereof. "Trustee" means U.S. Bank National Association, a national banking association organized and existing under the laws of United States of America, or its successor or successors, as Trustee hereunder as provided in Article VIII. "2002 Certificates" means the outstanding Certificates of Participation (2002 Public Improvement Financing Project) originally executed and delivered in the aggregate principal amount of $26,745,000. "2002 Trustee" means U.S. Bank National Association, its successors and assigns, as successor trustee for the 2002 Certificates. "Written Certificate," "Written Request" and "Written Requisition" of the Authority or the City mean, respectively, a written certificate, request or requisition signed in the A-6 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. A-7 IZ [8011110 APPENDIX B BOND FORM UNITED STATES OF AMERICA STATE OF CALIFORNIA LODI PUBLIC FINANCING AUTHORITY 2012 REFUNDING LEASE REVENUE BOND INTEREST RATE: MATURITY DATE: ORIGINAL ISSUE DATE: CUSIP: % October 1, , 2012 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ** *** The LODIPUBLIC FINANCING AUTHORITY, a public body corporate and politic duly organized and existing under the laws of the State of California (the "Authority"), for value received„ hereby promises to pay to the Registered Owner specified above or registered assigns` (the "Registered Owner"), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond unless (i) this Bond is authenticated on or before an Interest Payment Date and after the close of business on the 15th day of the month preceding such interest payment date, in which event it shall bear interest from such Interest Payment Date, or (ii) this Bond is authenticated on or before March 15, 2013, in which event it shall bear interest from the Original Issue Date specified above; provided, however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, at the Interest Rate per annum specified above, payable semiannually on April 1 and October 1 in each year, commencing April 1, 2013 (the "Interest Payment Dates"), calculated on the basis of a 360 -day year composed of twelve 30 -day months. Principal hereof and premium, if any, upon early redemption hereof are payable upon presentation and surrender hereof at the corporate trust office of U.S. Bank National Association, in San Francisco, California (the "Trust Office"), as trustee (the "Trustee"). Interest hereon is payable by check of the Trustee mailed to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each Interest Payment Date (a "Record Date"), or, upon written request filed with the B-1 Trustee as of such Record Date by a registered owner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately available funds to an account in the United States designated by such registered owner in such written request. This Bond is not a debt of the City of Lodi (the "City"), the County of San Joaquin, the State of California, or any of its political subdivisions, and neither the City, said County, said State, nor any of its political subdivisions, is liable hereon nor in any event shall this Bond be payable out of any funds or properties of the Authority other than the Revenues. This Bond is one of a duly authorized issue of bonds of the Authority designated as the "Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds" (the "Bonds"), in an aggregate principal amount of ,$ all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption provisions} and all issued under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code, and under an Indenture of Trust dated as of September 1, 2012, between the Authority and, the Trustee (the "Indenture") and a resolution of the Authority adopted on , 2012, authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the Authority) and all supplements thereto for a description of the terms on which the Bonds are issued,,,.the provisions with regard to the nature and extent of the Revenues, and the rights thereunder of the owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Authority to refinance certain outstanding Certificates of Participation of the City. This Bond and the interest and premium, if any, hereon are special obligations of the Authority, payable from the Revenues, and secured by a charge and lien on the Revenues as defined in the Indenture, consisting principally of lease payments made by the City under a Lease Agreement dated as of September 1, 2012, between the Authority as lessor and the City as lessee (the "Lease"). As and to the extent set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on the Bonds. The rights and obligations of the Authority and the owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each Bond so affected. The Bonds maturing on or before October 1, 2022, are not subject to optional redemption prior to their respective stated maturity dates. The Bonds maturing on or after October 1, 2023, are subject to redemption in whole, or in part at the request of the Authority among maturities on such basis as the Authority may designate and by lot within a maturity, at the option of the Authority, on any date on or after October 1, 2022, from any available source of funds, at a redemption price equal to 1000% of the principal B-2 amount to be redeemed plus accrued interest to the date of redemption, without premium. The Bonds are subject to redemption as a whole, or in part by lot, on any date, to the extent of any net proceeds of hazard or title insurance with respect to the property which has been leased under the Lease (the "Leased Property") or any portion thereof which are not used to repair or replace the Leased Property pursuant to the Lease, or to the extent of any net proceeds arising from the disposition of the Leased Property or any portion thereof in eminent domain proceedings which the City elects to be used for such purpose pursuant to the Lease, at a redemption price equal to the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. As provided in the Indenture, notice of redemption will be mailed by the Trustee by first class mail not less than 30 nor more than 60 days prior to the redemption date to the respective owners of any Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption or the cessation of accrual of interest thereon from and after the date fixed for redemption. Notice of any optional redemption of the Bonds may be rescinded under the circumstances set forth in the Indenture, upon notice to the owners of such Bonds. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon registration of such transfer-, a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. This Bond may be exchanged at the, Trust Office for Bonds of the same tenor, aggregate principal amount, interest rate and maturity, of other authorized denominations. The Authority and the Trustee may treat' the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. Unless this Band is presented by an authorized representative of The Depository Trust Company to the Authority or the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. It is hereby certified by the Authority that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Ordinance and the laws of the State of B-3 California and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Ordinance or any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the Lodi Public Financing Authority has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its Chair and attested to by the facsimile signature of its Secretary, all as of the Original Issue Date specified above. LODI PUBLIC FINANCING AUTHORITY By Chair Attest: S P r rPta ry U.S. BANK NATIONAL ASSOCIATION, as Trustee LIM Authorized Signatory ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within -mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: B-4 Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor institution. B-5 Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Christopher K. Lynch, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX UNDER SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. LEASE AGREEMENT Dated as of September 1, 2012 between the LODI PUBLIC FINANCING AUTHORITY, as lessor and the CITY OF LODI, as lessee Relating to Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds TABLE OF CONTENTS ARTICLE I Definitions; Rules of Interpretation Section1.1. Definitions.....................................................................................................................2 Section1.2. Interpretation................................................................................................................ 2 ARTICLE II Covenants, Representations and Warranties Section 2.1. Covenants, Representations and Warranties of the City ............................................. 3 Section 2.2. Covenants, Representations and Warranties of the Board .......................................... 4 ARTICLE III Deposit and Application of Funds; Substitution and Release of Property Section 3.1. Deposit of Moneys........................................................................................................ 6 Section 3.2. Substitution of Property................................................................................................ 6 Section 3.2. Release of Property...................................................................................................... 7 ARTICLE V Maintenance; Taxes; Insurance; and Other Matters Section 5.1. ARTICLE IV Section 5.2. Lease of Leased Property; Term of This Lease; Lease Section 5.3. Payments Section 4.1. Lease of Leased Property; Release of Certain Property ............................................. 8 Section4.2. Term............................................................................................................................. 8 Section 4.3. Lease Payments........................................................................................................... 8 Section 4.4. Source of Payments; Covenant to Budget and Appropriate ........................................ 9 Section 4.5. Additional Rental Payments......................................................................................... 9 Section4.6. Quiet Enjoyment.........................................................................................................10 Section4.7. Title............................................................................................................................. 10 ARTICLE V Maintenance; Taxes; Insurance; and Other Matters Section 5.1. Maintenance, Utilities, Taxes and Assessments........................................................10 Section 5.2. Modification of Leased Property.................................................................................11 Section 5.3. Liability and Property Damage Insurance..................................................................11 Section 5.4. Casualty Insurance.....................................................................................................12 Section 5.5. Rental Interruption Insurance.....................................................................................12 Section 5.6. Recordation Hereof; Title Insurance..........................................................................12 Section 5.7. Insurance Net Proceeds; Form of Policies................................................................. 12 Section 5.8. Installation of City's Personal Property.......................................................................13 Section5.9. Liens...........................................................................................................................13 Section5.10. Advances....................................................................................................................13 ARTICLE VI Damage, Destruction and Eminent Domain; Use of Net Proceeds Section 6.1. Application of Net Proceeds.......................................................................................14 Section 6.2. Termination or Abatement Due to Eminent Domain..................................................14 Section 6.3. Abatement Due to Damage or Destruction................................................................14 ARTICLE VII Other Covenants of the City Section 7.1. Disclaimer of Warranties............................................................................................15 Section 7.2. Access to the Leased Property..................................................................................15 Section 7.3. Release and Indemnification Covenants....................................................................15 Section 7.4. Assignment and Subleasing by the City.....................................................................16 Section 7.5. Amendment Hereof....................................................................................................16 Section 7.6. Tax Covenants........................................................................................................... 17 Section 7.7. Continuing Disclosure................................................................................................18 ARTICLE VIII Events of Default and Remedies Section 8.1. Events of Default Defined...........................................................................................18 Section 8.2. Remedies on Default..................................................................................................19 23 Section 8.3. No Remedy Exclusive................................................................................................ 20 Section 8.4. Agreement to Pay Attorneys' Fees and Expenses ..................................................... 21 Section 8.5. No Additional Waiver Implied by One Waiver............................................................ 21 Section 8.6. Application of Proceeds..............................................................................................21 23 Section 8.7. Trustee and Bond Owners to Exercise Rights........................................................... 21 ARTICLE IX Prepayment of Lease Payments Section9.1. Security Deposit......................................................................................................... 21 Section 9.2. No Optional Prepayment............................................................................................ 22 Section 9.3. Credit for Amounts on Deposit................................................................................... 22 ARTICLE X Miscellaneous Section10.1. Notices........................................................................................................................22 Section 10.2. Binding Effect............................................................................................................. 23 Section10.3. Severability.................................................................................................................23 Section 10.4. Net -net -net Lease....................................................................................................... 23 Section 10.5. Third Party Beneficiaries............................................................................................ 23 Section 10.6. Further Assurances and Corrective Instruments....................................................... 23 Section 10.7. Execution in Counterparts..........................................................................................23 Section10.8. Applicable Law........................................................................................................... 23 Section 10.9. Board and City Representatives................................................................................. 23 Section10.10. Captions..................................................................................................................... 23 APPENDIX A DESCRIPTION OF THE LEASED PROPERTY APPENDIX B SCHEDULE OF LEASE PAYMENTS LEASE AGREEMENT This LEASE AGREEMENT (this "Lease"), dated for convenience as of September 1, 2012, is between the LODI PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California, as lessor (the "Authority"), and the CITY OF LODI, a general law city and municipal corporation duly organized and existing under the Constitution and laws of the State of California, as lessee (the "City"). BACKGROUND: 1. The City previously caused execution and delivery of its Certificates of Participation (2002 Public Improvement Financing Project) in the aggregate initial principal amount of $26,745,000 (the "2002 Certificates") for the purpose of (i) financing the costs of constructing, furnishing and equipping a new police building and jail for the City, (ii) financing portions of other projects, (iii) refunding on a current basis the City's $3,985,000 aggregate principal amount of outstanding Certificates of Participation (1995 Public Improvement Financing Project) and refunding on an advance basis the City's $8,440,000 aggregate principal amount of outstanding Certificates of Participation (1996 Public Improvement Financing Project) and (iv) paying the costs of execution and delivery of the 2002 Certificates. 2. The City is proceeding to refinance its outstanding 2002 Certificates. 3. To that end, the City has leased the real property constituting its new police building and Carnegie Forum, including land and improvements, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under a Site Lease dated as of September 1, 2012, which has been recorded concurrently herewith (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2002 Certificates. 4. The Authority has authorized the issuance of its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of $ (the "Bonds") under an Indenture of Trust dated as of September 1, 2012 (the "Indenture"), between the Authority and U.S. Bank National Association, as trustee (the "Trustee"), for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with the Site Lease. 5. In order to provide revenues which are sufficient to enable the Authority to pay debt service on the Bonds, the Authority has agreed to lease the Leased Property back to the City under this Lease under which the City agrees to pay semiannual Lease Payments as the rental for the Leased Property. 6. The lease payments made by the City under this Lease have been assigned by the Authority to the Trustee for the security of the Bonds under an Assignment Agreement dated as of September 1, 2012, between the Authority as assignor and the Trustee as assignee, which has been recorded concurrently herewith. 7. The City and the Authority have found and determined that all acts and proceedings required by law necessary to make this Lease, when executed by the City and the Authority, the valid, binding and legal obligations of the City and the Authority, and to constitute this Lease a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Lease have been in all respects duly authorized. AGREEMENT: In consideration of the material covenants contained in this Lease, the parties hereto hereby 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 in this Lease have the respective meanings given them in the Indenture. SECTION 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular includes the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and includes 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 Lease; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or subdivision hereof. -2- ARTICLE II COVENANTS, REPRESENTATIONS AND WARRANTIES SECTION 2.1. Covenants, Representations and Warranties of the City. The City makes the following covenants, representations and warranties to the Authority, the Trustee as of the date of the execution and delivery of this Lease: (a) Due Organization and Existence. The City is a general law city and municipal corporation duly organized and validly existing under the Constitution and laws of the State of California, has full legal right, power and authority under the laws of the State of California to enter into the Site Lease and this Lease and to carry out and consummate all transactions contemplated hereby, and by proper action the City has duly authorized the execution and delivery of the Site Lease and this Lease. (b) Due Execution. The representatives of the City executing the Site Lease and this Lease have been fully authorized to execute the same under a resolution duly adopted by the City Council of the City. (c) Valid, Binding and Enforceable Obligations. The Site Lease and this Lease have been duly authorized, executed and delivered by the City and constitute the legal, valid and binding obligations of the City enforceable against the City in accordance with their respective terms. (d) No Conflicts. The execution and delivery of the Site Lease and this Lease, the consummation of the transactions therein and herein contemplated and the fulfillment of or compliance with the terms and conditions thereof and 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 and adversely affect the consummation of the transactions contemplated by the Site Lease and this Lease or the financial condition, assets, properties or operations of the City. (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 the Site Lease and this Lease, or the consummation of any transaction therein and -3- 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 or, to the knowledge of the City after reasonable investigation, 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 the Site Lease and this Lease, 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 and adversely affect the consummation of the transactions contemplated by the Site Lease and this Lease or the financial conditions, assets, properties or operations of the City. SECTION 2.2. Covenants, Representations and Warranties of the Authority. The Authority makes the following covenants, representations and warranties to the City, the Trustee as of the date of the execution and delivery of this Lease: (a) Due Organization and Existence. The Authority is a joint exercise of powers authority duly organized and existing under a joint powers agreement and the laws of the State of California; has power to enter into this Lease, the Site Lease, the Assignment Agreement and the Indenture; is possessed of full power to own and hold, improve and equip real and personal property, and to lease the same; and has duly authorized the execution and delivery of each of the aforesaid agreements and such agreements constitute the legal, valid and binding obligations of the Authority, enforceable against the Authority in accordance with their respective terms. (b) Due Execution. The representatives of the Authority executing this Lease, the Site Lease, the Assignment Agreement and the Indenture are fully authorized to execute the same pursuant to official action taken by the governing body of the Authority. (c) Valid, Binding and Enforceable Obligations. This Lease, the Site Lease, the Assignment Agreement and the Indenture 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. (d) No Conflicts. The execution and delivery of this Lease, the Site Lease, the Assignment Agreement and the Indenture, the consummation of the transactions herein and therein 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 -4- 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 and adversely affect the consummation of the transactions contemplated by this Lease, the Site Lease, the Assignment Agreement and the Indenture or the financial condition, assets, properties or operations of the Authority. (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 of this Lease, the Site Lease, the Assignment Agreement or the Indenture, 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 or, to the knowledge of the Authority after reasonable investigation, threatened against or affecting the Authority or the assets, properties or operations of the 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 Lease, the Site Lease, the Assignment Agreement or the Indenture, 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 and adversely affect the consummation of the transactions contemplated by this Lease, the Site Lease, the Assignment Agreement or the Indenture or the financial conditions, assets, properties or operations of the Authority. -5- ARTICLE III DEPOSIT AND APPLICATION OF FUNDS; SUBSTITUTION AND RELEASE OF PROPERTY SECTION 3.1. Deposit of Moneys. On the Closing Date, the Authority will cause the proceeds of sale of the Bonds to be deposited with the Trustee. The Trustee shall deposit such proceeds in accordance with Section 3.01 of the Indenture. SECTION 3.2. Substitution of Property. The City has the option at any time and from time to time, to substitute other real property (the "Substitute Property") for the Leased Property or any portion thereof (the "Former Property"), upon satisfaction of all of the following requirements which are hereby declared to be conditions precedent to such substitution: (a) No Event of Default has occurred and is continuing. (b) The City has filed with the Authority and the Trustee, and caused to be recorded in the office of the San Joaquin County Recorder sufficient memorialization of, an amendment hereof which adds the legal description of the Substitute Property to Appendix A and deletes therefrom the legal description of the Former Property. (c) The City has obtained a CLTA policy of title insurance insuring the City's leasehold estate hereunder in the Substitute Property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated value thereof. (d) The City has certified in writing to the Authority and the Trustee that the Substitute Property serves the municipal purposes of the City and constitutes property which the City is permitted to lease under the laws of the State of California, and has been determined to be essential to the proper, efficient and economic operation of the City and to serve an essential governmental function of the City. (e) The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made herein. (g) The City has filed with the Authority and the Trustee a written certificate of the City or other written evidencing stating that the useful life of the Substitute Property at least extends to October 1, , that the estimated value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the Lease Payments thereafter coming due and payable hereunder. (h) The City has mailed written notice of such substitution to each rating agency which then maintains a rating on the Bonds. 12 Upon the satisfaction of all such conditions precedent, the Term of this Lease will thereupon end as to the Former Property and commence as to the Substitute Property, and all references to the Former Property will apply with full force and effect to the Substitute Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of any substitution of property under this Section. The Authority and the City will execute, deliver and cause to be recorded all documents required to discharge the Site Lease, this Lease and the Assignment Agreement of record against the Former Property and to cause the Substitute Property to become subject to all of the terms and conditions of the Site Lease, this Lease and the Assignment Agreement. SECTION 3.3. Release of Property. The City has the option at any time and from time to time to release any portion of the Leased Property from this Lease (the "Released Property") provided that the City has satisfied all of the following requirements which are hereby declared to be conditions precedent to such release: (a) No Event of Default has occurred and is continuing. (b) The City has filed with the Authority and the Trustee, and caused to be recorded in the office of the San Joaquin County Recorder sufficient memorialization of, an amendment hereof which removes the Released Property from the Site Lease and this Lease. (c) The City has certified in writing to the Authority and the Trustee that the value of the property which remains subject to this Lease following such release is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the property which remains subject to this Lease following such release is at least equal to the Lease Payments thereafter coming due and payable hereunder. (d) The City has mailed written notice of such release to each rating agency which then maintains a rating on the Bonds. Upon the satisfaction of all such conditions precedent, the Term of this Lease will thereupon end as to the Released Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release. The Authority and the City shall execute, deliver and cause to be recorded all documents required to discharge the Site Lease, this Lease and the Assignment Agreement of record against the Released Property. -7- ARTICLE IV LEASE OF LEASED PROPERTY; TERM OF THIS LEASE; LEASE PAYMENTS SECTION 4.1. Lease of Leased Property. The Authority hereby leases the Leased Property to the City and the City hereby leases the Leased Property from the Authority, upon the terms and conditions set forth in this Lease. SECTION 4.2. Term. The Term of this Lease commences on the Closing Date and ends on the date on which the Indenture is discharged in accordance with Section 13.01 thereof, but under any circumstances not later than October 1, . The provisions of this Section are subject to the provisions of Section 6.2 relating to the taking in eminent domain of the Leased Property in whole or in part. SECTION 4.3. Lease Payments. (a) Obligation to Pay. Subject to the provisions of Sections 6.2 and 6.3 and the provisions of Article IX, the City agrees to pay to the Authority, its successors and assigns, the Lease Payments in the respective amounts specified in Appendix B attached to this Lease, to be due and payable in immediately available funds on the Interest Payment Dates immediately following each of the respective Lease Payment Dates specified in Appendix B, and to be deposited by the City with the Trustee on each of the Lease Payment Dates specified in Appendix B. Any amount held in the Bond Fund, the Interest Account and the Principal Account on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole under Article IX, and amounts required for payment of past due principal or interest on any Bonds not presented for payment) will be credited towards the Lease Payment then required to be paid hereunder. The City is not required to deposit any Lease Payment with the Trustee on any Lease Payment Date if the amounts then held in the Bond Fund, the Interest Account and the Principal Account are at least equal to the Lease Payment then required to be deposited with the Trustee. The Lease Payments payable in any Rental Period are for the use of the Leased Property during that Rental Period. (b) Effect of Prepayment. If the City prepays all Lease Payments in full under Sections 9.2 or 9.3, the City's obligations under this Section will thereupon cease and terminate. If the City prepays the Lease Payments in part but not in whole under Sections 9.2 or 9.3, the principal components of the remaining Lease Payments will be reduced in integral multiples of $5,000 among Lease Payment Dates on a basis which corresponds to the principal maturities of the Bonds which are redeemed thereby; and the interest component of each remaining Lease Payment will be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Bonds thereby redeemed under Section 4.01 of the Indenture. (c) Rate on Overdue Payments. If the City fails to make any of the payments required in this Section, the payment in default will continue as an obligation of the City until the amount in default has been 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 highest rate of interest on any Outstanding Bond. 10 (d) Fair Rental Value. The aggregate amount of the Lease Payments and Additional Rental Payments coming due and payable during each Rental Period constitute the total rental for the Leased Property for such Rental Period, and are payable by the City in each Rental Period for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Leased Property during each Rental Period. The parties hereto have agreed and determined that the total Lease Payments represent the fair rental value of the Leased Property. In making that determination, consideration has been given to the estimated value of the Leased Property, other obligations of the City and the Authority under this Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the City and the general public. (e) Assignment. The City understands and agrees that all Lease Payments have been assigned by the Authority to the Trustee in trust, under the Assignment Agreement, for the benefit of the Owners of the Bonds, and the City hereby assents to such assignment. The Authority hereby directs the City, and the City hereby agrees to pay to the Trustee at its Office, all payments payable by the City under this Section and all amounts payable by the City under Article IX. SECTION 4.4. Source of Payments; Covenant to Budget and Appropriate. The Lease Payments are payable from any source of available funds of the City, subject to the provisions of Section 6.3. The City covenants to take all actions required to include the Lease Payments in each of its budgets during the Term of this Lease and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. The foregoing covenant of the City contained constitutes a duty imposed by law and each and every public official of the City is required to take all actions required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by the City. SECTION 4.5. Additional Rental Payments. In addition to the Lease Payments, the City shall pay when due the following amounts of Additional Rental Payments in consideration of the lease of the Leased Property by the City from the Authority hereunder: (a) all fees and expenses incurred by the Authority in connection with or by reason of its leasehold estate in the Leased Property, when due, (b) all reasonable compensation to the Trustee for all services rendered under the Indenture and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in and about the performance of its powers and duties under the Indenture, (c) the reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under this Lease or the Indenture, (d) amounts coming due and payable as Excess Investment Earnings in accordance with Section 7.6(e), and In (e) the reasonable out-of-pocket expenses of the Authority in connection with the execution and delivery of this Lease or the Indenture, or in connection with the issuance of the Bonds, including but not limited to any and all expenses incurred in connection with the authorization, sale and delivery of the Bonds, or incurred by the Authority in connection with any litigation which may at any time be instituted involving this Lease, the Bonds, the Indenture or any of the other documents contemplated hereby or thereby, or otherwise incurred in connection with the administration of this Lease. SECTION 4.6. Quiet Enjoyment. Throughout the Term of this Lease, the Authority shall provide the City with quiet use and enjoyment of the Leased Property and the City will peaceably and quietly have and hold and enjoy the Leased Property, without suit, trouble or hindrance from the Authority, except as expressly set forth in this Lease. The Authority will, at the request of the City and at the City's cost, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority has the right to inspect the Leased Property as provided in Section 7.2. SECTION 4.7. Title. Upon the termination of this Lease (other than under Section 8.2(b) hereof), all right, title and interest of the Authority in and to the Leased Property transfers to and vests in the City. The Authority shall take any and all steps and execute and record any and all documents reasonably required by the City to consummate any such transfer of title. ARTICLE V MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS SECTION 5.1. Maintenance, Utilities, Taxes and Assessments. Throughout the Term of this Lease, as part of the consideration for the rental of the Leased Property, all improvement, repair and maintenance of the Leased Property are the responsibility of the City, and the City will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Lease Payments herein provided, the Authority agrees to provide only the Leased Property. The City waives the benefits of subsections 1 and 2 of Section 1932, Section 1933(4) and Sections 1941 and 1942 of the California Civil Code, but such waiver does not limit any of the rights of the City under the terms of this Lease. 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 Leased Property or the respective interests or estates therein; provided 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 pay only such installments as are required to be paid during the Term of this Lease as and when the same become due. -10- The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority notifies the City that, in its reasonable opinion, by nonpayment of any such items the interest of the Authority in the Leased Property will be materially endangered or the Leased Property or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the Trustee. SECTION 5.2. Modification of Leased Property. The City has the right, at its own expense, to make additions, modifications and improvements to the Leased Property or any portion thereof. All additions, modifications and improvements to the Leased Property will thereafter comprise part of the Leased Property and become subject to the provisions of this Lease. Such additions, modifications and improvements may not in any way damage the Leased Property, or cause the Leased Property to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made thereto under this Section, must be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. The City will not permit any mechanic's or other lien to be established or remain against the Leased Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the City under this Section; except that if any such lien is established and the City first notifies or causes to be notified the Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the City. SECTION 5.3. Liability and Property Damage Insurance. The City shall maintain or cause to be maintained throughout the Term of this Lease, but only if and to the extent available from reputable insurers at reasonable cost in the reasonable opinion of the City, a standard commercial general liability insurance policy or policies in protection of the Authority, the City, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage in such liability limits and be subject to such deductibles as the City deems adequate and prudent. Such insurance 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, subject to the provisions of Section 5.7, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance must be applied toward extinguishment or satisfaction of the liability with respect to which paid. -11- SECTION 5.4. Casualty Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, casualty insurance against loss or damage to all buildings situated on the Leased Property, in an amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate principal amount of the Outstanding Bonds. Such insurance must, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and must include earthquake insurance if available at reasonable cost from reputable insurers in the judgment of the City. Such insurance may be subject to such deductibles as the City deems adequate and prudent. Such insurance 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 the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance must be applied as provided in Section 6.1. SECTION 5.5. Rental Interruption Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of any of the hazards covered in the insurance required by Section 5.4, in an amount at least equal to the maximum such Lease Payments coming due and payable during any consecutive two Fiscal Years. Such insurance 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 the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, must be paid to the Trustee and deposited in the Bond Fund, to be applied as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable. SECTION 5.6. Recordation Hereof, Title Insurance. On or before the Closing Date the City shall, at its expense, (a) cause the Site Lease, the Assignment Agreement and this Lease, or a memorandum hereof or thereof in form and substance approved by Bond Counsel, to be recorded in the office of the San Joaquin County Recorder, and (b) obtain a CLTA title insurance policy insuring the City's leasehold estate hereunder in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. All Net Proceeds received under any such title insurance policy must be deposited with the Trustee in the Bond Fund to be credited towards the prepayment of the remaining Lease Payments under Section 9.3. SECTION 5.7. Insurance Net Proceeds; Form of Policies. Each policy of insurance maintained under Sections 5.4, 5.5 and 5.6 must name the Trustee as loss payee so as to provide that all proceeds thereunder are payable to the Trustee. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease. All such policies shall provide that the Trustee is given 30 days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. The City must file with the Trustee annually, within 90 days following the close of each Fiscal Year, a certificate of the City stating that all policies of insurance required hereunder are then in full force and effect. The Trustee has no responsibility for the sufficiency, adequacy or amount of any insurance or self-insurance herein -12- required and is fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. If any insurance maintained under Section 5.3 is provided in the form of self- insurance, the City must file with the Trustee annually, within 90 days following the close of each Fiscal Year, a statement of the risk manager of the City or an independent insurance adviser engaged by the City identifying the extent of such self-insurance and stating the determination that the City maintains sufficient reserves with respect thereto. If any such insurance is provided in the form of self-insurance by the City, the City has no obligation to make any payment with respect to any insured event except from those reserves. SECTION 5.8. Installation of City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other personal property in or upon the Leased Property. All such items shall remain the sole property of the City, in which neither the Authority nor the Trustee has any interest, and may be modified or removed by the City at any time, provided that the City must repair all damage to the Leased Property resulting from the installation, modification or removal of any such items. Nothing in this Lease prevents the City from purchasing or leasing items to be installed under this Section under a lease or conditional sale agreement, or subject to a vendor's lien or security agreement, as security for the unpaid portion of the purchase price thereof, so long as no such lien or security interest attaches to any part of the Leased Property. SECTION 5.9. Liens. The City may not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Leased Property, other than as herein contemplated and except for such encumbrances as the City certifies in writing to the Trustee do not materially and adversely affect the leasehold estate of the City in the Leased Property hereunder. If any such mortgage, pledge, lien, charge, encumbrance or claim does materially and adversely affect the leasehold estate of the City in the Leased Property hereunder, the City will promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible; provided that the City is not required to do so prior to the time when such mortgage, pledge, lien, charge, encumbrance or claim actually causes such material adverse effect. The City will reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. SECTION 5.10. Advances. If the City fails to perform any of its obligations under this Article V, the Authority may (but is not required to) take such action as it deems necessary to cure such failure, including the advancement of money, and the City shall repay all such advances as Additional Rental Payments hereunder, with interest at the rate set forth in Section 4.3(c). -13- ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS SECTION 6.1. Application of Net Proceeds. The Trustee, as assignee of the Authority under the Assignment Agreement, has the right to receive all Net Proceeds. As provided in the Indenture, the Trustee will deposit all Net Proceeds in the Insurance and Condemnation Fund to be applied as set forth in Section 5.07 of the Indenture. SECTION 6.2. Termination or Abatement Due to Eminent Domain. If the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of this Lease thereupon ceases as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property is taken temporarily, under the power of eminent domain, then: (a) this Lease shall continue in full force and effect with respect thereto and does not terminate by virtue of such taking, and the parties waive the benefit of any law to the contrary; and (b) the Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property. SECTION 6.3. Abatement Due to Damage or Destruction. The Lease Payments are subject to abatement during any period in which by reason of damage or destruction (other than by eminent domain which is hereinbefore provided for) there is substantial interference with the use and occupancy by the City of the Leased Property or any portion thereof. The Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, this Lease continues in full force and effect and the City waives any right to terminate this Lease by virtue of any such damage and destruction. -14- ARTICLE VII OTHER COVENANTS OF THE CITY SECTION 7.1. Disclaimer of Warranties. THE AUTHORITY AND THE TRUSTEE MAKE NO AGREEMENT, 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 LEASED PROPERTY OR ANY PORTION THEREOF, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE AUTHORITY IS NOT A MANUFACTURER OF ANY PORTION OF THE LEASED PROPERTY OR A DEALER THEREIN, THAT THE CITY LEASES THE LEASED PROPERTY AS -IS, IT BEING AGREED THAT ALL OF THE AFOREMENTIONED RISKS ARE TO BE BORNE BY THE CITY. The Authority has no liability for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease for the existence, furnishing, functioning or use of the Leased Property by the City. SECTION 7.2. Access to the Leased Property. The City agrees that the Authority and any Authorized Representative of the Authority, and the Authority's successors or assigns, have the right at all reasonable times to enter upon and to examine and inspect the Leased Property or any part thereof. The City further agrees that the Authority, any Authority Representative and the Authority's successors or assigns may have such rights of access to the Leased Property or any component thereof as reasonably necessary to cause the proper maintenance of the Leased Property if the City fails to perform its obligations hereunder; provided, however, that neither the Authority nor any of its assigns has any obligation to cause such proper maintenance. SECTION 7.3. Release and Indemnification Covenants. The City agrees to indemnify the Authority, the Trustee and their respective officers, agents, successors and assigns, against all claims, losses and damages, including legal fees and expenses, arising out of any of the following: (a) the use, maintenance, condition or management of, or from any work or thing done on the Leased Property by the City, (b) any breach or default on the part of the City in the performance of any of its obligations under this Lease, (c) any negligence or willful misconduct of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Property, (d) any intentional misconduct or negligence of any sublessee of the City with respect to the Leased Property, (e) the acquisition, construction, improvement and equipping of the Leased Property, or the authorization of payment of the costs thereof, or -15- (f) the acceptance and performance of the duties of the Trustee under the Indenture and under this Lease. No indemnification is made under this Section or elsewhere in this Lease for willful misconduct or negligence under this Lease by the Authority, the Trustee or their respective officers, agents, employees, successors or assigns. SECTION 7.4. Assignment and Subleasing by the City. The City may sublease the Leased Property, or any portion thereof, subject to all of the following conditions: (a) this Lease and the obligation of the City to make Lease Payments hereunder must remain obligations of the City; (b) the City must, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) no such sublease by the City may cause the Leased Property to be used for a purpose which is not authorized under the provisions of the laws of the State of California; and (d) the City must furnish to the Authority and the Trustee a written opinion of Bond Counsel stating that such sublease does not cause the interest on the Bonds to become included in gross income for purposes of federal income taxation or to become subject to personal income taxation by the State of California. SECTION 7.5. Amendment Hereof. The Authority and the City may at any time amend or modify any of the provisions of this Lease, but only: (a) with the prior written consents of the Owners of a majority in aggregate principal amount of the Outstanding Bonds; or (b) without the consent of the Trustee or any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to add to the covenants and agreements of the City contained in this Lease, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, to conform to the original intention of the City and the Authority; (iii) to modify, amend or supplement this Lease in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; (iv) to amend the description of the Leased Property to reflect accurately the property originally intended to be included therein, or in connection with any substitution or release of property under Sections 3.2 or 3.3; -16- (v) to obligate the City to pay additional amounts of rental for the use and occupancy of the Leased Property, but only if (A) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which are applied to finance or refinance the acquisition or construction of any real or personal property for which the City is authorized to expend funds subject to its control, (B) the City has obtained and filed with the Trustee an appraisal showing that the appraised value of the Leased Property is at least equal to the aggregate principal amount of the Outstanding Bonds and all such other bonds, notes, leases or other obligations, and (C) the City has filed with the Trustee written evidence that the amendments made under this clause (v) will not of themselves cause a reduction or withdrawal of any rating then assigned to the Bonds; or (vi) in any other respect whatsoever as the Authority and the City deem necessary or desirable, if in the opinion of Bond Counsel such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds. No such modification or amendment may (a) extend or have the effect of extending any Lease Payment Date or reducing any Lease Payment or any premium payable upon the prepayment thereof, without the express consent of the Owners of the affected Bonds, or (b) modify any of the rights or obligations of the Trustee without its written assent thereto. SECTION 7.6. Tax Covenants. (a) Private Business Use Limitation. The City shall assure that the proceeds of the Bonds are not used in a manner which would cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (b) Federal Guarantee Prohibition. The City may not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The City may not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (d) Maintenance of Tax Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (e) Rebate of Excess Investment Earnings to United States. The City shall calculate or cause to be calculated the Excess Investment Earnings in all respects at the times and in the manner required under the Tax Code. The City shall pay the full -17- amount of Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code. Such payments shall be made by the City from any source of legally available funds of the City, and shall constitute Additional Rental Payments hereunder. The City shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Bonds, records of the determinations made under this subsection (e). In order to provide for the administration of this subsection (e), the City may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the City may deem appropriate. The Trustee has no duty or obligation to monitor or enforce compliance by the City of any of the requirements under this subsection (e). SECTION 7.7. Continuing Disclosure. The City shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate executed by the City as of the Closing Date, as originally executed and as it may be amended from time to time in accordance with its terms. Notwithstanding any other provision of this Lease, failure of the City to comply with such Continuing Disclosure Certificate will not constitute an Event of Default, although any Participating Underwriter (as that term is defined in such Continuing Disclosure Certificate) or any Owner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations under this Section, including seeking mandate or specific performance by court order. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES SECTION 8.1. Events of Default Defined. Any one or more of the following events constitute an Event of Default hereunder: (a) Failure by the City to pay any Lease Payment or other payment required to be paid hereunder at the time specified herein. (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding subsection (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee. If in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 30 -day period, the failure will not constitute an Event of Default if the City commences to cure the failure within such 30 -day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (c) 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 M proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. SECTION 8.2. Remedies on Default. Whenever any Event of Default has happened and is continuing, the Authority may exercise any and all remedies available under law or granted under this Lease. Notwithstanding anything herein or in the Indenture to the contrary, neither the Authority nor the Trustee may accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. Each covenant hereof to be kept and performed by the City is expressly made a condition and upon the breach thereof the Authority may exercise any and all rights granted hereunder; except that no termination of this Lease may be effected either by operation of law or acts of the parties hereto, except only in the manner herein expressly provided. Upon the occurrence and during the continuance of any Event of Default, the Authority may exercise each and every one of the following remedies, subject in all respects to the limitations set forth in Section 8.3. (a) Enforcement of Payments Without Termination. If the Authority does not elect to terminate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the City agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions herein contained and shall reimburse the Authority for any deficiency arising out of the re-leasing of the Leased Property, or, if the Authority is unable to re -lease the Leased Property, then for the full amount of all Lease Payments to the end of the Term of this Lease, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as hereinabove provided for the payment of Lease Payments hereunder, notwithstanding such entry or re-entry by the Authority or any suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property or the exercise of any other remedy by the Authority. The City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to enter upon and re -lease the Leased Property upon the occurrence and continuation of an Event of Default and to remove all personal property whatsoever situated upon the Leased Property, to place the Leased Property in storage or other suitable place in the County of San Joaquin for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Leased Property and the removal and storage of the Leased Property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease constitute full and sufficient notice of the right of the Authority to re -lease the Leased Property in the event of such re-entry without effecting a surrender of this Lease, and further agrees that no acts of the Authority in effecting such re-leasing shall constitute a surrender or termination of this Lease irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of -19- such default by the City the right to terminate this Lease shall vest in the Authority to be effected in the sole and exclusive manner hereinafter provided for in subparagraph (b) hereof. The City agrees to surrender and quit possession of the Leased Property upon demand of the Authority for the purpose of enabling the Leased Property to be re -let under this paragraph, and the City further waives the right to any rental obtained by the Authority in excess of the Lease Payments and hereby conveys and releases such excess to the Authority as compensation to the Authority for its services in re-leasing the Leased Property. (b) Termination of Lease. If an Event of Default occurs and is continuing hereunder, the Authority at its option may terminate this Lease and re -lease all or any portion of the Leased Property. If the Authority terminates this Lease at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any re-entry upon the Leased Property by the Authority in any manner whatsoever or the re-leasing of the Leased Property), the City nevertheless agrees to pay to the Authority all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is herein provided in the case of payment of Lease Payments and Additional Rental Payments. Any surplus received by the Authority from such re- leasing shall be deposited in the Bond Fund. Neither notice to pay rent or to deliver up possession of the premises given under law nor any proceeding in unlawful detainer taken by the Authority shall of itself operate to terminate this Lease, and no termination of this Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease. The City covenants and agrees that no surrender of the Leased Property, or of the remainder of the Term hereof or any termination of this Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Authority by such written notice. (c) Proceedings at Law or In Equity. If an Event of Default occurs and continues hereunder, the Authority may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due hereunder or to enforce any other of its rights hereunder. SECTION 8.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive and every such remedy is cumulative and in addition to every other remedy given under this Lease or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon the occurrence of any Event of 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 VIII it is not necessary to give any notice, other than as expressly required in this Article VIII or by law. -20- SECTION 8.4. Agreement to Pay Attorneys' Fees and Expenses. If the Authority or the City defaults under any of the provisions of this Lease 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 will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party; provided, however, that the Trustee shall not be required to expend its own funds for any payment described in this Section. SECTION 8.5. No Additional Waiver Implied by One Waiver. If the Authority or the City breaches any agreement in this Lease and thereafter the other party waives the breach, such waiver is limited to the particular breach so waived and does not operate to waive any other breach hereunder. SECTION 8.6. Application of Proceeds. All net proceeds received from the re- lease of the Leased Property under this Article VIII, and all other amounts derived by the Authority or the Trustee as a result of the occurrence of an Event of Default, must be paid to and applied by the Trustee in accordance with Section 7.03 of the Indenture. SECTION 8.7. Trustee and Bond Owners to Exercise Rights. Such rights and remedies as are given to the Authority under this Article VIII have been assigned by the Authority to the Trustee under the Assignment Agreement for the benefit of the Bond Owners, to which assignment the City hereby consents. The Trustee and the Bond Owners shall exercise such rights and remedies in accordance with the Indenture. ARTICLE IX PREPAYMENT OF LEASE PAYMENTS SECTION 9.1. Security Deposit. Notwithstanding any other provision of this Lease, the City may on any date secure the payment of the Lease Payments allocable to the Leased Property in whole or in part by depositing with the Trustee an amount of cash which, together with other available amounts on deposit in the funds and accounts established under the Indenture, is either: (a) sufficient to pay such Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in Appendix B, or (b) invested in whole or in part in non -callable Federal Securities in such amount as will, in the opinion of an independent certified public accountant, (which opinion must be addressed and delivered to the Trustee), together with interest to accrue thereon and together with any cash which is so deposited, be fully sufficient to pay such Lease Payments when due under Section 4.3(a), as the City instructs at the time of said deposit. If the City makes a security deposit under this Section with respect to all unpaid Lease Payments, and notwithstanding the provisions of Section 4.2, (a) the Term of this Lease will continue, (b) all obligations of the City under this Lease, and all security provided by this Lease for said Lease Payments, will thereupon cease and terminate, -21- excepting only the obligation of the City to make, or cause to be made all of said Lease Payments from such security deposit, and (c) under Section 4.7, title to the Leased Property will vest in the City on the date of said deposit automatically and without further action by the City or the Authority. Said security deposit constitutes a special fund for the payment of Lease Payments in accordance with the provisions of this Lease. SECTION 9.2. Optional Prepayment. The City has the option to prepay the principal components of the Lease Payments in whole, or in part in any integral multiple of $5,000, from any source of legally available funds, on any date on or after October 1, 2022, at a prepayment price equal to the aggregate principal components of the Lease Payments to be prepaid, together with the interest component of the Lease Payment required to be paid on such Interest Payment Date, and together with a prepayment premium equal to the premium (if any) required to be paid on the resulting redemption of Bonds under Section 4.01(a) of the Indenture. Such prepayment price shall be deposited by the Trustee in the Redemption Fund to be applied to the redemption of Bonds under Section 4.01(a) of the Indenture. The City shall give written notice to the Trustee of its intention to prepay the Lease Payments under this Section in sufficient time to enable the Trustee to give notice of the corresponding redemption of Bonds in accordance with Section 4.03 of the Indenture. . SECTION 9.3. Mandatory Prepayment From Net Proceeds of Insurance or Eminent Domain. The City shall prepay the principal components of the Lease Payments allocable to the Leased Property in whole or in part on any date, from and to the extent of any Net Proceeds of insurance award or eminent domain award with respect to the Leased Property theretofore deposited in the Redemption Fund for that purpose under Article VI hereof and Section 5.07 of the Indenture. Such Net Proceeds, to the extent remaining after payment of any delinquent Lease Payments, will be credited towards the City's obligations under this Section and applied to the corresponding redemption of Bonds under Section 4.01(b) of the Indenture. SECTION 9.4. Credit forAmounts on Deposit. If the principal components of the Lease Payments are prepaid in full under this Article IX, such that the Indenture is discharged by its terms as a result of such prepayment, at the written election of the City filed with the Trustee any or all amounts then on deposit in the Bond Fund (and the accounts therein) will be credited towards the amounts then required to be so prepaid. ARTICLE X MISCELLANEOUS SECTION 10.1. Notices. Any notice, request, complaint, demand or other communication under this Lease shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by facsimile transmission or other form of telecommunication, at its number set forth below. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, (b) 48 hours after deposit in the United States of America first class mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City or the Trustee 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. -22- If to the Authority City of Lodi or the City. 221 West Pine Street Lodi, CA 95240 Attention: City Manager Fax: (209) 333-6710 If to the Trustee: U.S. Bank National Association U.S. Bank National Association Attn.: Corporate Finance 100 California Street, Suite 1000 San Francisco, CA 94111 Fax: 415-677-3768 SECTION 10.2. Binding Effect. This Lease inures to the benefit of and binds the Authority, the City and their respective successors and assigns. SECTION 10.3. Severability. If any provision of this Lease is held invalid or unenforceable by any court of competent jurisdiction, such holding will not invalidate or render unenforceable any other provision hereof. SECTION 10.4. Net -net -net Lease. This Lease is deemed and construed to be a "net -net -net lease" and the City hereby agrees that the Lease Payments are an absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever. SECTION 10.5. Third Party Beneficiary. The Trustee is hereby made a third party beneficiary hereunder with all rights of a third party beneficiary. SECTION 10.6. Further Assurances and Corrective Instruments. The Authority and the City shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease. SECTION 10.7. Execution in Counterparts. This Lease may be executed in several counterparts, each of which is an original and all of which constitute but one and the same instrument. SECTION 10.8. Applicable Law. This Lease is governed by and construed in accordance with the laws of the State of California. SECTION 10.9. Authority and City Representatives. Whenever under the provisions of this Lease the approval of the Authority or the City is required, or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the Authority and for the City by an Authorized Representative thereof, and any party hereto may conclusively rely upon any such approval or request. SECTION 10.10. Captions. The captions or headings in this Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Section of this Lease. -23- IN WITNESS WHEREOF, the Authority and the City have caused this Lease to be executed in their respective names by their duly authorized officers, all as of the date first above written. Attest: Attest: Secretary City Clerk LODI PUBLIC FINANCING AUTHORITY, as lessor By Executive Director CITY OF LODI, as lessee By -24- City Manager APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Lodi, County of San Joaquin, which is more particularly described as follows: A-1 APPENDIX B SCHEDULE OF LEASE PAYMENTS Lease Principal Interest Payment Date* Component Component Aggregate Lease Payment Lease Payment Dates are the Business Day immediately preceding each date listed in the schedule B-1 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Christopher K. Lynch, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX UNDER SECTION 11929 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. SITE LEASE This SITE LEASE (this "Site Lease"), dated for convenience as of September 1, 2012, is between the CITY OF LODI, a general law city and municipal corporation duly organized and existing under the Constitution and laws of the State of California, as lessor (the "City"), and the LODI PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California, as lessee (the "Authority"). BACKGROUND: 1. The City previously caused execution and delivery of its Certificates of Participation (2002 Public Improvement Financing Project) in the aggregate initial principal amount of $26,745,000 (the "2002 Certificates"), pursuant to a Trust Agreement, dated as of January 1, 2002 (the "2002 Trust Agreement"), between the Lodi Public Improvement Corporation and U.S. Bank National Association, as successor trustee (the "2002 Trustee"), for the purpose of (i) financing the costs of constructing, furnishing and equipping a new police building and jail for the City, (ii) financing portions of other projects, (iii) refunding on a current basis the City's $3,985,000 aggregate principal amount of outstanding Certificates of Participation (1995 Public Improvement Financing Project) and refunding on an advance basis the City's $8,440,000 aggregate principal amount of outstanding Certificates of Participation (1996 Public Improvement Financing Project) and (iv) paying the costs of execution and delivery of the 2002 Certificates. 2. The City is proceeding to refinance its outstanding 2002 Certificates. 3. To that end, the City has proposed to lease its new police building and Carnegie Forum, including land and improvements, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under this Site Lease, in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2002 Certificates. 4. The Authority has authorized the issuance of its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of $ (the "Bonds") under an Indenture of Trust dated as of September 1, 2012 (the "Indenture"), between the Authority and U.S. Bank National Association, as trustee (the "Trustee"), for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with this Site Lease. 5. In order to provide revenues which are sufficient to enable the Authority to pay debt service on the Bonds, the Authority has agreed to lease the Leased Property back to the City under a Lease Agreement dated as of September 1, 2012 (the "Lease"), which has been recorded concurrently herewith, under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property thereunder. 6. The lease payments made by the City under the Lease have been assigned by the Authority to the Trustee for the security of the Bonds under an Assignment Agreement dated as of September 1, 2012, between the Authority as assignor and the Trustee as assignee, which has been recorded concurrently herewith. AGREEMENT: In consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: SECTION 1. Lease of Property to Authority. The City hereby leases the Leased Property to the Authority and the Authority hereby leases the Leased Property from the City, on the terms and conditions hereinafter set forth. SECTION 2. Term; Possession. The term of this Site Lease commences on the Closing Date and ends on the date on which the Indenture is discharged in accordance with Section 13.01 thereof, but under any circumstances not later than October 1, 20_. The provisions of this Section 2 are subject in all respects to any other provisions of this Site Lease relating to the termination hereof. SECTION 3. Rental. The Authority shall pay to the City as and for rental of the Leased Property hereunder, the sum of $ (the "Site Lease Payment"). The Site Lease Payment is due and payable upon the issuance of the Bonds and the execution and delivery hereof, and will be paid from the proceeds of the Bonds. The Authority and the City hereby find and determine that the total amount of the Site Lease Payment does not exceed the fair market value of the leasehold interest in the Leased Property which is conveyed hereunder by the City to the Authority. No other amount of rental is due and payable by the Authority for the use and occupancy of the Leased Property under this Site Lease. As provided in the Indenture, a portion of the proceeds of the Bonds will be applied to make the Site Lease Payment by depositing the full amount thereof with the 2002 Trustee to be held, invested and administered in accordance with the Escrow Agreement for the purpose of discharging the City's obligations with respect to the 2002 Certificates. -2- SECTION 4. Leaseback to City. The Authority shall lease the Leased Property back to the City under the Lease. SECTION 5. Assignments and Subleases. Unless the City is in default under the Lease, the Authority may not assign its rights under this Site Lease or sublet all or any portion of the Leased Property, except as provided in the Assignment Agreement and in the Lease, without the prior written consent of the City. SECTION 6. Substitution or Release of Property. If the City exercises its option under Section 3.2 of the Lease to substitute property for the Leased Property in whole or in part, such substitution shall also operate to substitute property for the Leased Property which is leased hereunder. If the City exercises its option under Section 3.3 of the Lease to release a portion of the Leased Property from the Lease, such substitution shall also operate to release such portion of the Leased Property hereunder. The description of the Leased Property which is leased under the Lease shall conform at all times to the description of the Leased Property which is leased hereunder. SECTION 7. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property, or any portion thereof, at any reasonable time to inspect the same or to make any repairs, improvements or changes necessary for the preservation thereof. SECTION 8. Termination. The Authority agrees, upon the termination of this Site Lease, to quit and surrender the Leased Property in the same good order and condition as the Leased Property was in at the time of commencement of the term hereof, reasonable wear and tear excepted, and agrees that all buildings, improvements and structures then existing upon the Leased Property shall remain thereon and title thereto shall vest thereupon in the City for no additional consideration. SECTION 9. Default. If the Authority defaults in the performance of any obligation on its part to be performed under the terms of this Site Lease, which default continues for 30 days following notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of this Site Lease and of the Lease shall be deemed to occur as a result thereof and no such remedy may include termination hereof; provided, however, that so long as the Lease remains in effect, the Lease Payments payable by the City under the Lease shall continue to be paid to the Trustee. SECTION 10. Quiet Enjoyment. The Authority at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Leased Property, subject to the provisions of the Lease and subject only to Permitted Encumbrances (as that term is defined in the Lease). SECTION 11. Waiver of Personal Liability. All liabilities under this Site Lease on the part of the Authority are solely corporate liabilities of the Authority as a public entity, and the City hereby releases each and every member and officer of the Authority of and from any personal or individual liability under this Site Lease. No member or officer of the Authority or its governing board shall at any time or under any circumstances be individually or personally liable under this Site Lease for anything done or omitted to be done by the Authority hereunder. -3- SECTION 12. Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property and any improvements thereon. SECTION 13. Eminent Domain. If the whole or any part of the Leased Property or any improvements thereon is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of the then unpaid Lease Payments payable under the Lease and the balance of the award, if any, shall be paid to the City. SECTION 14. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Site Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Site Lease shall be affected thereby, and each provision of this Site Lease shall be valid and enforceable to the fullest extent permitted by law. SECTION 15. Notices. Any notice, request, complaint, demand or other communication under this Site Lease shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopy, telex or other form of telecommunication, at its number set forth below. Notice shall be effective either (a) upon transmission by telecopy, telex or other form of telecommunication, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The City, the Authority and the Trustee 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 Authority City of Lodi or the City. 221 West Pine Street Lodi, CA 95240 Attention: City Manager Fax: (209) 333-6710 If to the Trustee: U.S. Bank National Association Attn.: Corporate Finance 100 California Street, Suite 1000 San Francisco, CA 94111 Fax: 415-677-3768 SECTION 16. Amendment of this Site Lease. The Authority and the City may at any time amend or modify any of the provisions of this Site Lease, but only (a) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Bonds; or (b) without the consent of any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to make cure any ambiguity, or to cure, correct or supplement any defective provision contained herein, or in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds; -4- (ii) to amend any provision hereof relating to the Tax Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on the Bonds under the Tax Code, in the opinion of Bond Counsel; (iii) to conform to any amendment of the Indenture which is made thereto in accordance with Section 9.01 of the Indenture; or (iv) for the purpose of effectuating any substitution or release of property under Section 6. SECTION 17. Governing Law. This Site Lease shall be construed in accordance with and governed by the Constitution and laws of the State of California. SECTION 18. Third Party Beneficiary. The Trustee is hereby made a third party beneficiary under this Site Lease with all rights of a third party beneficiary. SECTION 19. Binding Effect. This Site Lease inures to the benefit of and is binding upon the Authority, the City and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 20. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Site Lease. SECTION 21. Execution in Counterparts. This Site Lease may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same lease. It is also agreed that separate counterparts of this Site Lease may be separately executed by the Authority and the City, all with the same force and effect as though the same counterpart had been executed by both the Authority and the City. SECTION 22. Defined Terms. All capitalized terms used herein and not otherwise defined have the respective meanings given those terms in the Indenture. -5- IN WITNESS WHEREOF, the City and the Authority have caused this Site Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. Attest: Attest: City Clerk Secretary CITY OF LODI, as lessor 0 City Manager LODI PUBLIC FINANCING AUTHORITY, as lessee 0 0 Executive Director APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Lodi, County of San Joaquin, State of California, which is more particularly described as follows: A-1 U Y 3 � a PPRELIMINARY OFFICIAL STATEMENT DATED AUGUST _, 2012 NEW ISSUE - FULL BOOK -ENTRY RATINGS: Fitch: " " Standard & Poor's: "_" See "Ratings". In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS. " Dated: Date of Delivery W ^ LODI PUBLIC FINANCING AUTHORITY 2012 Refunding Lease Revenue Bonds Due: October 1, as shown on inside cover Authority for Issuance. The 2012 Refunding Lease Revenue Bonds (the "Bonds") are being issued by the Lodi Public Financing Authority (the "Authority") under a resolution adopted by the Board of Directors of the Authority on August 1, 2012, and an Indenture of Trust dated as of September 1, 2012 (the "Indenture") by and between the Authority and U.S. Bank National Association, as trustee for the Bonds (the "Trustee"). See "THE BONDS - Authority for Issuance." Use of Proceeds. The proceeds of the Bonds will be used to (i) refinance $ outstanding principal amount of City of Lodi (the "City") Certificates of Participation (2002 Public Improvement Financing Project) (the "Refunded Certificates") and the City's related lease payment obligation; and (ii) pay the costs of issuing the Bonds. See "THE REFINANCING PLAN." Security for the Bonds. Under the Indenture, the Bonds will be payable solely from and secured by Revenues and certain funds and accounts held under the Indenture. Revenues consist primarily of lease payments ("Lease Payments") to be made by the City pursuant to a Lease Agreement, dated as of September 1, 2012 (the "Lease"), by and between the Authority and the City, for the leasing of certain real property. Under the Lease, the City covenants to take such action as necessary to include the Lease Payments in its annual budgets and to make all necessary appropriations for such Lease Payments (subject to abatement under certain circumstances as described in this Official Statement). See "SECURITY FOR THE BONDS." Bond Terms; Book -Entry Only. The Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on April 1 and October 1 of each year, commencing on April 1, 2013, and will be issued in fully -registered form without coupons in integral multiples of $5,000. The Bonds will be issued in book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Purchasers of the Bonds will not receive certificates representing their interests in the Bonds. Payments of the principal of, premium, if any, and interest on the Bonds will be made to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. See "THE BONDS - General Provisions." Redemption. The Bonds are subject to redemption prior to maturity. See "THE BONDS - Redemption." NEITHER THE BONDS, NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE BONDS, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS, CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING POWER. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE BONDS. The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California. It is anticipated that the Bonds will be delivered in book -entry form through the facilities of DTC on or about September _, 2012. J.P. Morgan Stone & Youngberg, a Division of Stifel Nicolaus The date of this Official Statement is: August _, 2012. Preliminary; subject to change. DOCSOC/1565093v 16/022245-0260 Maturity Date (October 1) MATURITY SCHEDULE (Base CUSIPt: Principal Interest Amount Rate Price or Yield t Copyright 2012, American Bankers Association. CUSIP data provided herein is provided by Standard and Poor's CUSIP Service Bureau, a division of The McGraw Hill Companies, Inc. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. Neither the Authority, City nor the Underwriters take any responsibility for the accuracy of such numbers. DOCSOC/1565093v 16/022245-0260 LODI PUBLIC FINANCING AUTHORITY CITY OF LODI AUTHORITY BOARD/CITY COUNCIL JoAnne Mounce /Mayor/Chair Alan Nakanishi/Mayor Pro Tem/Vice-Chair Larry Hansen/Councilmember/ Member Phil Katzakian/Councilmember/Member Bob Johnson/Councilmember/Member AUTHORITY/CITY OFFICIALS Konradt Bartlam/City Manager/Executive Director Jordan Ayers/Deputy City Manager/Treasurer Randi Johl/City Clerk/Secretary Steve Schwabauer, City Attorney/Authority Counsel BOND COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California FINANCIAL ADVISOR Lamont Financial Services Corporation Los Angeles, California TRUSTEE U.S. Bank National Association San Francisco, California VERIFICATION AGENT Causey Demgen & Moore Inc. DOCSOC/1565093v 16/022245-0260 No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriters to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein; and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the City or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the Authority and the City and from other sources that the Authority and the City believe to be reliable. The information and expression of opinion herein are subject to change without notice and neither delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. All summaries of the Resolution or other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. In connection with the offering of the Bonds, the Underwriters may overallot or effect transactions that stabilize or maintain the market price of such Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Bonds to certain dealers and dealer banks and banks acting as agents at prices lower than the public offering prices stated on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The Bonds have not been registered or qualified under the securities laws of any state. Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. Such forward-looking statements include but are not limited to certain statements contained in the information in Appendix A — "THE CITY OF LODI" in this Official Statement. The achievement of certain results or other expectations contained in such forward- looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Neither the Authority nor the City plans to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. The City maintains a website. However, the information presented therein is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. DOCSOC/1565093v 16/022245-0260 TABLE OF CONTENTS INTRODUCTION................................................................................................................................1 THEREFINANCING PLAN..............................................................................................................3 Estimated Sources and Uses of Funds....................................................................................... 4 THE LEASED PROPERTY............................................................................................................... 4 Description .................................. Modifications of Leased Property Substitution .................................. Release of Leased Property ......... THE BONDS .......................................... ............................. 5 ............................. 6 ............................. 6 Authorityfor Issuance............................................................................................................... 6 GeneralProvisions..................................................................................................................... 7 Transfer, Registration and Exchange........................................................................................ 7 Redemption............................................................................................................................... 7 Book -Entry Only System.......................................................................................................... 8 SECURITYFOR THE BONDS......................................................................................................... 9 Pledgeof Revenues.................................................................................................................10 Lease Payments; Covenant to Appropriate.............................................................................10 Abatement...............................................................................................................................11 Insurance; Condemnation........................................................................................................ l l NoReserve Account................................................................................................................ l l Remedies.................................................................................................................................12 THEAUTHORITY...........................................................................................................................12 THECITY..........................................................................................................................................12 City Financial Information......................................................................................................12 CityFinancial Outlook............................................................................................................12 STATEBUDGET...............................................................................................................................13 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS..........................................................................................................................14 Article XIIIA of the State Constitution...................................................................................14 Article XIIB of the State Constitution.....................................................................................15 Articles XIIIC and XIIID of the State Constitution................................................................15 Proposition62..........................................................................................................................17 PropositionIA ..........................................................................................................................18 FutureInitiatives......................................................................................................................18 RISKFACTORS................................................................................................................................18 Special Obligations of the Authority.......................................................................................18 NoPledge of Taxes.................................................................................................................18 Additional Obligations of the City..........................................................................................19 Default.....................................................................................................................................19 Abatement............................................................................................................................... 20 NaturalCalamities................................................................................................................... 20 StateBudget............................................................................................................................ 20 Limitations on Remedies Available to Bond Owners............................................................. 20 Lossof Tax-Exemption........................................................................................................... 21 Secondary Market for Bonds................................................................................................... 21 TAXMATTERS................................................................................................................................ 21 CERTAIN LEGAL MATTERS DOCSOC/1565093v 16/022245-0260 23 LITIGATION..................................................................................................................................... 23 FINANCIAL STATEMENTS...........................................................................................................23 RATINGS........................................................................................................................................... 24 CONTINUING DISCLOSURE........................................................................................................ 24 FINANCIALADVISOR................................................................................................................... 24 UNDERWRITING............................................................................................................................. 25 VERIFICATION OF MATHEMATICAL COMPUTATIONS....................................................25 PROFESSIONALSERVICES.........................................................................................................25 EXECUTION..................................................................................................................................... 26 APPENDIX A: THE CITY OF LODI............................................................................................A-1 APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2011....................................................................................................... B-1 APPENDIX C: SUMMARY OF PRINCIPAL LEGAL DOCUMENTS....................................0-1 APPENDIX D: FORM OF OPINION OF BOND COUNSEL....................................................D-1 APPENDIX E: FORM OF CONTINUING DISCLOSURE AGREEMENT ............................. E-1 APPENDIX F: DTC AND THE BOOK -ENTRY ONLY SYSTEM ........................................... F-1 ii DOCSOC/1565093v 16/022245-0260 OFFICIAL STATEMENT LODI PUBLIC FINANCING AUTHORITY 2012 REFUNDING LEASE REVENUE BONDS INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the meanings set forth in the Indenture (as defined below). See "APPENDIX C - Summary of Principal Legal Documents." Authority for Issuance. The Lodi Public Financing Authority (the "Authority") is issuing its 2012 Refunding Lease Revenue Bonds (the "Bonds") under the following legal authority: (a) Articles 10 and 11 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, commencing with Section 6584 (the "Bond Law"), (b) a resolution adopted by the Board of Directors (the "Board") of the Authority on August 1, 2012 (the "Authority Resolution"), and a resolution adopted by the City Council (the "City Council") of the City of Lodi (the "City") on August 1, 2012 (the "City Resolution"), and (c) an Indenture of Trust (the "Indenture"), dated as of September 1, 2012, by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee"). Form of Bonds; Book Entry Only. The Bonds will be issued in fully registered form, registered in the name of The Depository Trust Company, New York, New York ("DTC"), or its nominee, which will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing the Bonds that are purchased. See "THE BONDS - Book -Entry Only System" and "APPENDIX F - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Purpose of the Bonds. The Bonds are being issued to provide funds to (i) refinance $ outstanding principal amount of the City's Certificates of Participation (2002 Public Improvement Financing Project) (the "Refunded Certificates"); and (ii) pay the costs of issuing the Bonds. Security for the Bonds and Pledge of Revenues. The Bonds will be payable solely from and secured by Revenues and certain funds and accounts held under the Indenture. Revenues consist primarily of Lease Payments to be made by the City pursuant to a Lease Agreement, dated as of September 1, 2012, between the City and the Authority (the "Lease"). See "THE LEASED PROPERTY." Under the Lease, the City covenants to take such action as necessary to include the Lease Payments in its annual budgets and to make all necessary appropriations for such Lease * Preliminary; subject to change. DOCSOC/1565093v 16/022245-0260 Payments (subject to abatement under certain circumstances described in the Lease). See "SECURITY FOR THE BONDS." The scheduled Lease Payments payable by the City under the Lease are calculated to be sufficient to permit the Authority to pay the principal of, and interest on, the Bonds when due. However, in the event of any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property, Lease Payments may be abated under the Lease without constituting a default. See "SECURITY FOR THE BONDS — Abatement" and "RISK FACTORS — Abatement." However, proceeds of insurance may be available to pay Lease Payments in the event of insured damage, destruction or condemnation with respect to the Leased Premises. Pursuant to an Assignment Agreement, dated as of September 1, 2012 (the "Assignment Agreement"), by and between the Authority and the Trustee, the Authority has assigned to the Trustee for the benefit of the Owners of the Bonds, certain of the Authority's rights under the Lease, including its rights to receive Lease Payments and to enforce remedies in the event of a default by the City for the purpose of securing the payment of debt service on the Bonds. No Additional Parity Obligations. Under the Indenture, the Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part. The Lease Agreement does not prohibit the City from entering into other obligations payable from the General Fund of the City. Redemption. The Bonds are subject to redemption prior to their stated maturity dates. See "THE BONDS - Redemption." Abatement. The Lease provides that the obligation of the City to pay Lease Payments will be subject to abatement by reason of (i) any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or (ii) a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property. However, to the extent proceeds of rental interruption insurance are available with respect to the Bonds (as described below), Lease Payments (or a portion thereof) may be made from that source. See "SECURITY FOR THE BONDS - Abatement" and "RISK FACTORS - Abatement." Risks of Investment. The Bonds are repayable primarily from Lease Payments and other amounts payable by the City under the Lease. For a discussion of some of the risks associated with the purchase of the Bonds, see "RISK FACTORS." NEITHER THE BONDS, THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE BONDS, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS, CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING POWER. 2 DOCSOC/1565093v 16/022245-0260 THE REFINANCING PLAN The Bonds are being issued to provide funds to (i) refinance the Refunded Certificates and the City's related lease payment obligation, and (ii) pay the costs of issuing the Bonds. The Refunded Certificates were executed and delivered for the purpose of (i) financing the costs of constructing, furnishing and equipping a new police building and jail for the City, (ii) financing portions of other projects, (iii) refunding on a current basis the City's $3,985,000 aggregate principal amount of outstanding Certificates of Participation (1995 Public Improvement Financing Project) and refunding on an advance basis the City's $8,440,000 aggregate principal amount of outstanding Certificates of Participation (1996 Public Improvement Financing Project), (iv) funding a debt service reserve fund for the Refunded Certificates and (v) paying the costs of execution and delivery of the Refunded Certificates. The Refunded Certificates consist of the following: Certificates of Participation (2002 Public Improvement Financing Project) Base CUSIPt Number: 540236 Maturity Date Principal CUSIP Maturity or (October 1) Amount Numbert Prepayment Date 2012 $655,000 DU7 10/1/2012 2013 690,000 DV5 10/1/2012 2014 715,000 DW3 10/1/2012 2015 745,000 DX1 10/1/2012 2016 775,000 DY9 10/1/2012 2017 815,000 DZ6 10/1/2012 2018 855,000 EAO 10/1/2012 2019 895,000 E138 10/1/2012 2020 935,000 EC6 10/1/2012 2021 985,000 ED4 10/1/2012 2026 5,695,000 EE2 10/1/2012 2031 7,265,000 EF9 10/1/2012 Upon the execution and delivery of the Bonds, a portion of the proceeds thereof and other available moneys with respect to the Refunded Certificates shall be applied to the purchase of certain direct obligations of the United States of America, along with uninvested cash and earnings on the obligations, which will satisfy the City's payment obligations with respect to the Refunded Certificates until their payment or prepayment dates. These direct obligations and cash shall be deposited in an escrow account held by U.S. Bank National Association, as escrow agent for the Refunded Certificates (the "Escrow Agent") under an escrow agreement (the "Escrow Agreement") that will require the Escrow Agent to apply the principal of and interest on such obligations, together ' CUSIP® is a registered trademark of the American Bankers Association. Copyright© 2012 Standard & Poor's, a Division of the McGraw Hill Companies, Inc. CUSIP® data herein is provided by Standard & Poor's CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the City, the Authority nor the Underwriters take any responsibility for the accuracy of such numbers. DOCSOC/1565093v 16/022245-0260 with other moneys held by the Escrow Agent, to the payment or prepayment of the Refunded Certificates on their respective payment or prepayment dates set forth in the table below. The obligations of the United States of America so deposited with the Escrow Agent into the escrow account for the Refunded Certificates will bear interest at such rates and will be scheduled to mature at such times and in such amounts that, when paid in accordance with their terms, together with any other funds held by the Escrow Agent under the Escrow Agreement, will be sufficient to make full and timely payment of the principal of and interest evidenced and represented by the Refunded Certificates prior to their respective scheduled payment or prepayment dates and to pay the prepayment price of the outstanding Refunded Certificates on such prepayment date. For information on mathematical verification for the sufficiency of scheduled payments with respect to such obligations of the United States of America and other funds held by the Escrow Agent to make such payments with respect to the Refunded Certificates, see "VERIFICATION OF MATHEMATICAL COMPUTATIONS." Upon such irrevocable deposit with the Escrow Agent and the receipt by the Escrow Agent of irrevocable escrow instructions from the City under the Escrow Agreement, the Refunded Certificates will be defeased and the owners of the Refunded Certificates will no longer be entitled to the benefits of the legal documents under which they were executed and delivered. The amounts held and invested by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the Refunded Certificates. Neither the funds deposited in the Escrow Fund nor the interest on the invested funds will be available for the payment of debt service on the Bonds. Estimated Sources and Uses of Funds The estimated sources and uses of funds relating to the Bonds are as follows: Sources: Principal Amount Plus Original Issue Premium Less Underwriters' Discount Plus Available Money Relating to the Refunded Certificates Total Sources Uses: Escrow Fund Costs of Issuance (1) Total Uses E W E (1) Represents funds to be used to pay Costs of Issuance, which include legal fees, printing costs, rating agency fees and other miscellaneous expenses. THE LEASED PROPERTY Lease Payments will be made by the City under the Lease for the use and occupancy of the Leased Property, which is described in greater detail below. 4 DOCSOC/1565093v 16/022245-0260 Description The Property being leased under the Lease (the "Leased Property") includes (i) the real property and facilities comprising the Police Building and (ii) the real property and the facilities comprising Carnegie Forum. Police Building. The Police Building, located at 215 West Elm Street, houses the Police department, the Lodi City jail and 7,648 square feet of space rented by the State of California for a Superior Court branch. Completed in 2003, the 52,500 square foot building sits on property that is approximately 1.01 acres and is part of the larger complex of buildings that comprise the downtown campus, including City Hall, the old public safety building and Carnegie Forum. The Police Building has an insured value of approximately $17,500,000. Carnegie Forum. Carnegie Forum, located adjacent to the City Hall building houses the Lodi City Council Chambers, conference rooms and, in the basement, the Information Technology division. The brick building was originally built as a library in 1909 and was extensively remodeled to its current use in 1989. The 1.9 acre City Hall/Carnegie Forum sites front Pine Street at the edge of the revitalized downtown. Carnegie Forum has an insured value of approximately $2,832,000. Modifications of Leased Property Under the Lease, the City will have the right during the term of the Lease to make additions, modifications and improvements to the Leased Property or any portion thereof. Such additions, modifications and improvements may not in any way damage the Leased Property, or cause the Leased Property to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements, must be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. Substitution Under the Lease, the City has the option at any time and from time to time, to substitute other real property (the "Substitute Property") for the Leased Property or any portion thereof (the "Former Property"), upon satisfaction of all of the requirements set forth in the Lease, which includes (among others) the following: • No Event of Default under the Lease has occurred and is continuing. • The City has obtained a CLTA policy of title insurance insuring the City's leasehold estate under the Lease in the Substitute Property, subject only to Permitted Encumbrances (as defined in the Lease), in an amount at least equal to the estimated value thereof. • The City has certified in writing to the Authority and the Trustee that the Substitute Property serves the municipal purposes of the City and constitutes property which the City is permitted to lease under the laws of the State of California, and has been determined to be essential to the proper, efficient and economic operation of the City and to serve an essential governmental function of the City. 5 DOCSOC/1565093v 16/022245-0260 The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made herein. The City has filed with the Authority and the Trustee a written certificate of the City or other written evidencing stating that the useful life of the Substitute Property at least extends to October 1, , that the estimated value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the Lease Payments thereafter coming due and payable under the Lease. The City has mailed written notice of the substitution to each rating agency that then maintains a rating on the Bonds. See "APPENDIX C — Summary of Principal Legal Documents." After a substitution, the Former Property will be released from the leasehold, as appropriate. The Authority and the City will also make any amendments needed to be made to the Lease, and will enter into any necessary site or ground leases in connection with such substitution. Such amendments may be made without the consent of Bondowners. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments as a result of a substitution. Release of Leased Property Under the Lease, the City has the option at any time and from time to time during the term of the Lease to release from the Lease any portion of the Leased Property; provided that the City satisfies all of the requirements under the Lease that are conditions precedent to such removal, which include (among others) the following: No Event of Default has occurred and is continuing. The City has certified in writing to the Authority and the Trustee that the value of the property which remains subject to the Lease following such release is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the property which remains subject to the Lease following such release is at least equal to the Lease Payments thereafter coming due and payable. See "APPENDIX C - Summary of Principal Legal Documents." THE BONDS Authority for Issuance The Bonds are being issued under the Bond Law, the Authority Resolution (which was adopted by the Board of Directors of the Authority on August _, 2012), the City Resolution (which was adopted by the City Council on August _, 2012), and the Indenture. 6 DOCSOC/1565093v 16/022245-0260 General Provisions Bond Terms. The Bonds will be dated their date of delivery and issued in fully registered form without coupons in integral multiples of $5,000. The Bonds will mature in the amounts and on the dates, and bear interest at the annual rates, set forth on the inside cover page of this Official Statement. Payments of Principal and Interest. Interest on the Bonds will be payable on April 1 and October 1 in each year, beginning April 1, 2013 (each an "Interest Payment Date"). Principal on the Bonds will be payable on October 1 in the amounts and in the years set forth on the inside front cover of this Official Statement. While the Bonds are subject to the book -entry system, the principal, interest and any prepayment premium with respect to the Bonds will be paid by the Trustee to DTC for subsequent disbursement to beneficial owners of the Bonds. See APPENDIX F — "DTC AND THE BOOK - ENTRY ONLY SYSTEM." Interest on the Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Principal and premium, if any, with respect to each Bond is payable upon surrender of such Bond at the Office of the Trustee in St. Paul, Minnesota, upon maturity or the earlier redemption thereof. The principal of, premium, if any, and interest on the Bonds will be payable in lawful money of the United States of America. Interest with respect to the Bonds will be computed on the basis of a 360 day year composed of twelve 30 -day months. Transfer, Registration and Exchange See "APPENDIX C - Summary of Principal Legal Documents" for a description of the provisions of the Indenture relating to the transfer, registration and exchange of the Bonds. Redemption Optional Redemption. The Bonds maturing on or before October 1, 20_ are not subject to optional redemption prior to their stated maturity. The Bonds maturing on or after October 1, 20_ are subject to redemption, as a whole or in part at the election of the Authority among maturities on such basis as designated by the Authority and by lot within a maturity, at the option of the Authority, on October 1, 20_ and on any date thereafter, at a redemption price equal to 100% of the principal 7 DOCSOC/1565093v 16/022245-0260 amount of Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds are subject to redemption as a whole, or in part on a pro rata basis among maturities, on any date, from any Net Proceeds of insurance or an eminent domain award with respect to the Leased Property which are not applied to repair, rebuild or replace the Leased Property as provided in the Indenture, at a redemption price equal to 100% of the principal amount to be redeemed plus interest accrued thereon to the date fixed for redemption, without premium. Notice of Redemption. Notice of redemption will be mailed by the Trustee, first class, postage prepaid, not more than 60 and not less than 30 days before any redemption date, to the respective registered Owners of any Bonds designated for redemption at their addresses appearing on the registration books maintained by the Trustee and to one or more Securities Depositories and the Municipal Securities Rulemaking Board. Neither the failure to receive any notice nor any defect therein will affect the proceedings for such redemption. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds of a single maturity, the Trustee will select the Bonds to be redeemed from all Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, Bonds will be deemed to be comprised of $5,000 portions and each portion will be subject to redemption as if such portion were a separate Bond. Effect of Redemption. If notice of redemption has been duly given and money for the payment of the redemption price of the Bonds called for redemption has been duly provided, such Bonds so called will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon from and after the redemption date specified in such notice. Rescission of Redemption. The Authority has the right to rescind any notice of optional redemption of Bonds by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Indenture. Book -Entry Only System The Bonds will be issued as fully registered bonds in book -entry only form, registered in the name of Cede & Co. as nominee of DTC, and will be available to ultimate purchasers in integral multiples of $5,000, under the book -entry system maintained by DTC. While the Bonds are subject to the book -entry system, the principal, interest and any prepayment premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC. 8 DOCSOC/1565093v 16/022245-0260 See "APPENDIX F - DTC AND THE BOOK -ENTRY ONLY SYSTEM" for further information regarding DTC and the book -entry system. DEBT SERVICE SCHEDULE The table below shows annual debt service payments on the Bonds, assuming no optional or extraordinary redemption. Year Ending October 1 Principal Interest Debt Service SECURITY FOR THE BONDS The principal of and interest on the Bonds are not a debt of the Authority (except to the limited extent described in this Official Statement) or the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of their respective property, or upon any of their income, receipts, or revenues except the Revenues and other amounts pledged under the Indenture. This section provides summaries of the security for the Bonds and certain provisions of the Indenture and the Lease. See "APPENDIX C - Summary of Principal Legal Documents" for a more complete summary of the Indenture and the Lease. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C. 9 DOCSOC/1565093v 16/022245-0260 Pledge of Revenues The Bonds are payable from and secured by a pledge of Revenues and certain funds and accounts established and held by the Trustee under the Indenture. Revenues, as defined in the Indenture, mean: (a) all amounts received by the Authority or the Trustee under or with respect to the Lease, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding (i) any amounts described in the provisions of the Lease relating to permitted amendments that provide for additional rental to be pledged or assigned for the payment of bonds issued to finance or refinance projects for which the City is authorized to expend its funds, and (ii) any Additional Rental Payments (consisting of certain administrative costs due to the Authority and the Trustee under the Lease), and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture. Pursuant to the Assignment Agreement, the Authority has assigned to the Trustee for the benefit of the Owners of the Bonds, certain of its rights under the Lease, including its right to receive Lease Payments for the purpose of securing the payment of debt service e on the Bonds and the right to pursue remedies in the event the City defaults under the lease. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE OF REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE COUNTY, THE STATE OF CALIFORNIA (THE "STATE") OR ANY OF ITS POLITICAL SUBDIVISIONS (INCLUDING ANY MEMBER OF THE AUTHORITY) IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS. Lease Payments; Covenant to Appropriate The City covenants, under the Lease, to make Lease Payments as rental for the right to use and occupy the Leased Property under the Lease. Amounts of the scheduled Lease Payments are calculated to be sufficient to pay debt service on the Bonds when due. Lease Payments will be paid by the City semiannually to the Trustee on the Business Day immediately preceding each Interest Payment Date. Upon receipt, the Trustee will deposit the Lease Payments in the Bond Fund for the purposes of paying principal of and interest on the Bonds. The City covenants under the Lease to take such action as may be necessary to include all Lease Payments and Additional Rent in its annual budgets and to make the necessary annual appropriations for all such rental payments. 10 DOCSOC/1565093v 16/022245-0260 Under certain circumstances described in the Lease, however, Lease Payments are subject to abatement during periods of substantial interference with the City's use and occupancy of all or a portion of the Leased Property, as described in " — Abatement" below. Abatement The Lease provides that the obligation of the City to pay Lease Payments will be subject to abatement by reason of (i) any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or (ii) a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property. Such abatement will be in an amount determined by the City, such that the resulting unabated portion of the Lease Payments will represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. Notwithstanding the foregoing, under the Lease, the Lease Payments will not be subject to abatement to the extent that proceeds from rental interruption insurance are available to pay the portion of the Lease Payments which would otherwise be abated. Insurance; Condemnation In the event of an abatement of Lease Payments, debt service on the Bonds may, to a certain extent, be covered by insurance proceeds. The City is required to procure and maintain rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of certain hazards pursuant to the Lease. Such insurance will be in an amount at least equal to the maximum amount of Lease Payments coming due and payable during any consecutive two Fiscal Years. The Net Proceeds of such insurance, if any, will be paid to the Trustee and deposited in the Bond Fund, for application as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable. The Lease also requires the City to maintain title insurance, standard commercial general liability insurance and casualty insurance with respect to the Leased Property. Any Net Proceeds under such title insurance policy will be deposited with the Trustee in the Bond Fund, to be credited towards the prepayment of the remaining Lease Payments under the Lease. The required casualty insurance will have a coverage amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate principal amount of the Bonds, and may be subject to such deductibles as the City deems adequate and prudent. See Appendix C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" for a description of provisions of the Lease Agreement and the Trust Indenture relating to the application of proceeds from the casualty insurance or condemnation awards. See "RISK FACTORS — Abatement." No Reserve Account No debt service reserve account has been established with respect to the Bonds. 11 DOCSOC/1565093v 16/022245-0260 Remedies If the City defaults in performance of its obligations under the Lease, the Authority or the Trustee, as assignee of the Authority, may either terminate the Lease and re-enter and re -let all or a portion of the Leased Property or may retain the Lease and hold the City liable for all payments on an annual basis and still have the right to re-enter and re -let the Leased Property without effecting a surrender of the Lease. Additionally, the Trustee may pursue remedies at law or in equity to enforce the Lease. Although the Lease and the Indenture provide that the Trustee, as assignee of the Authority, may take possession of the Leased Property if there is a default by the City, and the Lease provides that the Trustee may have such rights of access to the Leased Property as may be necessary to exercise any remedies, portions of the Leased Property may not be easily recoverable and, even if recovered, could be of little value to others. There can be no assurance that the Leased Property can be re -let for an amount equal to all outstanding Lease Payments. Due to the essential nature of the governmental functions of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re -letting with respect thereto. In addition, the remedy of repossession and re -letting may prove to be unavailable or not economically viable with respect to all or portions of the Leased Property because the Authority has only a leasehold or other possessory right to some of the Leased Property. Therefore, repossession of the Leased Property in such instances may not be an available remedy. In addition, assuming the Leased Property could be repossessed, it may prove functionally impossible to relet. THE AUTHORITY The Authority was created in July 2010 by a joint exercise of powers agreement, which was entered into between the City and Industrial Development Authority of the City of Lodi ("IDA"), pursuant to the provisions of the Act. Under the Joint Exercise of Powers Agreement, the Authority is a public entity, separate from the City and the IDA. The debts, liabilities and obligations of the Authority are not debts, liabilities and obligations of either the City or the IDA. The Authority is administered by a governing board consisting of the members of the Lodi City Council. THE CITY City Financial Information Certain financial, economic and demographic information regarding the City is contained in APPENDIX A - "THE CITY OF LODI" and APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2011." Each contains important information concerning the City and should be read in its entirety. In particular, Appendix A describes certain factors that have affected the City's financial condition in the past and that could materially affect the financial condition of the City in future fiscal years, including variations in property tax growth rates, and increasing retirement and other labor costs, and the financial condition of the State. City Financial Outlook Although the recession and generally prevailing economic conditions have resulted in a decline in City revenues (including property and sales taxes) of approximately 10% since Fiscal Year 12 DOCSOC/1565093v 16/022245-0260 2007-2008, the City has not experienced the severe financial impacts faced by many other local governments throughout the State. The City attributes this to a number of factors, including the City's Growth Management Program. The program has been in place for over twenty years. Due to the program, residential growth in the City was moderate (as compared to the rapid increase in development and assessed valuations experienced by other local governments in the State during the housing boom which ended in 2007 and 2008). As a result, when the economy slowed and the recession began in 2007 and 2008, the City did not experience the significant reductions in property values and property tax revenue that surrounding communities have seen. In addition, the City's foreclosure rate is significantly lower than surrounding communities. The City has experienced significant increases in its labor related costs over the last several years. The City recently completed negotiations with all labor groups whose contracts expired during the 2011-12 fiscal year. Of the City's 9 bargaining units, 8 had contracts that expired during the year. Key elements in the new contracts, which generally end on December 31, 2013, include employees paying the full share of the employee share of retirement by the end of the contract, capping City medical cost exposure at the January 2012 levels and establishing a second tier retirement system for all new hires. Additionally, similar benefit changes were approved for executive, confidential and appointed staff along with Council members. Savings to the City from these changes over the term of the contracts is estimated to be $3.6 million. See APPENDIX A - "THE CITY OF LODI" for financial information relating to the City, including the City's adopted budget for Fiscal Year 2012-13." STATE BUDGET The State has been experiencing significant financial stress, experiencing budget shortfalls in the billions of dollars each of the last several years. State revenues have declined significantly as a result of recent economic conditions and other factors. While the State is not a significant source of City revenues, and the City does not anticipate that the State's financial condition will materially adversely affect the financial condition of the City, there can be no assurances state financial pressures will not adversely affect the City. The State's adopted budget for Fiscal Year 2012-13 contains billions of dollars of cuts in expenditures, as well as increased revenues (including a temporary increase in income and sales taxes proposed for the November 2012 ballot (the "2012 Tax Initiative")) to balance the State's budget for Fiscal Year 2012-13 and to rebuild a reserve. The proposed State budget also sets forth $6.1 billion in trigger cuts that are scheduled to go into effect on January 1, 2013 should the Governor's 2012 Tax Initiative fail to pass, including reduced funding for schools, community colleges and other higher education institutions, and reduced funding for a variety of public safety programs. Information about the State Budget is regularly available at various State -maintained websites. An impartial analysis of the budget is posted by the Legislative Analyst Office at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, the Authority or the Underwriters, and the City, the Authority and the Underwriters take no responsibility for the continued accuracy of the Internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. 13 DOCSOC/1565093v 16/022245-0260 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS The ability of the City to raise fees, taxes and other revenues is limited. Following is a description of certain constitutional limitations on taxes and appropriations applicable to the City. For a description of other factors relating to the revenues of the City, see APPENDIX A —"THE CITY OF LODI." Article XIIIA of the State Constitution Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the Voters prior to June 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after June 1, 1978, by two thirds of the votes cast by the voters voting on the Proposition. Section 2 of Article XIIIA defines "full cash value" to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under `full cash value' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. The voters of the State subsequently approved various measures which further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, does not constitute a "purchase" or "change of ownership" triggering reassessment under Article XIIIA. This amendment could serve to reduce the property -tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or "severely disabled homeowners" who sell their residences and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence's assessed value to the new residence. In the November 1990 election, the voters approved the amendment of Article XIIIA to permit the State Legislature to exclude from the definition of "newly constructed" the construction or installation of seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990. Article XIIIA has also been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster. 14 DOCSOC/1565093v 16/022245-0260 Article XIIB of the State Constitution Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, special district, authority or other political subdivision of the State to the appropriations limit for the prior Fiscal Year, as adjusted for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The "base year" for establishing this appropriations limit is the 1978-79 Fiscal Year. The appropriations limit may also be adjusted in emergency circumstances, subject to limitations. Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a Fiscal Year the "proceeds of taxes" levied by or for the entity, exclusive of certain State subventions, refunds of taxes, and benefit payments from retirement, unemployment insurance and disability insurance funds. "Proceeds of taxes" include but are not limited to, all tax revenues, certain State subventions received by the local governmental entity and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost of providing the service or regulation) and (2) the investment of tax revenues. Article XIIIB provides that if a governmental entity's revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two fiscal years. Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose, or appropriations for certain other limited purposes. Furthermore, Article XIIIB was amended in 1990 to exclude from the appropriations limit "all qualified capital outlay projects, as defined by the Legislature" from proceeds of taxes. The Legislature has defined "qualified capital outlay project" to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City's long term general fund lease obligations are generally excluded from the City's appropriations limit. Articles XIIIC and XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City's General Fund, require a two-thirds vote. Further, any general purpose tax the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election that must be held before November 6, 1998. The voter -approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the general fund, and no assurance can 15 DOCSOC/1565093v 16/022245-0260 be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. The City currently imposes the following general taxes: business -operations tax and transient -occupancy tax. Since all of these taxes were imposed before January 1, 1995, and have not been extended or increased since that date, these taxes should be exempt from the requirements of Article XIIIC. Any future increases in these taxes, however, would be subject to the voter requirement of Article XIIIC. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments that exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments confer a "special benefit," as defined in Article XIIID, over and above any general benefits conferred; (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected parties, and (iv) a prohibition against fees and charges used for general governmental services, including police, fire and library services, where the service is available to the public at large in substantially the same manner as it is to property owners. On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution by expanding the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, for performing investigations, inspections, and audits, for enforcing agricultural marketing orders, and for the administrative enforcement and adjudication thereof, (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property -related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bears a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. As of the date of this Official Statement, the City is unaware of any fees that would have to be reduced or eliminated because of Proposition 26. However, see APPENDIX A - "THE CITY OF LODI - Payments to General Fund from Electric Utility" for a discussion of annual transfers made to the General Fund from the City's electric utility. Currently, the City transfers a portion of utility fund gross operating revenues to the General Fund to cover indirect support costs. The City believes that charges relating to such services are exempt from Proposition 218. The City believes that any successful challenges, however, to the 16 DOCSOC/1565093v 16/022245-0260 transfers of utility fund revenues to the General Fund would not have an impact on the City's ability to pay the Lease Payment under the Lease Agreement. The City currently levies assessments for one landscape maintenance district and two property and business improvement districts. These assessments are approximately $399,500 annually. The City believes that each of such assessments and districts complies with the requirements of Article XIIID, unless otherwise exempt. Subsequent increases of such assessments, if any, would be required to comply. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City's general fund. If such repeal or reduction occurs, the City's operations could be adversely affected. Proposition 62 At the November 4, 1986, general election, the voters of the State approved Proposition 62, a statutory initiative (1) requiring that any tax imposed by local governmental entities for general governmental purposes be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency's legislative body and by a majority of the electorate of the governmental entity; (2) requiring that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction; (3) restricting the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (4) prohibiting the imposition of ad valorem taxes on real property by local governmental entities, except as permitted by Article XIIIA; (5) prohibiting the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (6) requiring that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. The Guardino decision did not address whether it should be applied retroactively. In response to Guardino, the California Legislature adopted Assembly Bill 1362, which provided that Guardino should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor; hence the application of the Guardino decision on a retroactive basis remains unclear. The Guardino decision also did not decide the question of the applicability of Proposition 62 to charter cities such as the City. Two cases decided by the California Courts of Appeals in 1993, Fielder v. City of Los Angeles (1993) 14 Cal.AppAth 137 (rev. den. May 27, 1993), and Fisher v. County of Alameda (1993) 20 Cal.AppAth 120 (rev. den. Feb. 24, 1994), held that the restriction imposed by Proposition 62 on property transfer taxes did not apply to charter cities because charter 17 DOCSOC/1565093v 16/022245-0260 cities derive their power to enact such taxes under Article XI, Section 5, of the California Constitution relating to municipal affairs. Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative. It is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State's electorate. However, Proposition 218, as a constitutional amendment, is applicable to charter cities and supersedes many of the provisions of Proposition 62. Proposition IA Senate Constitutional Amendment No. 4 was enacted by the Legislature and subsequently approved by the voters as Proposition IA at the November 2004 election. Among other things, Proposition IA amended the State Constitution to reduce the Legislature's authority over local government revenue sources by placing restrictions on the State's access to local governments' property, sales and vehicle -license fee revenues as of November 3, 2004, and by providing that the State may not reduce any local sales -tax rate, limit existing local government authority to levy a sales -tax rate or change the allocation of local sales -tax revenues, subject to certain exceptions. Future Initiatives Article XIIIA, Article XIIIB and Propositions 62 and 218 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time, other initiative measures could be adopted, further affecting City's revenues or their ability to expend revenues. RISK FACTORS The following describes certain special considerations and risk factors affecting the payment of and security for the Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors in the Bonds are advised to consider the following special factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other considerations will not materialize in the future. Special Obligations of the Authority The Bonds are special obligations of the Authority and are payable solely from, and secured by, a pledge of Revenues and certain funds and accounts held under the Indenture. Revenues consist primarily of Lease Payments payable by the City under the Lease. If, for any reason, the Revenues collected under the Indenture are not sufficient to pay debt service on the Bonds, the Authority will not be obligated to utilize any other of its funds, other than moneys on deposit in the Bond Fund and certain other funds and accounts established under the Indenture, to pay debt service on the Bonds. The Authority has no taxing power. No Pledge of Taxes The obligation of the City to pay the Lease Payments and Additional Rental does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments and Additional Rental does not constitute a debt or indebtedness of the 18 DOCSOC/1565093v 16/022245-0260 Authority, the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Limitations on Taxes and Fees The ability of the City to raise revenues is very limited. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." As of the date of this Official Statement, the City is unaware of any fees that would have to be reduced or eliminated because of these constitutional limitations, including Proposition 26. However, see APPENDIX A - "THE CITY OF LODI - Payments to General Fund from Electric Utility" for a discussion of annual transfers made to the General Fund from the City's electric utility. As described therein, while the City does not believe that these transfers are violative of Proposition 26. However, the provisions of Proposition 26 are subject to judicial interpretation, and there can be no assurances that, if challenged, a court would not find that the transfer violates Proposition 26. In such circumstances there can be no assurances that the City would not be required to discontinue the transfer, and refund all or a portion of the amount transferred after the passage of Proposition 26. The PILOT is projected to constitute approximately 16.6% of general fund revenues in Fiscal Year 2012-13. Additional Obligations of the City The City has existing obligations payable from its General Fund. See APPENDIX A - "THE CITY OF LODI - Outstanding General Fund Debt and Lease Obligations." The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Bonds. To the extent that additional obligations are incurred by the City, the funds available to pay Lease Payments may be decreased. The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Property, taxes and other governmental charges levied against the Leased Property) are payable from funds lawfully available to the City. If the amounts that the City is obligated to pay in a fiscal year exceed the City's revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments and Additional Rental, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. Default Whenever any event of default referred to in the Lease happens and continues, the Authority is authorized under the terms of the Lease to exercise any and all remedies available under law or granted under the Lease. See APPENDIX C — "Summary of Principal Legal Documents" for a detailed description of available remedies in the case of a default under the Lease. In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease. The Trustee is not empowered to sell the Leased Property and use the proceeds of such sale to prepay the Bonds or pay debt service on the Bonds. 19 DOCSOC/1565093v 16/022245-0260 The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year's defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest. Abatement Under certain circumstances related to damage, destruction, condemnation or title defects which cause a substantial interference with the use and possession of the Leased Property, the City's obligation to make Lease Payments will be subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and interest on the Bonds as and when due. See "SECURITY FOR THE BONDS - Abatement" and "APPENDIX C - Summary of Principal Legal Documents." Natural Calamities From time to time, the City is subject to natural calamities, including, but not limited to, earthquake, flood, or wildfire, that may adversely affect economic activity in the City, and which could have a negative impact on City finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial interference to the Leased Property (potentially resulting in abatement of the City's obligation to make Lease Payments), or that the City would have insurance or other resources available to make repairs to the Leased Property in order to make Lease Payments under the Lease. See "- Abatement" above. The City does not maintain earthquake insurance on the Leased Property. State Budget The State is facing significant financial stress. There can be no assurances that the State will not take budgetary or other actions which materially adversely affect the financial condition of the City. See "STATE BUDGET." Limitations on Remedies Available to Bond Owners The ability of the City to comply with its covenants under the Lease may be adversely affected by actions and events outside of the control of the City, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" above. Furthermore, any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Lease or the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on Bondholder remedies contained in the Lease and the Indenture, the rights and obligations under the Bonds, the Lease and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific 20 DOCSOC/1565093v 16/022245-0260 enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. The opinion of Bond Counsel notes that the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity. Loss of Tax -Exemption The City has covenanted in the Lease, and the Authority has covenanted in the Indenture, that each will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986. In the event either the City or the Authority fails to comply with the foregoing tax covenant, interest on the Bonds may be includable in the gross income of the Owners thereof for federal tax purposes. See "TAX MATTERS". Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then -prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the Bonds or obligations that present similar tax issues as the Bonds. TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the Authority and the City comply with amended (the "Tax Code") that must DOCSOC/1565093v 16/022245-0260 preceding paragraph are subject to the condition that the all requirements of the Internal Revenue Code of 1986, as be satisfied subsequent to the issuance of the Bonds. The 21 Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. 22 DOCSOC/1565093v 16/022245-0260 CERTAIN LEGAL MATTERS The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California. LITIGATION Litigation Concerning the Bonds. To the best knowledge of the City, there is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the City after reasonable investigation, 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 the Lease, the Site Lease or the Indenture, 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 the Lease, the Site Lease or the Indenture, 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 the Lease. Prior Environmental Litigation Involving the City. The City of Lodi initiated litigation in 2000 to address PCE and TCE contamination that threatened the City's water supply. The litigation exposed the City to several economic risks associated with: 1) the costs of the litigation; 2) the financing of the litigation; and 3) the City's wastewater system because the PCE had been discharged by private parties to, and may have leaked from the City's wastewater collection system. The City has now fully resolved the environmental clean up litigation, and all of the associated litigation that arose out of the economic risks referenced above. In exchange for money to fund the clean-up, the settlements require the City to perform the clean-up. The City estimates that its global unfunded liability for the contamination litigation is approximately $34.4 million, including a $15 million contingency. The City is paying the costs of the clean-up from revenues of the City's water system. The City raised its water rates an average of $10.50 per month in September of 2005 to meet this liability and the City believes that the revenues generated from this rate increase will fully fund the City's clean-up costs. FINANCIAL STATEMENTS Macias, Gini & O'Connell, Certified Public Accountants (the "Auditor"), audited the financial statements of the City for the Fiscal Year ended June 30, 2011. The Auditor's examination was made in accordance with generally accepted auditing standards and Governmental Auditing Standards, issued by the Comptroller General of the United States. See "APPENDIX B — Audited Financial Statements of the City for Fiscal Year Ended June 30, 2011." The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post -audit review of the financial condition or operations of the City. 23 DOCSOC/1565093v 16/022245-0260 RATINGS Standard & Poor's and Fitch are expected to assign the Bonds the long-term ratings of " " and ..", respectively. The ratings reflect only the respective views of the rating agencies, and any explanation of the significance of such ratings may be obtained only from such rating agencies as follows: Standard & Poor's, 55 Water Street, 38th Floor, New York, New York 10041; and Fitch Ratings, One State Street Plaza, New York, New York 10004. There is no assurance that the ratings will remain in effect for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, or either of them, if, in their respective judgments, circumstances so warrant. The City undertakes no responsibility to oppose any such revisions or withdrawal. Any downward revision or withdrawal of any rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than 210 days after the end of each fiscal year of the City (currently June 30th), commencing with the report for the 2011-12 fiscal year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. Such reports are required to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system ("EMMA"). The specific nature of the information to be contained in the Annual Report or the notices of environmental events is described in "APPENDIX D— Form of Continuing Disclosure Agreement," attached to this Official Statement. These covenants have been made in order to assist the underwriters of the Bonds in complying with Securities Exchange Commission Rule 15c2 12(b)(5). The City has entered into a number of continuing disclosure undertakings in connection with City obligations, including obligations payable from the City's General Fund, as well as obligations payable from the revenues relating to the City's electric, wastewater and water utilities. During the past five years, the City has prepared continuing disclosure reports pursuant to these undertakings and transmitted such reports to its dissemination agent in December following City Council receipt of the Comprehensive Annual Financial Report. However, the reports generally were filed on EMMA after the date required, and frequently certain of the reports were not filed so as to be linked on EMMA with all of the CUSIP numbers for the respective City obligations to which such reports related. Upon discovery of these issues in connection with the preparation of documentation with respect to the Bonds, the City corrected the filings on EMMA (so that the appropriate reports are "linked" on EMMA to the City obligations to which they relate). The City also will confirm that the dissemination agent files timely reports in the future. FINANCIAL ADVISOR Lamont Financial Services Corp. (the "Financial Advisor") has assisted the City with various matters relating to the planning, structuring and delivery of the Bonds. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Financial Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Financial Advisor will receive compensation from the City contingent upon the sale and delivery of the Bonds. 24 DOCSOC/1565093v 16/022245-0260 UNDERWRITING The underwriters set forth on the cover page of this Official Statement have entered into a bond purchase agreement with the Authority under which they will purchase the Bonds at a price of $ (equal to the par amount of the Bonds, plus original issue premium of $ , and less an Underwriter's discount of $). The Underwriters will be obligated to take and pay for all of the Bonds if any are taken. The Underwriters intend to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Underwriters. J.P. Morgan Securities LLC ("JPMS"), one of the Underwriters, provided the information contained in this paragraph for inclusion in this Official Statement and the City does not take any responsibility for or make any representation as to its accuracy or completeness. JPMS, one of the underwriters of the Bonds, has entered into negotiated dealer agreements (each, a "Dealer Agreement") with each of UBS Financial Services Inc. ("UBSFS") and Charles Schwab & Co., Inc. ("CS&Co.") for the retail distribution of certain securities offerings, including the Bonds, at the original issue prices. Pursuant to each Dealer Agreement, each of UBSFS and CS&Co. will purchase the Bonds from JPMS at the original issue prices less a negotiated portion of the selling concession applicable to any Bonds that such firm sells. VERIFICATION OF MATHEMATICAL COMPUTATIONS Upon delivery of the Bonds, Causey Demgen & Moore Inc., independent certified public accountants, will deliver a report stating that the firm has verified the mathematical accuracy of certain computations relating to the adequacy of the amounts deposited pursuant to the Escrow Agreement to pay the applicable redemption price of and accrued interest on, the Refunded Certificates on their respective payment and redemption dates. PROFESSIONAL SERVICES In connection with the issuance of the Bonds, all or a portion of the fees payable to the Bond Counsel, Underwriters' Counsel, the Financial Advisor and the Trustee are contingent upon the issuance and delivery of the Bonds. 25 DOCSOC/1565093v 16/022245-0260 EXECUTION The execution and delivery of this Official Statement have been authorized by the Board of Directors of the Authority and the City Council of the City. LODI PUBLIC FINANCING AUTHORITY M. Executive Director CITY OF LODI City Manager 26 DOCSOC/1565093v 16/022245-0260 APPENDIX A THE CITY OF LODI General The City of Lodi, California ("Lodi" or the "City") was incorporated as a General Law city on December 6, 1906. The City is located in the San Joaquin Valley between Stockton, 10 miles to the south, and Sacramento, 35 miles to the north, and adjacent to U.S. Highway 99. The City is located on the main line of the Union Pacific Railroad and is within five miles of Interstate 5. The City population is approximately 62,473 (as of January 1, 2011) and is contained in an area of 13.92 square miles. The City provides a wide range of municipal services, including public safety (police, fire and graffiti abatement), public utilities services (electric, water and sewer), transportation services (streets, flood control and transit), leisure, cultural and social services (parks and recreation, library, and community center), and general government services (management, human resources administration, financial administration, building maintenance and equipment maintenance). Lodi is built on a strong and broad based agricultural industry with national and industrial markets for its commodities and products. Wines, processed foods, nuts, fruit and milk are major commodities of the Lodi area and provide the basic material for food processing and packaging. These commodities support the operations of General Mills, Guild Winery and Pacific Coast Producers, three companies in the business of processing local agricultural commodities. In addition, Lodi has a wide range of small, financially sound businesses. These companies range in size from 10 to 150 employees and produce a wide variety of products, services and commodities. Municipal Government City Council. All powers of the City are vested in the City Council which is empowered to perform all duties of and obligations of the City as imposed by State law. The City has a five - member City Council comprised of members elected at large. Each council member is elected for four years with staggering terms. Members of the City Council are set forth below: Council Member Title JoAnne Mounce Mayor Alan Nakanishi Mayor Pro Tempore Larry D. Hansen Council Member Phil Katzakian Council Member Bob Johnson Council Member A-1 DOCSOC/1565093v 16/022245-0260 Expiration of Term December 5, 2012 December 3, 2014 December 3, 2014 December 3, 2014 December 5, 2012 City Staff. Biographies of senior management of the City follows: KONRADT BARTLAM, City Manager of the City of Lodi, was appointed to the position by the City Council on November 17, 2010 after a six-month stint as the interim manager. He had been Lodi's community development director for 11 of the previous 14 years. Bartlam served as Lodi's community development director from 1996 to 2005, left for other professional opportunities, and returned on a part-time basis in 2008. He has 25 years of municipal planning experience, and most recently managed the comprehensive update to Lodi's General Plan, adopted on April 7, 2010. JORDAN AYERS, Deputy City Manager/Internal Services Director, as been the City of Lodi's Deputy City Manager/Internal Services Director since Dec. 15, 2008. As Lodi's administrative second -in -command, Ayers oversees the City's Finance, Budget and Treasury, Information Systems and Human Resources functions. Ayers came to Lodi after a 26 -year career with Sacramento County. He was deputy director for administrative and business services within Sacramento County's General Services department before being hired by Lodi. Ayers began his professional career with Sacramento County following his graduation from California State University, Sacramento, in 1982 with a bachelor of science degree in business administration. STEPHEN SCHWABAUER, City Attorney of the City of Lodi, was appointed City Attorney by the City Council in June 2004 after five months in an interim capacity. He spent the previous five years as Lodi's Deputy City Attorney, which followed five years as a private lawyer in Stockton. When he took over as City Attorney, Schwabauer inherited a 15 -year-old environmental contamination dispute. Subsequently, the city has resolved the majority of the cases, saving the city millions of dollars in potential liability. Schwabauer, a Ventura native, earned a bachelor of arts degree in 1990 from the University of California, Davis; and his law degree from the University of California, Berkeley, Boalt Hall School of Law in 1994. Labor Relations City employees are represented by various associations, and labor relations have been generally amicable in that there have been no major strikes, work stoppages or other similar incidents. The following table provides a list of departments in the City and the number of employees within these departments for Fiscal Year 2012-13. A-2 DOCSOC/1565093v 16/022245-0260 CITY OF LODI Employee Organizations Department FY 2012/13 Budgeted Staff Administration 12 Community Development 9 Electric 40 Fire 54 Internal Services 29 Library 12 Parks, Recreation and Cultural services 29 Police 103 Public Works 93 Total 381 Source: City of Lodi Budget Document Of the 381 budgeted positions, 215 reside in the General Fund. The City provides retirement and other post employment benefits to City employees. See " — Retirement System" herein. The City recently completed negotiations with all labor groups whose contracts expired during the 2011-12 fiscal year. Of the City's 9 bargaining units, 8 had contracts that expired during the year. Key elements in the new contracts, which generally end on December 31, 2013, include employees paying the full share of the employee share of retirement by the end of the contract, capping City medical cost exposure at the January 2012 levels and establishing a second tier retirement system for all new hires. Additionally, similar benefit changes were approved for executive, confidential and appointed staff along with Council members. Savings to the City from these changes over the term of the contracts is estimated to be $3.6 million. City Financial Information Budgetary Processes. The fiscal year of the City begins on the first day of July of each year and ends on the thirtieth day of June of the following year. The City adopts its Financial Plan and Budget on an annual basis. Each annual budgetary cycle begins with departments submitting revenue and expenditure estimates in March for the upcoming fiscal year. Budget division staff assembles the data and meet with the departments and City Manager to refine the estimates and develop a draft budget. Public meetings are held with the City Council during the month of May and all issues related to each budget unit are discussed. A draft budget is typically released to the Council and publically posted in mid-May. The City Council adopts a balanced budget in June for the fiscal year that starts the following July 1. In January or February, staff brings forward a mid- year review of the entire budget for the City and Council adopts any changes necessary based upon the projected financial conditions of the time. Throughout the year, adjustments to the budget are brought to Council as needed. The City's 2012-13 Financial Plan and Budget was approved by the City Council on June 6, 2012. The following table sets forth the original and final budget for fiscal year 2011-12, and estimated actual revenues and expenditures, as well as the adopted budget for Fiscal Year 2012-13. A-3 DOCSOC/1 565093v 16/022245-0260 CITY OF LODI SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL GENERAL FUND Year Ended June 30, 2012 General Economic Condition and Outlook of the City General Fund. Commencing in 2008, the City has taken a number of steps to address the negative impacts of the economic downturn on the financial condition of the City. In November 2008, as a result of actual year-end results for Fiscal Year 2007-08 being worse than assumed when the Fiscal Year 2008-09 budget was adopted, as well as rapid declines in revenues coupled with increased expenditures, the City took action mid -year to reduce the general fund budget for Fiscal A-4 DOCSOC/156509306/022245-0260 Budget Fiscal Year Fiscal Year 2011-12 2012-13 Variance with Original Final Estimate Final Budget Adopted Revenues Taxes $ 22,830,840 $ 22,830,840 $ 22,714,850 (115,990) $ 22,556,080 Licenses and Permits 73,800 73,800 75,600 1,800 94,880 Intergovernmental Revenues 10,130,400 10,160,300 10,137,526 (22,774) 10,084,330 Charges for Services 816,510 816,510 698,884 (117,626) 1,769,350 Fines, Forfeits and penalties 1,342,000 1,342,000 1,257,600 (84,400) 1,318,200 Investment and rental income 451,370 451,370 667,181 215,811 452,600 Miscellaneous Revenue 228,970 228,970 289,260 60,290 279,760 Total Revenues $ 35,873,890 $ 35,903,790 $ 35,840,901 (62,889) $ 36,555,200 Expenditures Current: General Government City Council $155,540 $155,540 $133,460 $22,080 $160,690 City Manager 979,400 979,400 997,439 (18,039) 1,036,730 City Clerk 356,430 356,430 351,545 4,885 424,650 City Attorney 445,940 445,940 418,343 27,597 466,730 Human Resources 516,120 516,120 517,970 (1,850) 514,090 Information Systems 972,160 972,160 947,250 24,910 983,540 Financial Services 1,528,780 1,528,780 1,454,625 74,155 1,517,320 Budget and Treasury 352,580 352,580 345,845 6,735 359,470 Non Departmental 1,069,820 1,069,820 994,758 75,062 986,520 Total General Government $6,376,770 $6,376,770 $6,161,235 $215,535 $6,449,740 Public Protection Police $16,000,270 $16,392,270 $16,318,523 $73,747 $16,891,930 Fire 9,320,840 9,528,840 9,525,474 3,366 9,581,630 Total Public Protection 25,321,110 25,921,110 25,843,997 77,113 26,473,560 Public Works 1,559,390 1,559,390 1,526,858 32,532 1,570,400 Library 1,361,950 1,381,000 1,391,000 (10,000) 1,355,530 Parks 0 0 0 0 0 Total Expenditures $34,619,220 $35,238,270 $34,923,090 $315,180 $35,849,230 Excess (Deficiency) of Revenues Over (Under) Expenditures $1,254,670 $665,520 $917,811 $252,291 $705,970 Other Financing Sources (Uses) Transfers In 5,367,990 5,367,990 5,367,990 0 5,367,990 Transfers Out (6,648,890) (7,929,962) (7,929,962) 0 (6,067,060) Total Other Financing Sources (Uses) $(1,280,900) $(2,561,972) $(2,561,972) $0 $(699,070) Net Change in Fund Balance (26,230) (1,896,452) (1,644,161) 252,291 6,900 Fund Balance, Beginning of Year $5,654,136 $5,654,136 $5,654,136 $0 $4,009,975 Fund Balance, End of Year $5,627,906 $3,757,684 $4,009,975 $252,291 $4,016,875 General Economic Condition and Outlook of the City General Fund. Commencing in 2008, the City has taken a number of steps to address the negative impacts of the economic downturn on the financial condition of the City. In November 2008, as a result of actual year-end results for Fiscal Year 2007-08 being worse than assumed when the Fiscal Year 2008-09 budget was adopted, as well as rapid declines in revenues coupled with increased expenditures, the City took action mid -year to reduce the general fund budget for Fiscal A-4 DOCSOC/156509306/022245-0260 Year 2008-09 by approximately $1.855 million. Although the City utilized approximately $1.0 million in reserves to balance the Fiscal Year 2008-09 budget, it ended the year with a $5.3 million reserve. In early 2009, the City entered into discussions with all of its bargaining units seeking concessions to help balance the City budget. At the time, the City anticipated that the economy would recover quickly, and the concessions would be temporary. As the Fiscal Year 2009-10 budget was being prepared, the City sought, and obtained, concessions from bargaining groups valued at approximately $2.3 million. Concessions continued in 2010-11 (valued at about $2.7 million) and in 2011-12 (valued at about $3.0 million). Additionally, over the period commencing in Fiscal Year 2008-09, the City has evaluated positions and strategically reduced positions primarily through retirement incentives and attrition. A total of 38 individuals have taken advantage of the retirement incentive and their positions have been left vacant, representing an annual salary and benefit savings of $2.6 million. Consequently, the City has largely avoided employee layoffs and drastic service cuts common in other cities. Fiscal Year 2010-11 ended with an unrestricted fund balance of approximately $5.6 million, an increase of about $1.9 million over the estimated fund balance for the year contained in the adopted budget. This increase in fund balance was driven by increased levels of property tax collections over budgeted levels and a one time repayment to the general fund of rental revenue originally posted to other funds combined with reduced expenditure levels associated with salary and benefits savings from vacant positions and reduced service and supply expenditures. The adopted budget for Fiscal Year 2011-12 projected an unrestricted fund balance of just over $4 million. The Council and City Manager had committed to the City's bargaining units that they would not significantly increase fund balance during the period that bargaining unit members were providing concessions to the City to enable it to balance its budget. During the mid -year budget review, City staff brought forward proposals to allocate the one-time fund balance increase (i.e., the $1.9 million excess of actual year-end fund balance over projections in the Fiscal Year 2010-11 budget) to one-time uses. Council approved the following four uses of the one-time increase: 1) allocate $600,000 toward buying down Compensating Time Off leave balances for public safety that had grown as a result of concessions regarding limiting the amount of paid overtime; 2) allocate $643,072 for the write-off of receivables related to the City's failed attempts to create a Redevelopment Agency project area; 3) allocate $138,000 to fully fund the liability associated with the purchase of property for the Police Building; and 4) allocate $500,000 to the reserve for replacing Fire Station 2. The estimated actual results for Fiscal Year 2011-12 reflect an increase to fund balance of just over $250,000. Although total actual revenues are estimated to be about $62,000 below budgetary levels, expenditure levels are projected at about $315,000 below budgeted levels. Revenue reduction in taxes and charges for services are offset by expenditure savings in salary and benefits and services and supply accounts. The adopted Fiscal Year 2012-13 budget projects a nominal increase in fund balance. Revenues are expected to be $651,410 higher than the prior year budget. The primary increase in revenue is coming from the sale of treated wastewater ($960,000) to the Northern California Power Agency (NCPA). This revenue source is new to the General Fund and is associated with the NCPA's operation of a new power generation plant on City owned property. Expenditures include the value of changes made to bargaining group agreements mentioned earlier offset by increases to budgeted overtime payments that had previously been subject to concession agreements. The reduction in A-5 DOCSOC/1565093v 16/022245-0260 Transfers out relates to the one-time increase in such expenditures approved in the 2011-12 mid -year adjustments discussed above. years. The following table illustrates the City's primary General Fund sources over the last five Primary General Fund Revenue Sources Fiscal Year Ended June 30 Revenue Source 2008-09 2009-10 2010-11 2011-12 Estimated Actual* 2012-13 Budget Sales Tax $8,027,678 $6,872,696 $8,663,301 $8,961,000 $8,880,440 Property Tax 8,887,149 8,342,161 8,285,589 8,010,300 7,850,100 Electric In Lieu 6,941,960 6,976,670 6,976,670 6,976,690 6,976,690 Total $23,856,787 $22,191,527 $23,925,560 $23,947,970 $23,707,210 * Unaudited. Sales tax revenue has fluctuated over the past five years as the effects of the Great Recession and the subsequent recovery process continue. In Fiscal Year 2009-10, a number of businesses folded, with corresponding decreases in sales tax revenues. The City has been fortunate that NCPA began construction of its Lodi Energy Center ("LEC") power plant during this period. The LEC project provided approximately $1.5 million of construction -related sales tax revenue to the City over a three fiscal year period. The final sales tax payments for this project are reflected in Fiscal Year 2011-12 estimates. The bulk of these payments came in Fiscal Year 2010-11. Late in Fiscal Year 2010-11, Costco opened a store in Lodi. To date, actual sales have exceeded projections and have cushioned the end of the revenues associated with LEC. In March 2012, Home Depot opened a store in Lodi. While actual results are not yet available, estimated revenues for Fiscal Year 2011-12 are slightly ahead of budgeted levels. Budgeted levels for Fiscal Year 2012-13 are commensurate with Fiscal Year 2011-12 levels and reflect the end of LEC one-time payments. Property tax revenues for Fiscal 2012-13 are based upon a 2 percent decline in assessed values. The City has fared very well in relation to surrounding areas in this regard, primarily because of the City low growth rate and strong property ownership. Over 30 percent of homes in Lodi are owned outright, minimizing the number of foreclosure and revaluations. In Fiscal Year 2009-10 assessed valuation in the City decreased 6.2 percent, due in part to the impact of reductions pursuant to Proposition 8. Assessed value in the City declined 0.7 percent for Fiscal Year 2010-11, 3.3 percent for Fiscal Year 2011-12, and 2.0 percent for Fiscal Year 2012-13. The Electric In Lieu payment is based upon a formula adopted by Council in 2007. The formula is based upon the prior year value increased by any increase in customers. As reflected in the table above, there has not been an increase in customer counts over the past four years. See "Payments to General Fund from Electric Utility" and "RISK FACTORS - Limitations on Taxes and Fees." General Fund Financial Summary. All governmental funds are accounted for using the modified accrual basis of accounting. The City's revenues are recognized when they become measurable and available as net current assets. A-6 DOCSOC/1565093v 16/022245-0260 Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. The exception to this general rule is principal and interest on general long-term debt, which is recognized when due. Some debts and obligations may be payable from self-supporting enterprises or revenue sources other than property taxation. Special assessment bonds are not included in the tabulation; lease revenue obligations payable from the General Fund or equivalent sources are included. All proprietary funds are accounted for using the accrual basis for accounting. Revenues are recognized when they are earned, and expenses are recognized when they are incurred. Receivables are recorded and determined at the time of consumption, and unbilled receivables are not recorded. The following five-year summary of the City's General Fund has been prepared by the City of Lodi Finance division from audited financial statements and estimated amounts for June 30 2012. The City's audited financial statements for the fiscal year ended June 30, 2011 are attached hereto as Appendix B. The City has retained the firm of Macias, Gini & O'Connell LLP, Sacramento, California to prepare the audit report for the fiscal year ended June 30, 2012. "Operating Transfers In" in the following table generally represent amounts paid to the General Fund for services provided to enterprise fund activities of the City (Water, Wastewater and Electric Utilities). "Operating Transfers Out" generally represent amounts paid by the General Fund to Special Revenue Funds to support activities. Operating Transfers Out initially budgeted for Fiscal Year 2011-12 included $3.9 million to Parks, Recreation and Cultural Service, $554,600 to Streets per contract, $1,053,750 for capital improvements/replacements, $1.0 million for debt service on the 2002 Certificates and $150,200 to Community Development. Additionally, as a result of mid -year adjustments discussed earlier to address the one-time $1.9 million fund balance increase, Operating Transfers Out were increased by an additional $1.3 million, resulting in total transfers out for Fiscal Year 2011-12 of $7.9 million. "Debt Service" expenditures reflected in the table below are related to capital lease payments for equipment. The final payment under these leases was made in Fiscal Year 2010-11. Debt service payments related to the 2002 Certificates are reflected in debt service funds, not the General Fund. Funding for the portion of 2002 Certificates related to General Fund departments is reflected in the Transfers Out line item as discussed above. It should also be noted that the Parks and Recreation function was merged with the Community Services function and established as a Special Revenue Fund effective July 1, 2011. As a result, the Parks and Recreation function reflects no expenditures in Fiscal Year 2011-12. A-7 DOCSOC/1565093v 16/022245-0260 CITY OF LODI GENERAL FUND COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Revenues: Taxes License and permits Intergovernmental revenues Charges for services Fines, forfeits and penalties Investment and rental income Miscellaneous revenue Total revenues Expenditure: Current General government Public protection Public works Library Parks and Recreation Debt Service: Interest and fiscal charges Principal Payments Total expenditures Deficiency of Revenues Under Expenditures Other Financing Sources (uses): Operating transfers in Operating transfers out Total other financing sources (uses) Net Change in Fund Balances Fund Balance, Beginning of Year Fund Balance End of Year Fiscal Years ended June 30, 2008 through 2012 Source: City of Lodi Finance Division Interfund Borrowing and Cash Flows. General Fund expenditures tend to occur in level amounts throughout the Fiscal Year. Conversely, General Fund receipts have followed an uneven pattern primarily as a result of secured property tax installment payment due dates in April and December and as a result of delays in payments from other governmental agencies, which represent the largest sources of City revenues. As a result, General Fund cash balances have typically declined or been negative for part of the Fiscal Year and, if negative, have been covered by interfund borrowings pursuant to Section 6 of Article XVI of the California Constitution or Tax and Revenue Anticipation Notes. The State Constitution prohibits interfund borrowings by cities after the last Monday of April of each Fiscal Year of amounts that exceed 85% of taxes accrued. Assessed Valuation and Tax Collections. Taxes are levied for each Fiscal Year on taxable real and personal property which is situated in the City as of the preceding March 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State -assessed property and real property having a tax lien that is sufficient, in the A-8 DOCSOC/156509306/022245-0260 2012 2008 2009 2010 2011 Esimated. $ 24,712,405 $ 23,516,164 $ 23,118,461 $ 23,061,164 $ 22,714,850 80,925 61,783 72,171 83,395 75,600 10,642,600 8,967,410 7,772,071 10,032,523 10,137,526 2,510,207 1,055,137 1,343,199 1,035,220 698,884 1,317,407 1,415,174 1,441,354 1,404,307 1,257,600 662,164 231,181 516,304 455,923 667,181 630,413 446,404 462,592 480,028 289,260 40.556.121 35.693.253 34.726.152 L16.552.560 35.840.901 $9,545,370 $6,922,096 $6,411,741 $6,478,159 $6,161,235 23,771,574 24,463,771 23,854,905 24,091,472 25,843,997 3,935,366 2,967,402 1,471,779 1,421,238 1,526,858 1,672,910 1,499,720 1,322,052 1,357,473 1,391,000 3,826,450 2,160,035 2,234,349 2,191,102 0 29,724 18,516 12,578 6,427 0 249,624 129,487 135,425 141,576 0 $43,031,018 $38,161,027 $35,442,829 $35,687,447 $34,923,090 (2,474,897) (2,467,774) (716,677) 865,113 917,811 4,040,166 5,367,983 5,867,983 5,379,186 5,367,990 $(2,575,809) $(4,442,883) $(4,632,278) $(4,383,110) $(7,929,962) $1,464,357 $925,100 $1,235,705 $996,076 $(2,561,972) (1,010,540) (1,542,674) 519,028 1,861,189 (1,644,161) $6,319,402 $5,308,862 $3,766,188 $4,285,216 $5,564,136 $5,308,862 $3,766,188 $4,285,216 $6,146,405 $4,009,975 Source: City of Lodi Finance Division Interfund Borrowing and Cash Flows. General Fund expenditures tend to occur in level amounts throughout the Fiscal Year. Conversely, General Fund receipts have followed an uneven pattern primarily as a result of secured property tax installment payment due dates in April and December and as a result of delays in payments from other governmental agencies, which represent the largest sources of City revenues. As a result, General Fund cash balances have typically declined or been negative for part of the Fiscal Year and, if negative, have been covered by interfund borrowings pursuant to Section 6 of Article XVI of the California Constitution or Tax and Revenue Anticipation Notes. The State Constitution prohibits interfund borrowings by cities after the last Monday of April of each Fiscal Year of amounts that exceed 85% of taxes accrued. Assessed Valuation and Tax Collections. Taxes are levied for each Fiscal Year on taxable real and personal property which is situated in the City as of the preceding March 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State -assessed property and real property having a tax lien that is sufficient, in the A-8 DOCSOC/156509306/022245-0260 opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due as of the March 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent taxes on property of the unsecured roll, and an additional penalty of 1.5% per month begins to accrue commencing on November 1 of the Fiscal Year. Collection of delinquent unsecured taxes is the responsibility of the County of San Joaquin using the several means legally available to it. In 1993, the City made an agreement with San Joaquin County to participate in the Teeter Plan pursuant to provisions of Sections 4701-4717 of the California Revenue and Taxation Code. The Teeter Plan is an alternative method of apportioning property tax money. Pursuant to those sections the accounts of all political subdivisions that levy taxes on the County tax rolls are credited with 100% of their respective tax levies regardless of actual payments and delinquencies. The cities covered under the plan receive 95% of the property taxes in advance from the County and the 5% remaining after reconciling the cities' balances at June 30. As part of the agreement, the County keeps the penalties and interest on the delinquent taxes. Until the recent economic downturn, while severe in the surrounding area and on its housing market, the assessed values in the City had grown each year from Fiscal Year 2000-01 through Fiscal Year 2008-09. Notices of default and foreclosures of property within the City have increased beginning in Fiscal Year 2007-08, but have tracked closer to the state levels than that of San Joaquin County. In particular as of May 2012, foreclosure notices and actions affected 0.37% of Lodi households, while the state rate was 0.33% of households. In contrast, the San Joaquin County rate of foreclosure notices and actions was 0.54%. In addition, the assessed values of a number of properties in the City have been reduced pursuant to Proposition 8, which generally provides for temporary reductions in assessed valuations of properties to reflect current market- values. Assessed valuation in the City declined by approximately 9.5% from Fiscal Year 2008-09 to Fiscal Year 2011-12. The Adopted Budget for Fiscal Year 2012-13 anticipates a 2.0 percent reduction in assessed value. A-9 DOCSOC/1565093v 16/022245-0260 CITY OF LODI ASSESSED VALUATIONS For Fiscal Years 2008 through 2012 (In thousands) Source: City of Lodi audited financial statements, except 2012. The following table shows the City's secured property tax charges and delinquencies. CITY OF LODI PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years ($ in thousands) Fiscal Taxes Levied for Year the Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (estimated) $5,757 5,832 6,570 7,057 7,815 8,170 8,167 7,966 8,291 8,143 Collected within the Fiscal Year of the Levy Percent Amount of Amount LevyM Net Fiscal 5,832 100 Personal 100 Less Assessed Year Land Improvements Property Total Exemptions Value 2008 $ 1,537,554 $ 3,503,186 $ 289,779 $ 5,330,510 $ 243,259 $ 5,087,251 2009 1,562,729 3,577,741 281,915 5,422,385 265,154 5,157,231 2010 1,345,815 3,600,824 312,792 5,259,431 332,701 4,926,730 2011 1,322,830 3,534,778 323,003 5,180,611 321,138 4,859,473 2012 1,264,884 3,401,792 301,180 4,967,856 314,448 4,653,408 Source: City of Lodi audited financial statements, except 2012. The following table shows the City's secured property tax charges and delinquencies. CITY OF LODI PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years ($ in thousands) Fiscal Taxes Levied for Year the Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (estimated) $5,757 5,832 6,570 7,057 7,815 8,170 8,167 7,966 8,291 8,143 Collected within the Fiscal Year of the Levy 8,010 100 Total Collections to Date Percent Amount of Amount LevyM $5,757 100% 5,832 100 6,570 100 7,057 100 7,815 100 8,170 100 8,167 100 7,966 100 8,291 100 8,143 100 8,010 100 Total Collections to Date 8,010 100 `1' Per agreement with San Joaquin County, the County provides the City of Lodi with 100% of the amount owed to the City for secured properties, regardless of collection status. In exchange, the County is entitled to 100% of revenues collected for interest and penalties. This agreement is commonly referred to as the Teeter Plan. Source: San Joaquin County Auditor/Controller's Office. A-10 DOCSOC/1565093v 16/022245-0260 Percent of Amount Levy $5,757 100 % 5,832 100 6,570 100 7,057 100 7,815 100 8,170 100 8,167 100 7,966 100 8,291 100 8,143 100 8,010 100 `1' Per agreement with San Joaquin County, the County provides the City of Lodi with 100% of the amount owed to the City for secured properties, regardless of collection status. In exchange, the County is entitled to 100% of revenues collected for interest and penalties. This agreement is commonly referred to as the Teeter Plan. Source: San Joaquin County Auditor/Controller's Office. A-10 DOCSOC/1565093v 16/022245-0260 Ten Largest Locally Secured Taxpayers The following table shows the ten largest locally secured taxpayers of the City for the Fiscal Year ended June 30, 2011, the most recent year for which such information is available. CITY OF LODI TEN LARGEST LOCALLY SECURED TAXPAYERS Fiscal Year Ended June 30, 2011 ($ in thousands) Name Assessed Valuation 1. Lodi Memorial Hospital Assn $ 150,937 2. General Mills, Inc. 137,873 3. Pacific Coast Producers 83,481 4. California Physicians Service Corp 55,304 5. Cottage Bakery 40,769 6. Westcore Vine LP 23,173 7. Dart Container Corporation 18,379 S. Certainteed Corp 17,519 9. Archer Daniels Midland Co Corp 16,843 10. Wine & Roses LLC 15,581 TOTAL 559 859 Source: City of Lodi audited financial statements; San Joaquin County Assessor's Office. These ten largest locally secured taxpayers represent 11.5% of the City's assessed valuation. Payments to General Fund from Electric Utility As detailed more particularly in the City's financial statements, starting in 2007 the City's Electric Utility has made an annual payment to the City's general fund as a payment in lieu of taxes ("PILOT"). The City Council established a formula in 2007 for the preexisting PILOT by Resolution 2007-25. The formula is based upon the net amount of the PILOT in 2006-07 budget year as adjusted by the annual percentage increase in the number of accounts. As expressly intended and anticipated by Resolution 2007-25, the new formula has effectively reduced the PILOT as a percentage of Electric Utility revenues since its adoption. Pursuant to the formula, the PILOT has been $6,976,670 for Fiscal Years 2009-10 through 2012-13. California voters passed Proposition 26 in November of 2010 adding to the Constitution new definitions of the term "tax" and —as a result — added new limitations on the adoption of revenue measures defined by Proposition 26 to be a tax. As the City interprets Proposition 26, it is neither retroactive as to local government; nor does it apply to formulas for increasing revenue measures which formulas were established prior to the November 3, 2010 effective date of Proposition 26. Litigation is presently pending involving the City of Redding, California alleging that its unique PILOT formula violates Proposition 26. In the consolidated cases captioned Citizens for Fair REU Rates v. City of Redding, Shasta Superior Court Case No. 171377 and Feefighter LLC v. City of Redding, Shasta Superior Court Case No. 172960, the court concluded that Redding's PILOT is not a new or increased tax because it has been maintained without legislative change or change in methodology since before Proposition 26 was A-11 DOCSOC/1565093v 16/022245-0260 adopted; granting judgment for the City in both cases. However, the City of Redding anticipates an appeal by fall 2012. The City of Lodi believes that only adjustments to the PILOT after November 3, 2010 pursuant to Resolution 2007-25 would be at risk pursuant to Proposition 26. However because the City has not seen any statistically significant increase in its number of account holders since the inception of Proposition 26, it has not increased the PILOT payment since the inception of Proposition 26. Accordingly, the City does not believe that the PILOT payments are violative of Proposition 26. However, the provisions of Proposition 26 are subject to judicial interpretation, and there can be no assurances that, if challenged, a court would not find that the PILOT violates Proposition 26. In such circumstances there can be no assurances that the City would not be required to discontinue the collection of the PILOT, and refund all or a portion of the PILOT collected after the passage of Proposition 26. The PILOT is projected to constitute approximately 16.6% of general fund revenues in Fiscal Year 2012-13. Certain Revenues from the Sale of Recycled Water The City is a party to (i) an Agreement to Supply Recycled Water dated March 22, 2010 (the "NCPA Recycled Water Agreement") with the Northern California Power Agency ("NCPA") and (ii) an Amended and Restated Ground Lease dated March 22, 2010 (the "NCPA Ground Lease"). The City owns certain real property adjacent to the White Slough Facility that it purchased prior to 1990. Under the NCPA Ground Lease, the City leases that real property (the "NCPA-Leased Property") to NCPA, and NCPA uses the NCPA-Leased Property for operation of a gas turbine power generation plant and ancillary uses. The term of the NCPA Ground Lease commenced on January 1, 1993 and continues for 50 years; NCPA has a right to extend the lease for another 50 years. In fiscal year 2010-11, the City received approximately $61,000 of rent from NCPA under the NCPA Ground Lease. Pursuant to the NCPA Recycled Water Agreement, the City supplies NCPA with recycled water and NCPA agrees to use recycled water to generate electricity or to irrigate landscaping associated with its generating facilities. NCPA pays (i) a base price per acre foot per year ("afy") for 1600 afy of recycled water, which NCPA pays for whether or not it uses it, (ii) 125% of the base price for any incremental quantity of recycled water greater than 1600 afy up to 1800 afy, and (iii) 150% of the base price for any incremental quantity of recycled water above 1800 afy; the base price increases 2.5% annually (subject to a 10 -year price review procedure). In fiscal year 2012-13, the City expects to receive $960,000 from NCPA under the NCPA Recycled Water Agreement. The term of the NCPA Recycled Water Agreement is tied to the term of the NCPA Ground Lease. The aggregate payments received by the City from NCPA under the two agreements do not exceed the fair rental value for the NCPA-Leased Property (which is not an asset of the System), and the recycled water provided to NCPA does not have any value (the transfer of recycled water to NCPA avoids the cost of alternative disposal methods). Consequently, the City deposits the payments it receives from NCPA under the NCPA Recycled Water Agreement and the NCPA Ground Lease in its general fund rather than as revenues of its wastewater system ("Wastewater System Revenues"). No claim has been filed or threatened alleging that all or a portion of the payments received by the City from NCPA and deposited into the City's general fund are Wastewater System Revenues. Although the City believes that the payments received from NCPA may legally be deposited into its general fund, it cannot predict the outcome of any litigation of the issue. If a court were to conclude that all or a portion of the payments received by the City from NCPA were Wastewater System A-12 DOCSOC/1565093v 16/022245-0260 Revenues, then the City would be obligated to deposit future such payments into the System Revenue Fund rather than the City's general fund, and, because the statute of limitations applicable to any such claim would be three years, the City could be obligated to reimburse the Wastewater System for any such payments for the preceding three years. The City believes that the obligation to deposit all or portion of the payments it receives from NCPA into the Wastewater System rather than the general fund, or to reimburse the Wastewater System for up to three years' prior payments, would not adversely impact its ability to pay the Lease Payments when due. The total amount received from NCPA in fiscal year 2010-11 constituted approximately 2.5% of total general fund revenues. Outstanding General Fund Debt and Lease Obligations The City currently has no outstanding general fund general obligation bonds outstanding. The Refunded Certificates currently constitute the only certificates of participations payable from the General Fund currently outstanding. In addition, the City has an outstanding promissory note in the amount of $245,000, relating to the purchase of the real property for the Police Building. Interest is payable quarterly and principal is due on April 1, 2017. In connection with the City's electric, water and wastewater utilities, the City has entered into installment purchase agreements, leases and other contractual commitments in connection with the financing of various facilities. These obligations are payable from the respective enterprise funds of the City, and are not payable from the General Fund. Retirement System All full time employees of the City are members of the California Public Employees Retirement System ("PERS"), an agent multiple -employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost -of -living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Funding Policy. Contributions to PERS are divided into employee and employer shares. Employees are required to contribute 7% (9% for safety employees) of their annual covered salary as the employee share. The City has historically made the contributions required of City employees on their behalf and for their account. Effective for Fiscal Year 2011-12, as part of concession agreements with employee bargaining units, each bargaining unit employee began paying all, or a portion, of the employee share of pension costs. Bargaining unit agreements negotiated during the year require that employees pay their full share of pension costs by the end of the term of their agreements, generally December 31, 2013. The City is required to contribute at an actuarially determined rate; the rate for Fiscal Year 2012-13 is 14.411% for miscellaneous employees, 31.335% for fire and police employees, of annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by PERS. A-13 DOCSOC/1565093v 16/022245-0260 The following table shows City contributions to PERS (including both the City portion as well as employee contributions paid by the City) for Fiscal Years 2008-09 through 2011-12, as well as the expected contribution for Fiscal Year 2012-13. City Payments — Pension Plan Fiscal Year Ended June 30 FY Ended June 30 2009 2010 2011 2012 2013 &Lety Employee -Employer Paid $1,026,013 $1,010,099 $1,018,017 $638,555 $584,960 Employee -Employee Paid 406,075 419,340 Employer 2,749,845 2,677,415 2,824,761 3,520,851 3,498,290 Subtotal $3,775,858 $3,687,554 $3,842,778 $4,565,481 $4,502,590 Miscellaneous Employee -Employer Paid $548,255 $505,652 $514,472 $285,242 $260,660 Employee -Employee Paid 165,615 152,840 Employer 980,743 857,257 900,513 833,481 856,530 Subtotal iL528 998 iL162 909 1 414 985 1 257 338 1 270 030 Total $5,304,856 $5,050,463 $5,257,763 $5,822,819 $5,772,620 As of June 30, 2010, the most recent actuarial valuation date, the Safety Plan was 76.0% funded on an actuarial value basis and 59.6% funded on a market value basis; the Miscellaneous Plan was 86.1% funded on an actuarial basis and 67.2% funded on a market value basis. The actuarial accrued liability for benefits was approximately $122 million for the Safety Plan and $134 million for the Miscellaneous Plan. The actuarial value of assets were approximately $93 million for the Safety Plan and $115 million for the Miscellaneous Plan; resulting in an unfunded actuarial accrued liability (UAAL) of $29 million for the Safety Plan and $19 million for the Miscellaneous Plan. The market value of assets were approximately $73 million for the Safety Plan and $90 million for the Miscellaneous Plan; resulting in an unfunded liability (market value basis) of $49 million for the Safety Plan and $44 million for the Miscellaneous Plan. The covered payroll (annual payroll of active employees covered by the plans) were $11 million for the Safety Plan and $18 million for the Miscellaneous Plan, and the ratio of the UAAL to the covered payroll was 258.2% and 104.3% for the Safety and Miscellaneous plans, respectively. In Fiscal Year 2011-12, the PERS board voted to decrease the actuarially assumed investment rate of return from 7.75% to 7.5%, effective July 1, 2013. This reduction will result in an estimated increase of the City's employer contributions of approximately $480,000 beginning in Fiscal Year 2013-14 (approximately $293,000 of which is attributable to the General Fund). Also, PERS recently announced that investment earnings for PERS fiscal year ended June 30, 2012, were approximately 1%, significantly lower than the assumed actuarially assumed investment earnings rate of 7.5%. Although not quantified at this time, this is also expected to result in increased City contributions. In addition to this expected increase, there can be no assurances that the City's annual contributions to PERS will not significantly increase in the future. The actual amount of any A-14 DOCSOC/1565093v 16/022245-0260 increases will depend on a variety of factors, including but not limited to investment returns, actuarial assumptions, experience and retirement benefit adjustments. For further information relating to the City's retirement plans, see Note 9 to the financials statement contained in "APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,201 l." OPEB. The City sponsors a single -employer defined -benefit post employment healthcare plan (Plan) to provide medical insurance benefits to eligible retired employees and their spouses. The Plan does not issue a publicly available financial report. Medical coverage is provided through PERS healthcare program. Employees who retire from the City and receive a PERS pension are eligible for post employment medical benefits. The City contributes the minimum amount provided under Government Code Section 22825 of the Public Employees Medical and Hospital Care Act. In general, retirees must contribute any premium amounts in excess of the City contribution. However, as described in the City's financial statement, a closed group of active employees and retirees receive additional post employment benefits. Contribution requirements of the post employment benefit are based on pay-as-you-go financing. For fiscal year 2010-11, the City contributed $469,593, or 33.16%, of the actuarially required contributions. For Fiscal Year 2011-12, the City contributed approximately $700,000. For further information relating to the City's post employment benefits, see Note 10 to the financials statement contained in "APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,201 L" City Investments All funds of the City are invested by the City in accordance with the investment guidelines of the California Government Code (Section53601 and 53635) and the City's Investment Policy, which is presented annually to the City Council for approval. Pursuant to the Investment Policy, the City strives to maintain a level of investment of idle funds, less required reserves, as near 100% as possible, through daily and projected cash flow determinations. The City's cash management system is designed to monitor and forecast expenditures and revenues accurately in order to enable the City to invest funds to the fullest extent possible. Idle cash management and investment transactions are the responsibility of the Internal Services Director/City Treasurer. The Investment Policy, as adopted by the City Council on November 2, 2011 permits investment in the following: U.S. Treasury Obligations (bills, notes and bonds); U.S. Government Agency securities and instrumentalities; bankers acceptances; certificates of deposit; negotiable certificates of deposit; commercial paper; California State Local Agency Investment Fund; passbook deposits; mutual funds; medium term notes and Ca1TRUST pooled accounts. The Investment Policy provides that safety is given the highest priority, followed by liquidity and yield. Investments are selected to achieve a "market average" rate of return, or the annual rate of return on the one-year U.S. Treasury Bill. The Investment Policy may be changed at any time at the discretion of the City Council (subject to State of California law provisions relating to authorized investments) and as the California Government Code is amended. There can be no assurance, therefore, that the State of California law A-15 DOCSOC/1565093v 16/022245-0260 and/or the Investment Policy will not be amended in the future to allow for investments which are not currently permitted under such State law or the Investment Policy, or that the objectives of the City with respect to investments will not change. All investments, including the Authorized Investments and those authorized by law from time to time for investments by public agencies, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture and the Installment Purchase Agreement, or other amounts held by the City, could have a material adverse affect on the City's finances. A summary of the City's pooled investment portfolio as of June 30, 2012 is set forth below. CITY OF LODI Investment Portfolio Summary Type of Investment Local Agency Investment Fund (City) Certificates of Deposit Passbook/Checking Accounts Ca1TRUST Pooled Accounts Total A-16 DOCSOC/1565093v 16/022245-0260 Amount $46,782,586 500,000 6,553,652 24,021,622 $77,857,860 Percent of Total 60.09% 0.64 8.42 30.85 100.0% Estimated Direct and Overlapping Bonded Debt below. The estimated direct and overlapping bonded debt of the City as of June 30, 2011 is set forth CITY OF LODI ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT as of June 30, 2011 [JUNE 30, 2012 ON ORDER] 2010-11 Assessed Valuation: $5,259,431,000 OVERLAPPING DEBT: San Joaquin Community College District Lodi Unified School District City of Lodi 1915 Act Bonds San Joaquin County Certificates of Participation Lodi Unified School District Certificates of Participation SUBTOTAL OVERLAPPING DEBT: DIRECT DEBT City of Lodi Certificates of Participation TOTAL DIRECT AND OVERLAPPING DEBT (2) % City's Share Total Debt(3) Applicable(') of Debt $ 143,540,616 8.664 101,265,000 37.03 165,000 100.00 183,520,000 9.703 41,665,000 37.03 21,655,000 100.00 $ 12,436,359 37,498,430 165,000 17,806,946 15.428.550 83,335,285 21,665,000 104.990.285 2010-11 Assessed Valuation $ 5,259,431,000 2010-11 Population 63,549 Per Capita Value DEBT RATIOS Total Gross Debt $ 104,990,285 $ 1,652 2.00% (1) Percent of overlapping agency's assessed valuation located within the boundaries of the City. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. (3) The June 30, 2010 information is not available so data as of August 1, 2010 was used to approximate the June 30, 2010 information. Source: California Municipal Statistics, San Francisco, CA San Joaquin County Auditors -Controller Office State of California, Department of Finance, Demographic Research Unit City Economic and Demographic Information Population. The following chart indicates the growth in the population of the City since 1992. A-17 DOCSOC/156509306/022245-0260 CITY OF LODI POPULATION For Fiscal Years 2002 through 2011 Fiscal Year Population 2002 59,431 2003 60,500 2004 60,769 2005 62,467 2006 62,817 2007 63,395 2008 63,362 2009 63,313 2010 63,549 2011 62,473 Source: State of California, Department of Finance. Employment. The following table contains certain information concerning employment in the City and State. CITY OF LODI EMPLOYMENT, UNEMPLOYMENT AND LABOR FORCE Averages for each of the Calendar Years 2007-2011 Source: State of California, Employment Development Department. Major Employers. There are several manufacturing plants in the community producing a wide variety of products: cereals, food mixes, wines, rubber products, steel framing and industrial shelving, foundry items, recreational vehicle components, electronic substrates, and plastic piping and injection molded products. In addition, Lodi has a number of small businesses located within the City. The main businesses in Lodi, however, are food processes and plastics. The largest employers in Lodi as of June 30, 2012 are as follows: A-18 DOCSOC/1565093v 16/022245-0260 2007 2008 2009 2010 2011 Employment 29,500 29,200 28,000 27,600 27,500 Unemployment 1,900 2,500 3,700 4,200 4,100 Civilian Labor Force 31,400 31,600 31,700 31,800 31,500 Unemployment Rate 6.0 7.8 11.6 13.2 12.9 State Unemployment Rate 5.4 7.2 11.3 12.4 11.7 Source: State of California, Employment Development Department. Major Employers. There are several manufacturing plants in the community producing a wide variety of products: cereals, food mixes, wines, rubber products, steel framing and industrial shelving, foundry items, recreational vehicle components, electronic substrates, and plastic piping and injection molded products. In addition, Lodi has a number of small businesses located within the City. The main businesses in Lodi, however, are food processes and plastics. The largest employers in Lodi as of June 30, 2012 are as follows: A-18 DOCSOC/1565093v 16/022245-0260 CITY OF LODI LARGEST EMPLOYERS Employer Business Number of Employees Lodi Unified School District Lodi Memorial Hospital Pacific Coast Producers Blue Shield Cottage Bakery General Mills City of Lodi Farmers & Merchants Bank Walmart Target Education 3,687 Health Care 1,340 Can Manufacture and Cannery 1,000 Health Care 915 General Merchant 527 Cereals and Food Mixes 478 Government 381 Banking 283 General Merchant 240 General Merchant 205 Source: City of Lodi audited financial statements. Building Permit Activity. The following table shows the value of building permits issued in the City between 2007 and 201. CITY OF LODI BUILDING PERMIT VALUATION for Fiscal Years Ended June 30, 2008 through 2012 2008 2009 2010 2011 2012 Residential Valuation Single Family $2,502,146 $1,497,859 $33,884 $1,2041,695 $1,526,810 Multifamily 0 0 0 0 0 TOTAL $2,502,146 $1,497,859 $33,884 $1,204,695 $1,526,810 New Dwelling Units Single Family 12 7 1 8 6 Multiple Family 0 0 0 0 0 TOTAL 12 7 1 8 6 Source: City of Lodi. Taxable Sales. The following table indicates taxable transactions in the City by type of business during the calendar years 2007 through 2011. A-19 DOCSOC/1565093v 16/022245-0260 CITY OF LODI TAXABLE TRANSACTIONS BY TYPE OF BUSINESS for Calendar Years 2007 through 2011 (in Thousands of Dollars) Motor Vehicle & Parts Dealers Home Furn. & Appliances Bldg. Mat. & Garden Equip Supplies Food & Beverage Stores Service Stations Apparel Stores General Merchandise Food Services & Drinking Places Other Retail Stores Retail Stores Total All Other Outlets TOTAL ALL OUTLETS 2007 2008 2009 2010 2011(') $ 12,774 $ 15,341 $ 83,420 $ 76,930 $ 18,920 144,252 131,757 14,176 13,634 3,485 & 57,101 51,196 54,016 54,603 14,308 84,753 81,370 44,467 43,928 9,960 13,434 13,683 73,954 87,959 25,229 68,954 55,678 19,687 19,441 4,580 182,395 13 5, 866 107,491 110,821 23,709 65,697 85,670 76,253 75,517 18,582 58,249 51,722 51,292 48,978 11,315 $687,609 $622,282 $524,757 $531,811 $130,089 167.463 154.277 123,371 213.405 46.779 (1) First Quarter of 2011 Source: California State Board of Equalization. $ 855,072 $ 776,559 $ 648,128 $ 745,216 $ 176,868 Agriculture. Lodi is a worldwide agricultural shipping center for the San Joaquin Valley. The surrounding prime agricultural land is a major producer of wine grapes. The following table shows agriculture production in the County from 2007 through 2011. COUNTY OF SAN JOAQUIN AGRICULTURAL PRODUCTION 2007 to 2011 Source San Joaquin Office of the Agricultural Commissioner. Community Facilities. The City has a central library, one community center, 26 parks and five specific use facilities, covering 263 developed areas and 110 undeveloped areas, and 16 A-20 DOCSOC/1565093v 16/022245-0260 2007 2008 2009 2010 2011 Field Crops 217,347,000 294,773,000 202,872,000 208,729,000 Seed Crops 4,115,000 6,730,000 4,813,000 5,628,000 Fruit and Nut Crops 791,291,000 893,485,000 951,004,000 935,155,000 Vegetable Crops 249,651,000 277,136,000 368,327,000 256,261,000 Nursery Products 137,259,000 85,539,000 75,844,000 76,951,000 Apiary Products 15,010,000 15,790,000 25,059,000 13,349,000 Livestock and Poultry 119,138,000 120,547,000 98,348,000 95,010,000 Livestock and Poultry 471,982,000 435,725,000 274,207,000 369,003,000 Products Total2 005.793 000 2.129.725.000 2 000.474.000 1 960.086.000 Source San Joaquin Office of the Agricultural Commissioner. Community Facilities. The City has a central library, one community center, 26 parks and five specific use facilities, covering 263 developed areas and 110 undeveloped areas, and 16 A-20 DOCSOC/1565093v 16/022245-0260 playgrounds. Lodi Lake Park is connected to the Mokelumne River and features boating, fishing, beach swimming, boat rentals, nature walks, group picnic sites, an RV park and the Discovery Nature Center. Micke Grove Park is located between Lodi and Stockton. The park is home to a Japanese garden, the San Joaquin Historical Museum, rides, picnic areas, and a five -acre zoo featuring mammals, birds, reptiles and vertebrates. Community recreation programs cover a wide range of interests and activities including youth and adult sports and special interest classes, youth -at -risk programs, aquatics, special events, camps/clinics and tournaments. Lodi Memorial Hospital offers a 270 -bed, non-profit, independent, acute-care hospital to the residents of Lodi. Its mission is to provide quality medical care, education and support services to the community. Two hospital campuses and six satellite clinics are used to provide a variety of inpatient, outpatient, urgent, emergency and primary care services. Education. The Lodi Unified School District provides K-12 and special education programs. The area also is served by several private and parochial schools. The University of the Pacific, San Joaquin Delta Community College, California State University-Stanislaus/Turlock/Stockton Center, and the University of San Francisco satellite center are all within a 20 -minute drive of Lodi. The University of California -Davis, California State University -Sacramento and the University of Southern California satellite center are within an hour's drive from Lodi. Transportation. Lodi is served by Interstate highway 5 and State highways 12 and 99 and is located on the main line of the Union Pacific Railroad. Lodi has Amtrak passenger rail service and local, regional and national bus service. A deep -water seaport and airport with commercial passenger travel are located approximately 15 miles south. A-21 DOCSOC/1565093v 16/022245-0260 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2011 B-1 DOCSOC/1565093v 16/022245-0260 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS C-1 DOCSOC/1565093v 16/022245-0260 APPENDIX D FORM OF OPINION OF BOND COUNSEL D-1 DOCSOC/1565093v 16/022245-0260 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT E-1 DOCSOC/1565093v 16/022245-0260 APPENDIX F DTC AND THE BOOK -ENTRY ONLY SYSTEM F-1 DOCSOC/1565093v 16/022245-0260 [Jones Hall Letterhead] September _, 2012 Lodi Public Financing Authority 221 West Pine Street Lodi, CA 95240 OPINION. $ Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds Members of the Board of Directors of the Authority: We have acted as bond counsel to the Lodi Public Financing Authority (the "Authority") in connection with the issuance by the Authority of the captioned bonds dated the date hereof (the 'Bonds"). In such capacity, we have examined such law and such certified proceedings, certifications and other documents as we have deemed necessary to render this opinion. The Bonds are issued pursuant to Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the 'Bond Law"), the Indenture of Trust, dated as of September 1, 2012 (the "Indenture"), by and between the Authority and Union Bank, N.A., as trustee (the "Trustee "), and a resolution (the "Resolution") of the Board of Directors of the Authority adopted , 2012. Under the Indenture, the Authority has pledged certain revenues (the "Revenues") for the payment of principal, premium (if any), and interest on the Bonds when due, including installment payments made by the City of Lodi (the "City") under an Installment Purchase Agreement dated as of September 1, 2012 (the "Installment Purchase Agreement") between the Authority and the City. Regarding questions of fact material to our opinion, we have relied on representations of the Authority contained in the Indenture and the City contained in the Installment Purchase Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Authority is a duly created and validly existing joint exercise of powers authority with the power to adopt the Resolution, enter into the Indenture and perform the agreements on its part contained therein, and issue the Bonds. 2. The City is a duly created and validly existing general law city with the power to enter into the Installment Purchase Agreement and perform the agreements on its part contained therein. Lodi Public Financing Authority September _, 2012 Page 2 3. The Indenture has been duly authorized, executed and delivered by the Authority, and constitutes a valid and binding obligation of the Authority, enforceable against the Authority. 4. The Installment Purchase Agreement has been duly authorized, executed and delivered by the Authority and the City, and constitutes a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City. 5. The Indenture creates a valid lien on the Revenues and other funds pledged by the Indenture for the security of the Bonds, on a parity with other bonds (if any) issued or to be issued under the Indenture. 6. The Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligations of the Authority, payable solely from the Revenues and other funds provided therefor in the Indenture. 7. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 8. Interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof. Respectfully submitted, Lodi Public Financing Authority September _, 2012 Page 3 A Professional Law Corporation ESCROW DEPOSIT AND TRUST AGREEMENT Relating to $27,360,000 Wastewater System Revenue Certificates of Participation, 2004 Series A This ESCROW DEPOSIT AND TRUST AGREEMENT (this "Agreement"), dated as of September 1, 2012, is between the CITY OF LODI, a general law city and municipal corporation organized and existing under the Constitution and laws of the State of California (the "City"), and UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, acting as escrow agent for the 2004 Certificates described below (the "Escrow Agent") and as successor trustee (the "2004 Trustee") for the 2004 Certificates. BACKGROUND: 1. The City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments") and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and the 2004 Trustee, all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the wastewater collection, treatment and disposal system of the City (the "2004 Project"). 2. In order to take advantage of prevailing bond market conditions, the City wishes to refinance the 2004 Certificates. 3. To that end, the City has proposed to sell the 2004 Project to the Lodi Public Financing Authority (the "Authority") and the Authority will sell the 2004 Project Back to the City. 4. In order to refinance the 2004 Installment Payments, the Authority proposes to issue and sell its Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds (the "Refunding Bonds"), pursuant to an Indenture of Trust, dated as of September 1, 2012 (the "Refunding Bonds Indenture"), 5. The City wishes to appoint the Escrow Agent for the purpose of establishing an irrevocable escrow fund to be funded, invested, held and administered for the purpose of providing for the payment in full of the 2004 Installment Payments and the payment in full of the principal and interest and premium (if any) with respect to the outstanding 2004 Certificates, and to provide certain directions to the 2004 Trustee with respect to the 2004 Certificates. 6. As a result of the deposit and investment of funds in accordance with this Agreement, the 2004 Installment Payments will be deemed paid and prepaid under Section 7.1 and Section 9.1 of the 2004 Installment Purchase Agreement, and the 2004 Certificates will be discharged and defeased in accordance with the provisions of Section 9.01 of the 2004 Trust Agreement and prepaid in accordance with the provisions of Section 2.04 of the 2004 Trust Agreement. AGREEMENT: In consideration of the premises and the material covenants contained herein, the City and Union Bank, N.A., as Escrow Bank and 2004 Trustee, hereby agree as follows: SECTION 1. Appointment of Escrow Agent; Establishment of Escrow Fund. The City hereby appoints the Escrow Agent to act as escrow agent for purposes of administering the funds required to defease and prepay the 2004 Certificates in accordance with the 2004 Trust Agreement. The Escrow Agent is directed to establish an escrow fund (the "Escrow Fund") to be held by the Escrow Agent in trust as an irrevocable escrow securing the payment of the 2004 Installment Payments and the 2004 Certificates as set forth below. All cash and securities in the Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the 2004 Installment Payments in accordance with the 2004 Installment Purchase Agreement and the payment of the principal of and interest and premium (if any) with respect to the 2004 Certificates in accordance with the 2004 Trust Agreement. If at any time the Escrow Agent receives actual knowledge that the cash and securities in the Escrow Fund will not be sufficient to make any payment required by Section 4 in respect of the 2004 Certificates, the Escrow Agent shall notify the City of such fact and the City shall immediately cure such deficiency from any source of legally available funds. The Escrow Agent has no liability for any such insufficiency. SECTION 2. Deposit and Investment of Amounts in Escrow Fund. On September _, 2012 (the "Closing Date"), the Authority, pursuant to the Refunding Bonds Indenture, will cause to be transferred to the Escrow Agent for deposit into the Escrow Fund the amount of $ in immediately available funds, to be derived from the proceeds of the Refunding Bonds. In addition, the City hereby directs the 2004 Trustee to transfer to the Escrow Agent for deposit into the Escrow Fund the amount of $ , to be derived from moneys related to the 2004 Certificates that are available as a result of the defeasance of the 2004 Certificates. On the Closing Date, the Escrow Agent shall invest $ of the amounts deposited in the Escrow Fund in the federal securities listed on Exhibit A; the federal securities listed on Exhibit A are "Defeasance Securities" as defined in the 2004 Trust Agreement. The Escrow Agent shall hold the remaining $ in cash, uninvested. SECTION 3. Application of Amounts in Escrow Fund. The Escrow Agent is hereby instructed to withdraw from the Escrow Fund and transfer to the 2004 Trustee an amount required to pay the principal of and interest and prepayment premium (if any) on the 2004 Certificates, in accordance with the schedule attached as Exhibit B hereto, which payment shall also constitute payment of the 2004 Installment Payments. Following the payment and prepayment of the 2004 Installment Payments and the 2004 Certificates in full, the Escrow Bank shall transfer any amounts remaining on deposit in the Escrow Fund to Union Bank, N.A., as trustee for the Refunding Bonds, for 2 deposit in the Bond Fund established under the Refunding Bonds Indenture, to be applied to pay interest next coming due and payable on the Refunding Bonds. SECTION 4. Irrevocable Election to Prepay 2004 Certificates; Defeasance Notice. The City has irrevocably elected to pay and prepay all of the unpaid 2004 Installment Payments and all of the outstanding 2004 Certificates on the date set forth in Exhibit B, in accordance with the provisions of the 2004 Trust Agreement. The City hereby directs the 2004 Trustee to give notice of the prepayment of the 2004 Certificates in accordance with the requirements of the 2004 Trust Agreement, at the expense of the City, using the form set forth in Exhibit C. The City further hereby directs the 2004 Trustee to file on the Closing Date the notice attached as Exhibit D on the Municipal Securities Rulemaking Board's EMMA system. SECTION 5. Compensation to Escrow Agent. The City shall pay the Escrow Agent full compensation for its services under this Agreement, including out-of-pocket costs such as publication costs, prepayment expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the Escrow Fund be deemed to be available for said purposes. The Escrow Agent has no lien upon or right of set off against the cash and securities at any time on deposit in the Escrow Fund. SECTION 6. Immunities and Liability of Escrow Bank. The Escrow Bank undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Bank. The Escrow Bank shall not have any liability hereunder except to the extent of its negligence or willful misconduct. In no event shall the Escrow Bank be liable for any special, indirect or consequential damages. The Escrow Bank shall not be liable for any loss from any investment made by it in accordance with the terms of this Agreement. The Escrow Bank may consult with legal counsel of its own choice and the Escrow Bank shall not be liable for any action taken or not taken by it in good faith in reliance upon the opinion or advice of such counsel. The Escrow Bank shall not be liable for the recitals or representations contained in this Agreement and shall not be responsible for the validity of this Agreement, the sufficiency of the Escrow Fund or the moneys and securities to pay the principal, interest and prepayment premium with respect to the 2004 Certificates. Whenever in the administration of this Agreement the Escrow Bank deems it necessary or desirable that a matter be proved or established prior to taking or not taking any action, such matter may be deemed to be conclusively proved and established by a certificate of an authorized representative of the City and shall be full protection for any action taken or not taken by the Escrow Bank in good faith reliance thereon. The Escrow Bank may conclusively rely as to the truth and accuracy of the statements and correctness of any opinions or calculations provided to it in connection with this Agreement and shall be protected in acting, or refraining from acting, upon any notice, instruction, request, certificate, document, opinion or other writing furnished to the Escrow Bank in connection with this Agreement and believed by the Escrow Bank to be signed by the proper party, and it need not investigate any fact or matter stated therein. 3 None of the provisions of this Agreement shall require the Escrow Bank 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 Escrow Bank 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. The Escrow Bank may at any time resign by giving 30 days written notice of resignation to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release the resigning Escrow Bank from its obligations hereunder by written instrument, a copy of which instrument shall be delivered to the resigning Escrow Bank and the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Escrow Bank may petition any court of competent jurisdiction for the appointment of a successor. Any bank, corporation or association into which the Escrow Bank may be merged or converted or with which it may be consolidated, or any bank, corporation or association resulting from any merger, conversion or consolidation to which the Escrow Bank shall be a party, or any bank, corporation or association succeeding to all or substantially all of the corporate trust business of the Escrow Bank shall be the successor of the Escrow Bank hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except on the part of any of the parties hereto where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. The City shall indemnify, defend and hold harmless the Escrow Bank and its officers, directors, employees, representatives and agents, from and against and reimburse the Escrow Bank for any and all claims, obligations, liabilities, losses, damages, actions, suits, judgments, reasonable costs and expenses (including reasonable attorneys' and agents' fees and expenses) of whatever kind or nature regardless of their merit, demanded, asserted or claimed against the Escrow Bank directly or indirectly relating to, or arising from, claims against the Escrow Bank by reason of its participation in the transactions contemplated hereby except to the extent caused by the Escrow Bank's negligence or willful misconduct. The provisions of the foregoing sentence shall survive the termination of this Agreement or the earlier resignation or removal of the Escrow Bank. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e-mail (provided, that for purposes of this Agreement, an e-mail does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such e-mail shall constitute a notice, request or other communication hereunder), facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Bank 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 Escrow Bank e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank's understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank's reliance upon and 4 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 Escrow Bank, including without limitation the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. SECTION 7. Termination of Agreement. Upon payment in full of the principal of and interest and prepayment premium on the 2004 Certificates and all fees, expense and charges of the Escrow Bank as described above, this Agreement shall terminate and the Escrow Bank shall be discharged from any further obligation or responsibility hereunder. SECTION 8. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 9. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. UNION BANK, N.A., as Escrow Agent and as 2004 Trustee By Authorized Officer CITY OF LODI M 5 KONRADT BARTLAM City Manager EXHIBIT A ESCROW SECURITIES First Type of CUSIP Purchase Maturity Int Pmt Par Purchase Interest Security or ID Date Date Date Amount Rate Price Class A-1 EXHIBIT B ESCROW REQUIREMENTS Interest Prepaid Prepayment Payment Date Payment Principal Premium 10/1/12 4/1/13 10/1/13 4/1/14 10/1/14 $0 B-1 Total Payment EXHIBIT C FORM OF NOTICE OF PREPAYMENT $27,360,000 Wastewater System Revenue Certificates of Participation, 2004 Series A NOTICE IS HEREBY GIVEN, by the City of Lodi (the "City") that the captioned certificates of participation (the "2004 Certificates") have been defeased and discharged under and within the meaning of the Trust Agreement, dated as of May 1, 2004, relating to the 2004 Certificates (the "2004 Trust Agreement"), and that the City has irrevocably elected to prepay all of the outstanding 2004 Certificates on October 1, 2014, at a prepayment price equal to the par amount thereof together with accrued interest thereon to the prepayment date, without premium. The 2004 Certificates consist of the following: Maturity Date October 1 Principal Amount Interest Rate CUSIP 2012 $1,145,000.00 5.00% 540279AJ5 2013 1,205,000.00 5.00 540279AK2 2014 1,265,000.00 4.75 540279AL0 2015 1,325,000.00 5.25 540279AM8 2016 1,390,000.00 4.50 540279AN6 2017 1,455,000.00 5.50 540279AP1 2018 1,535,000.00 5.50 540279AQ9 2019 1,620,000.00 4.75 540279AR7 2020 1,695,000.00 5.00 540279AS5 2021 1,780,000.00 5.375 540279AT3 2022 1,875,000.00 5.00 540279AU0 2023 1,970,000.00 5.00 540279AV8 2024 2,070,000.00 4.75 540279AW6 Funds for the payment of the 2004 Certificates have been deposited with Union Bank, N.A., as escrow bank, and the sufficiency of the funds and investments for the purpose of paying the principal of and interest on the 2004 Certificates has been verified by Causey Demgen & Moore, certified public accountants. Additional information regarding the foregoing actions may be obtained from contacting Union Bank, N.A., Corporate Trust Dept. 350 California Street, 11th Floor, San Francisco, CA 94707 or by fax at (415) 273-2492. Payment of interest on the 2004 Certificates shall be made by check or, at the option of any owner of at least $1,000,000 aggregate principal amount of 2004 Certificates, by wire transfer to a bank account in the United States of America. The principal and premium (if any) payable will be payable by check upon surrender of the Certificates at the Principal Office of Union Bank, N.A., at 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012. Dated: September_, 2014 UNION BANK, N.A. C-1 EXHIBIT D FORM OF NOTICE OF DEFEASANCE $27,360,000 Wastewater System Revenue Certificates of Participation, 2004 Series A NOTICE IS HEREBY GIVEN, by the City of Lodi (the "City") that the captioned certificates of participation (the "2004 Certificates") have been defeased and discharged under and within the meaning of the Trust Agreement, dated as of May 1, 2004, relating to the 2004 Certificates (the "2004 Trust Agreement"). Funds for the payment of the 2004 Certificates have been deposited with Union Bank, N.A., as escrow bank, and the sufficiency of the funds and investments for the purpose of paying the principal of and interest on the 2004 Certificates has been verified by Causey Demgen & Moore, certified public accountants. As a consequence of the foregoing actions and in accordance with the 2004 Trust Agreement, all obligations of Union Bank, N.A., as successor trustee for the 2004 Certificates, the Lodi Public Improvement Corporation and the City with respect to the 2004 Certificates has ceased and terminated, except the obligation to use moneys set aside in escrow as described above and, if necessary, from other legally available funds of the City. The outstanding 2004 Certificates consist of the following: Maturity Date Principal Interest October 1 Amount Rate CUSIP 2012 $1,145,000.00 5.00% 540279AJ5 2013 1,205,000.00 5.00 540279AK2 2014 1,265,000.00 4.75 540279AL0 2015 1,325,000.00 5.25 540279AM8 2016 1,390,000.00 4.50 540279AN6 2017 1,455,000.00 5.50 540279AP1 2018 1,535,000.00 5.50 540279AQ9 2019 1,620,000.00 4.75 540279AR7 2020 1,695,000.00 5.00 540279AS5 2021 1,780,000.00 5.375 540279AT3 2022 1,875,000.00 5.00 540279AU0 2023 1,970,000.00 5.00 540279AV8 2024 2,070,000.00 4.75 540279AW6 The City has irrevocably elected to prepay all of the outstanding 2004 Certificates on October 1, 2014, at a prepayment price equal to the par amount thereof together with accrued interest thereon to the prepayment date, without premium. D-1 Additional information regarding the foregoing actions may be obtained from contacting Union Bank, N.A., Corporate Trust Dept. 350 California Street, 11th Floor, San Francisco, CA 94707 or by fax at (415) 273-2492. Dated: September 5, 2012 UNION BANK, N.A. D-2 INSTALLMENT PURCHASE AGREEMENT Dated as of September 1, 2012 between the LODI PUBLIC FINANCING AUTHORITY, as Seller and the CITY OF LODI, as Purchaser Relating to Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A TABLE OF CONTENTS Page ARTICLE I Definitions; Rules of Interpretation SECTION 1.1. Definitions...........................................................................................3 SECTION 1.2. Interpretation......................................................................................7 ARTICLE II Representations, Covenants and Warranties SECTION 2.1. Representations, Covenants and Warranties of the City .................... 8 SECTION 2.2. Representations, Covenants and Warranties of Authority .................. 9 ARTICLE III Issuance of Bonds; Refinancing of the 2004 Installment Payments SECTION 3.1. Issuance of Bonds; Deposit of Proceeds..........................................11 SECTION 3.2. Payment and Prepayment of the 2004 Installment Payments; Defeasance and Prepayment of the 2004 Certificates ......................11 ARTICLE V Covenants of the City SECTION 5.1. ARTICLE IV SECTION 5.2. Sale of 2004 Project SECTION 5.3. Installment Payments SECTION4.1. Term.................................................................................................11 SECTION 4.2. Sale of 2004 Project.........................................................................11 SECTION4.3. Title...................................................................................................11 SECTION 4.4. Installment Payments.......................................................................12 SECTION 4.5. Pledge and Application of System Net Revenues ............................12 SECTION 4.6. Establishment of Rate Stabilization Fund.........................................14 SECTION 4.7. Special Obligation of the City; Obligations Absolute .........................15 SECTION 4.8. Additional Payments.........................................................................15 ARTICLE V Covenants of the City SECTION 5.1. Disclaimer of Warranties...................................................................16 SECTION 5.2. Release and Indemnification Covenants..........................................16 SECTION 5.3. Sale or Eminent Domain of System..................................................16 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. Operation of System in Efficient and Economical Manner................20 SECTION 5.10. Assignment and Amendment Hereof................................................20 SECTION 5.11. Tax Covenants..................................................................................21 SECTION 5.12. Continuing Disclosure.......................................................................22 ARTICLE VI Events of Default SECTION 6.1. Events of Default Defined................................................................. 22 SECTION 6.2. Remedies on Default........................................................................ 23 SECTION 6.3. No Remedy Exclusive.......................................................................24 SECTION 6.4. Agreement to Pay Attorneys' Fees and Expenses ........................... 24 SECTION 6.5. No Additional Waiver Implied by One Waiver...................................24 SECTION 6.6. Trustee and Bond Owners to Exercise Rights..................................24 ARTICLE VII Prepayment of Installment Payments SECTION 7.1. Security Deposit................................................................................24 SECTION 7.2. Optional Prepayment........................................................................25 SECTION 7.3. Credit for Amounts on Deposit.......................................................... 25 ARTICLE VIII Miscellaneous SECTION 8.1. Further Assurances.......................................................................... 26 SECTION8.2. Notice...............................................................................................26 SECTION 8.3. Governing Law..................................................................................26 SECTION 8.4. Binding Effect...................................................................................26 SECTION 8.5. Severability of Invalid Provisions......................................................26 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 SECTION 8.10. Trustee as Third Party Beneficiary...................................................27 APPENDIX A Schedule of Installment Payments INSTALLMENT PURCHASE AGREEMENT This INSTALLMENT PURCHASE AGREEMENT (this "Agreement"), dated as of September 1, 2012, is between the LODI 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 LODI, a municipal corporation duly organized and existing under the laws of the State of California (the "City"), as purchaser. BACKGROUND: 1. The City owns and operates a public enterprise for the collection, treatment and disposal of wastewater within the service area of the City (as defined more completely below, the "System"). 2. The City previously entered into an Installment Purchase Agreement, dated as of October 1, 2003 (the "2003 Installment Purchase Agreement") with the California Statewide Communities Development Authority ("CSCDA"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $5,000,000 (the "2003 Installment Payments") and caused CSCDA to issue its California Statewide Communities Development Authority Water and Wastewater Revenue Bonds (Pooled Financing Program), Series 2003B (the "2003 Bonds"), pursuant to an Indenture, dated as of October 1, 2003 (the "2003 Indenture"), between CSCDA and Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee, all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the System. 3. The City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments") and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the System (the "2004 Project"). 4. The City previously entered into an Installment Purchase Agreement, dated as of December 1, 2007 (the "2007 Installment Purchase Agreement") with the Corporation, pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $30,320,000 (the "2007 Installment Payments") and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2007 Series A (the "2007 Certificates"), pursuant to a Trust Agreement, dated as of December 1, 2007 (the "2007 Trust Agreement"), between the Corporation and the Trustee, as trustee, all for the purpose of (i) financing certain additions, betterments, extensions, replacements and improvements to the System and (ii) prepaying on a current basis all outstanding installment payments under an Installment Purchase Agreement, dated as of December 1, 1991. 5. The City wishes to refinance the 2004 Installment Payments. 6. The Authority has been formed for the purpose of assisting the City in the financing and refinancing of public capital improvements, and in order to accomplish the refunding plan described in the previous paragraph, the Authority has proposed to enter into this Agreement with the City. 7. Pursuant to Section 7.1 of the 2004 Installment Purchase Agreement, the City has the right to prepay the 2004 Installment Payments on any date, provided that any prepayment of a principal component of the 2004 Installment Payments to be applied to the prepayment or defeasance of the 2004 Certificates must be in an amount sufficient to provide for the prepayment or defeasance of the 2004 Certificates and must be otherwise in accordance with the provisions of the 2004 Trust Agreement. 8. Under Section 9.1 of the 2004 Installment Purchase Agreement, the 2004 Installment Payments will be deemed paid and all obligations of the City with respect to the 2004 Installment Payments will cease and terminate (except for the obligation to make payment from deposited funds and Defeasance Securities (as defined in the 2004 Trust Agreement) as provided in Article IX of the 2004 Trust Agreement) when the 2004 Certificates have been paid or deemed paid in accordance with Article IX of the 2004 Trust Agreement. 9. The 2004 Certificates maturing on and after October 1, 2015, are subject to prepayment on October 1, 2014, at a prepayment price equal to the principal amount of the 2004 Certificates plus unpaid accrued interest to the prepayment date, without premium. 10. Under Article IX of the 2004 Trust Agreement, the obligations of the Corporation, the Trustee and the City with respect to the 2004 Certificates will cease and terminate when cash and/or Defeasance Securities have been deposited with the 2004 Trustee in an amount sufficient to pay the Certificates when they become due, whether at maturity or earlier prepayment. 11. The City wishes at this time to make such deposit of funds for the purpose of paying and prepaying the 2004 Installment Payments and thereby discharging its obligations under the 2004 Installment Purchase Agreement 12. The Authority will raise funds for the payment and prepayment of the 2004 Installment Payments and, as a result, the defeasance and prepayment of the 2004 Certificates, by issuing its Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A in the aggregate principal amount of $ (the "Bonds") under an Indenture of Trust dated as of September 1, 2012 (the "Indenture"), between the Authority and Union Bank, N.A., as trustee (the "Trustee"), which are payable from revenues consisting primarily of installment payments payable by the City hereunder. 13. In order to provide revenues which are sufficient to pay the principal of and interest on the Bonds when due, the Authority and the City wish to enter into this Agreement under which the Authority agrees to sell the 2004 Project to the City, in consideration of which the City agrees to pay the Installment Payments (the "Installment Payments") which are secured by a pledge of and lien on the System Net Revenues of the System. -2- AGREEMENT: In consideration of the foregoing and the material covenants hereinafter contained, the City and the Authority formally agree 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 in this Agreement have the respective meanings given such terms in this Section 1.1. Capitalized terms used in this Agreement and not otherwise defined in this Section 1.1 have the respective meanings given them in Appendix A to the Indenture. "Additional Payments" means the amounts payable by the City under Section 4.8. "Annual Debt Service" means, for any Fiscal Year, the sum of (1) the interest accruing on all Parity Debt during such Fiscal Year, assuming that all such Parity Debt is retired as scheduled, plus (2) the principal amount (including principal due as sinking fund installment payments) allocable to all Parity Debt in such Fiscal Year, calculated as if such principal amounts were deemed to accrue daily during such Fiscal Year in equal amounts from, in each case, the immediately preceding payment date for such principal or, with respect to the initial principal payment date for such Parity Debt, the date of delivery of such Parity Debt (provided that principal shall not be deemed to accrue for greater than a 365 -day period prior to any principal payment date), as the case may be, to the next succeeding payment date for principal, provided, that the following adjustments shall be made to the foregoing amounts in the calculation of Annual Debt Service: (A) with respect to any Parity Debt bearing or comprising interest at other than a fixed interest rate, the rate of interest used to calculate Annual Debt Service shall be (i) with respect to such Parity Debt then outstanding, one hundred ten per cent (110%) of the greater of (1) the daily average interest rate on such Parity Debt during the twelve (12) calendar months next preceding the date of such calculation (or the portion of such twelve (12) calendar months that such Parity Debt has borne interest) or (2) the most recent effective interest rate on such Parity Debt prior to the date of such calculation or (ii) with respect to Parity Debt then proposed to be issued, the then current Municipal Market Data General Obligation Yield for a maturity comparable to the maturity of the applicable Parity Debt as published in The Bond Buyer (or if The Bond Buyer or such yield is no longer published, such other published similar index as shall be selected by the City); (B) with respect to any issue or series of Parity Debt having twenty-five per cent (25%) or more of the aggregate principal amount thereof due in any one Fiscal Year, Annual Debt Service shall be calculated as if the interest on and principal of the Parity Debt of such issue or series were being paid in substantially equal annual amounts over the term of such Parity Debt; provided, however that the full amount of scheduled payments of interest and principal of such Parity Debt shall be included in -3- Annual Debt Service if the date of calculation is within 24 months of the date on which such twenty-five percent (25%) or more of aggregate principal amount becomes due; (C) with respect to any Parity Debt or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Parity Debt or portions thereof, such accreted discount shall be treated as due when scheduled to be paid; (D) Annual Debt Service shall not include interest on Parity Debt which is to be paid from amounts constituting capitalized interest; (E) if an interest rate swap agreement is in effect with respect to, and is payable on a parity with, any Parity Debt, no amounts payable under such interest rate swap agreement in addition to debt service payable with respect to such Parity Debt shall be included in the calculation of Annual Debt Service unless, in the applicable Fiscal Year, the sum of (i) the interest payable on such Parity Debt, plus (ii) the amounts payable by the City under such interest rate swap agreement, less (iii) the amounts receivable by the City under such interest rate swap agreement, is greater than the interest payable on such Parity Debt, in which case the net amount of payments to be made by the City under such interest rate swap agreement that exceed the interest to be paid on such Parity Debt shall be included in such calculation, and for this purpose, the variable amount under any such interest rate swap agreement shall be determined in accordance with the procedure set forth in subparagraph (A) of this definition; and (F) Repayment Obligations payable on a parity with Parity Debt shall be deemed to be payable at the scheduled amount due under such Repayment Obligation and for this purpose, the variable interest amount included in any such Repayment Obligation shall be determined in accordance with the procedure set forth in subparagraph (A) of this definition. "Certificate of the City" means an instrument in writing signed by the Mayor, the City Manager, the Deputy City Manager/Internal Services Director, or the City Attorney of the City, or by any other officer of the City duly authorized by the City for that purpose, such authorization to be evidenced by a certificate verifying the specimen signatures of such officers at the request of the Trustee. "City Administrative Costs" means those costs and expenses of the City that are charged directly or apportioned to the operation of the System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds not maintained from System Revenues). "Continuing Disclosure Certificate" means the Continuing Disclosure Certificate which is executed and delivered by the City on the Closing Date. "Corporation" means the Lodi Public Improvement Corporation. "Event of Default" means any of the events specified in Section 6.1. "Generally Accepted Accounting Principles" means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such -4- procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor. "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 Business Day immediately preceding such Interest Payment Date. "Installment Payments" means the payments the City is required to pay pursuant to Section 4.4(a) as the purchase price of the 2004 Project. "Maximum Annual Debt Service" means, as of any date of calculation, the largest Annual Debt Service during the period from the date of such calculation through the final maturity date of all Parity Debt. "Net Proceeds" means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys' fees) incurred in the collection of such proceeds. "Operation and Maintenance Costs" means the reasonable and necessary costs paid or incurred by the City for maintaining and operating the System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the System in good repair and working order, including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms hereof or of any Supplemental Agreement or of any resolution authorizing the execution of any Parity Obligations, such as compensation, reimbursement and indemnification of the Trustee and the Authority, fees and expenses of Independent Certified Public Accountants and deposits to the Rebate Fund; but excluding in all cases (i) payment of Parity Debt and Subordinate Obligations, (ii) costs of capital additions, replacements, betterments, extensions or improvements which under Generally Accepted Accounting Principles are chargeable to a capital account, (iii) depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles, (iv) City Administrative Costs, and (v) transfers from the System Revenue Fund to other funds or accounts of the City. "Overdue Rate" means the highest rate of interest on any of the Outstanding Bonds. "Parity Debt" means the Installment Payments and any Parity Obligations. "Parity Obligation Payments" means the payments scheduled to be paid by the City under and pursuant to the Parity Obligations, which payments are secured by a pledge of System Net Revenues on a parity with the Installment Payments. -5- "Parity Obligations" means all obligations of the City authorized and executed by the City, other than the Installment Payments, the Parity Obligation Payments under which are secured by a pledge of the System Net Revenues on a parity with the Installment Payments, including but not limited to any Repayment Obligations secured by System Net Revenues on a parity with the Installment Payments. On the date of issuance of the Bonds, Parity Obligations consist of the 2003 Installment Payments and the 2007 Installment Payments. "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 System, which fund is established, held and maintained in accordance with Section 4.6. "Repayment Obligation" means the reimbursement obligation or any other payment obligation of the City under a written agreement between the City and a credit provider to reimburse the credit provider for amounts paid pursuant to a credit facility for the payment of the principal amount or purchase price of and/or interest on any Parity Debt. "Subordinate Obligations" means the obligations of the City that are payable from System Net Revenues on a basis that is subordinate to the payment of Parity Debt. "System" means the whole and each and every part of the system of the City for the collection, treatment and disposal of wastewater, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such system or any part thereof hereafter acquired or constructed. "System Net Revenues" means for any period System Revenues less Operation and Maintenance Costs for such period; provided that certain adjustments in the amount of System Net Revenue for a Fiscal Year may be made in connection with amounts deposited in and transferred from the Rate Stabilization Fund as provided in Section 4.6 of the Agreement. "System Revenue Fund" means the fund established and held by the City pursuant to Section 4.5 of this Agreement. "System Revenues" means all gross income and revenue received or receivable by the City from the ownership or operation of the System, determined in accordance with Generally Accepted Accounting Principles, including all fees (including connection fees), rates, charges and all amounts paid under any contracts received by or owed to the City in connection with the operation of the System and all proceeds of insurance relating to the System and investment income allocable to the System and all other income and revenue howsoever derived by the City from the ownership or operation of the System or arising from the System. System Revenues for any Fiscal Year shall include, for the purposes permitted by the Agreement, amounts transferred to the System Revenue Fund from the Rate Stabilization Fund during such Fiscal Year. "2003 Bonds" means the California Statewide Communities Development Authority Water and Wastewater Revenue Bonds (Pooled Financing Program), Series 20038. "2003 Indenture" means an Indenture, dated as of October 1, 2003, between CSCDA and the 2003 Trustee. IQ "2003 Installment Payments" means the installment payments made by the City to CSCDA under the 2003 Installment Purchase Agreement. "2003 Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of October 1, 2003, between the City and CSCDA. "2003 Trustee" means Union Bank, N.A. (formerly known as Union Bank of California, N.A.), "2004 Certificates" means the Wastewater System Revenue Certificates of Participation, 2004 Series A. "2004 Installment Payments" means the installment payments made by the City under the 2004 Installment Purchase Agreement. "2004 Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of May 1, 2004, between the Corporation and the City. "2004 Trust Agreement" means the Trust Agreement, dated as of May 1, 2004, between the Corporation and the 2004 Trustee. "2004 Trustee" means Union Bank, N.A., as successor trustee. "2007 Certificates" means the Wastewater System Revenue Certificates of Participation, 2007 Series A. "2007 Installment Payments" means the installment payments made by the City under the 2007 Installment Purchase Agreement. "2007 Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of December 1, 2007, between the Corporation and the City. "2007 Trust Agreement" means the Trust Agreement, dated as of December 1, 2007, between the Corporation and the 2007 Trustee. "2007 Trustee" means Union Bank, N.A. 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 -7- "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 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 representatives 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. (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. M (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 or, to the knowledge of the City after reasonable investigation, 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) Prior Indebtedness. Upon issuance of the Bonds, the City will remain obligated to make the 2003 Installment Payments and the 2007 Installment Payments on a parity with the Installment Payments. SECTION 2.2. Representations, Covenants and Warranties of Authority. The Authority represents, covenants and warrants to the City 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 the Indenture and to perform the duties and obligations imposed on it hereunder and thereunder. The Board of Directors of the Authority has duly authorized the execution and delivery of this Agreement and the Indenture. (b) Due Execution. The representatives of the Authority executing this Agreement and the Indenture are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement and the Indenture have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding agreements of the Authority with the Authority, enforceable against the Authority in accordance with their respective terms; except as the 0 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 Indenture, 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 and by the Indenture 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 and the Indenture. (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 of the Indenture, 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 or, to the knowledge of the Authority after reasonable investigation, threatened against or affecting the Authority or the assets, properties or operations of the 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 Indenture, 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 Indenture or the financial conditions, assets, properties or operations of the -10- Authority, including but not limited to the performance of the Authority's obligations hereunder and under the Indenture. ARTICLE III ISSUANCE OF BONDS; REFINANCING OF THE 2004 INSTALLMENT PAYMENTS SECTION 3.1. Issuance of Bonds; Deposit of Proceeds. The Authority shall cause the Bonds to be issued under the Indenture in the aggregate principal amount set forth in the Indenture. The Trustee shall deposit the proceeds of sale of the Bonds received by it on the Closing Date in accordance with the Indenture. The City hereby approves the Indenture, the assignment thereunder to the Trustee of certain rights of the Authority, and the issuance of the Bonds. SECTION 3.2. Payment and Prepayment of the 2004 Installment Payments; Defeasance and Prepayment of the 2004 Certificates. The proceeds received by the Trustee from the sale of the Bonds to the Original Purchaser shall be deposited in the respective funds and accounts, and in the respective amounts, as set forth in Section 3.02 of the Indenture. ARTICLE IV SALE OF 2004 PROJECT; INSTALLMENT PAYMENTS SECTION 4.1. Term. The Term of this Agreement commences on the Closing Date, and ends on October 1, , or such later or earlier date on which the Bonds cease to be Outstanding under and within the meaning of the Indenture. SECTION 4.2. Sale of 2004 Project In consideration of the Authority's assistance with the refinancing of the 2004 Installment Payments, the City hereby sells the 2004 Project to the Authority, and the Authority, subject to the terms and conditions hereof, hereby sells the 2004 Project back to the City. This Agreement shall supersede the 2004 Installment Purchase Agreement in connection with the sale of the 2004 Project. SECTION 4.3. Title. Title to the 2004 Project, and each component thereof, will be deemed conveyed by the Authority to and vested in the City upon execution and delivery of this Agreement. 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 2004 Project. -11- SECTION 4.4. Installment Payments. (a) Obligation to Pay Installment Payments to Purchase the 2004 Project. The City hereby agrees to pay to the Authority, as the purchase price of the 2004 Project hereunder, the aggregate principal amount of $ together with interest (calculated on the basis of a 360 -day year of twelve 30 -day months) on the unpaid principal balance thereof, payable in semiannual installment payments in the respective amounts and on the respective Installment Payment Dates specified in Appendix A. (b) Payment Provisions. The City shall deposit the Installment Payment coming due and payable on any Interest Payment Date with the Trustee, as assignee of the Authority under the Indenture, on the related Installment Payment Date. In determining the amount required to be deposited with the Trustee on any Installment Payment Date, all amounts then held by the Trustee in the Bond Fund and the accounts therein shall be credited towards the Installment Payment then due. The Installment Payments are secured by and payable solely from the sources specified in Section 4.5. (c) Effect of Prepayment. If the City prepays all remaining Installment Payments in full under Section 7.2, the City's obligations under this Agreement will 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 Trustee under Sections 4.8 and 5.2 will survive such prepayment. If the City prepays the Installment Payments in part but not in whole under Section 7.2, the principal component of each succeeding Installment Payment will be reduced as provided in such Sections, and the interest component of each remaining Installment Payment will be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Bonds thereby redeemed under the applicable provisions of Section 4.01 of the Indenture. (d) Rate on Overdue Payments. If the City fails to make any of the payments required under 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. (e) Assignment. 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 Trustee in trust under the Indenture, for the benefit of the Owners of the Bonds, and the City hereby consents to such assignment. The Authority hereby directs the City, and the City hereby agrees, to pay to the Trustee at its Trust Office, 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 System Net Revenues. (a) Pledge. All System Net Revenues and all amounts on deposit in the System Revenue Fund are, pursuant to Section 5451 of the Government Code of the State of California and all laws amendatory thereof or supplemental thereto, hereby irrevocably pledged to the payment of the Installment Payments and may not be used for any other purpose until all Installment Payments have been fully paid or provision has been made for such payment in accordance with Section 7.1; provided that out of the System Revenues and amounts on deposit in the System Revenue Fund there may be apportioned such sums for such purposes as are expressly permitted in this Agreement. -12- This pledge, together with the pledge of System Net Revenues and amounts in the System Revenue Fund securing all other Parity Obligations, shall, subject to application as permitted herein, constitute a first lien on System Net Revenues and amounts on deposit in the System Revenue Fund. (b) Deposit of System Revenues Into System Revenue Fund: Transfers to Make Payments. In order to carry out and effectuate the pledge and lien contained in this Agreement, the City agrees and covenants that all System Revenues shall be received by the City in trust hereunder and, except for Net Proceeds, shall be deposited when and as received in a special fund designated as the "System Revenue Fund", which fund the City has previously established and which fund the City agrees and covenants to maintain and to hold separate and apart from other funds until all Installment Payments have been fully paid or provision has been made therefor in accordance with Section 7.1. To the extent the City has an existing fund which satisfies the foregoing requirements, then such fund shall be deemed to be the "System Revenue Fund" and the City shall not be required to create a new fund. The City may maintain separate accounts within the System Revenue Fund. The amounts in the System Revenue Fund shall be invested in Permitted Investments. Moneys in the System Revenue Fund shall be used and applied by the City as provided in this Agreement. The City shall, from the moneys in the System Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. Thereafter, all remaining moneys in the System Revenue Fund shall be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority; and all moneys in each of such funds shall be held in trust and shall be applied, used and withdrawn only for the purposes set forth in this Section and, as to funds held under the Indenture, the Indenture: (i) Installment Payment. Not later than each Installment Payment Date, the City shall, from the- moneys in the System Revenue Fund, transfer to the Trustee the Installment Payment due and payable on that Installment Payment Date. The City shall also, from the moneys in the System Revenue Fund, transfer when due to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any Parity Obligation Payments in accordance with the provisions of the applicable Parity Obligations. (ii) Debt Service Reserve Funds. On or before the first Business Day of each month, the City shall, from the remaining moneys in the System Revenue Fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for such debt service reserve funds, if any, as may have been established in connection with Parity Obligations that sum, if any,necessary to restore such debt service reserve funds for Parity Obligations to an amount equal to the amount required to be maintained therein (including to reimburse the provider for a draw on a reserve account credit instrument). (iii) Surplus. Moneys on deposit in the System Revenue Fund not necessary to make any of the payments required above in a Fiscal Year may be -13- expended by the City at any time for any purpose permitted by law, including but not limited to payments with respect to Subordinate Obligations and deposits to the Rate Stabilization Fund. (c) No Preference or Priority. Payment of the Installment Payments and Parity Obligation Payments will be made without preference or priority among the Installment Payments and such Parity Obligation Payments. If the amount of System Net Revenues on deposit in the System Revenue Fund is at any time insufficient to enable the City to pay when due the Installment Payments and any Parity Obligation Payments, such payments will be made on a pro rata basis. (d) Other Uses of System Net Revenues Permitted. The City shall manage, conserve and apply the System Net Revenues on deposit in the System Revenue 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 use and apply moneys in the System Revenue Fund for (i) the payment of any Subordinate Obligations or any unsecured obligations, (ii) the acquisition and construction of improvements to the System, (iii) the prepayment of any other obligations of the City relating to the System, 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 System 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. Establishment of Rate Stabilization Fund. The City previously established a special fund known as the "Rate Stabilization Fund" which shall be held and maintained by the City until all Installment Payments have been fully paid or provision has been made therefor in accordance with, Section 7.1. The City may, subject to the provisions of Section 4.5, during or within 210 days after a Fiscal Year, transfer surplus System Net Revenues attributable to such Fiscal Year (on the basis of Generally Accepted Accounting Principles) from the System Revenue Fund to the Rate Stabilization Fund. The City may at any time transfer moneys from the Rate Stabilization Fund to the System Revenue Fund. Notwithstanding anything to the contrary provided in this Agreement, for purposes of the calculations required under Sections 5.8 and 5.6(b), (i) System Net Revenues deposited into the Rate Stabilization Fund shall not be taken into account as System Revenues for the Fiscal Year to which such deposited System Net Revenues are attributable and (ii) amounts withdrawn from the Rate Stabilization Fund and deposited into the System Revenue Fund may be taken into account as System Revenues for the Fiscal Year in which such deposit into the System Revenue Fund is made; provided that, for purposes of the calculation required under Section 5.6(b), the amount of System Net Revenues before any credits for transfers from the Rate Stabilization Fund to the System Revenue Fund may not be less than 100% of Annual -14- Debt Service for such Fiscal Year. The amounts in the Rate Stabilization Fund shall be invested in Permitted Investments. SECTION 4.7. 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 System Net Revenues. Under no circumstances is the City required to advance moneys derived from any source of income other than the System 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 System 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 Trustee of any obligation to the City or otherwise with respect to the System, whether hereunder or otherwise, or out of indebtedness or liability at any time owing to the City by the Authority or the Trustee. 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 System, sale of the System, the taking by eminent domain of title to or temporary use of any component of the System, 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 Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or this Agreement. The foregoing provisions of this Section 4.7 do not release the Authority from the performance of any of the agreements on its part contained herein or in the Indenture, 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 not 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 4.8. 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 and the Indenture; and -15- (b) to the Trustee upon request therefor, all of its costs and expenses payable as a result of the performance of and compliance with its duties hereunder or under the Indenture or any related documents; (c) to the Authority and the Trustee, all amounts required to indemnify the Authority and the Trustee under Section 5.2 hereof and Section 8.07 of the Indenture; (d) all costs and expenses of auditors, engineers and accountants for professional services relating to the System or the Bonds; and (e) all Excess Investment Earnings payable under Section 5.11(e). The Additional Payments are payable from, but are not secured by a pledge or lien upon, the System Net Revenues. The rights of the Trustee and the Authority under this Section 4.8, and the obligations of the City under this Section 4.8, shall survive the termination of this Agreement. ARTICLE V COVENANTS OF THE CITY SECTION 5.1. Disclaimer of Warranties. The Authority makes 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 2004 Project or any component thereof, or any other representation or warranty with respect to the 2004 Project or any component thereof. In no event is the Authority liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Agreement or the Indenture for the existence, furnishing, functioning or use of the 2004 Project. SECTION 5.2. Release and Indemnification Covenants. The City agrees to indemnify the Authority, the Trustee 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 System 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 or the Indenture, (c) any act or omission of the City or of any of its agents, contractors, servants, employees or licensees with respect to the System, (d) any act or omission of any lessee of the City with respect to the System, and (e) the Trustee's exercise and performance of its powers and duties hereunder, under the Indenture, and any other document or transaction contemplated in connection herewith or therewith. 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, the Trustee 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 System. Except as provided herein, the City covenants that the System will not be encumbered, sold, leased, pledged, any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole -16- 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 Debt, or would materially adversely affect its ability to comply with the terms of this Agreement or any Parity Debt. The City may not enter into any agreement which impairs the operation of the System or any part of it necessary to secure adequate System Net Revenues to pay the Installment Payments or any Parity Debt, or which otherwise would impair the rights of the Bond Owners or the Trustee with respect to the System Net Revenues. If all or any part of the System shall be taken by eminent domain proceedings, the Net Proceeds realized by the City therefrom shall be deposited by the City with the Trustee in a special fund which the Trustee shall establish as needed in trust and applied by the City to the cost of acquiring and constructing additions, betterments, extensions or improvements to the System if (A) the City first secures and files with the Trustee a Certificate of the City showing (i) the loss in annual System Revenues, if any, suffered, or to be suffered, by the City by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the System then proposed to be acquired and constructed by the City from such proceeds, and (iii) an estimate of the additional System Revenues to be derived from such additions, betterments, extensions or improvements; and (B) the Trustee has been furnished a Certificate of the City, certifying that such additional System Revenues will sufficiently offset on a timely basis the loss of System Revenues resulting from such eminent domain proceedings so that the ability of the City to pay all Parity Debt when due will not be substantially impaired, and such Certificate of the City shall be final and conclusive, and any balance of such proceeds not required by the City of such purpose shall be deposited in the System Revenue Fund and applied as provided in Section 4.5, provided, that if the foregoing conditions are not met, then such proceeds shall be deposited with the Trustee and applied to make Installment Payments and Parity Obligation Payments as they shall become due ratably without any discrimination or preference; provided further that the foregoing procedures for the application of Net Proceeds consisting of awards under eminent domain proceedings shall be subject to any similar provisions for Parity Debt on a pro rata basis. If such eminent domain proceedings have had no effect, or at most an immaterial effect, upon the System Revenues and the security of the Parity Debt, and a Certificate of the City to such effect has been filed with the Trustee, then the City shall forthwith deposit such proceeds in the System Revenue Fund, to be applied as provided in Section 4.5. SECTION 5.4. Insurance. The City shall at all times maintain with responsible insurers all such insurance on the System as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the System. 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, the Authority, the Trustee and the Owners of the Bonds. 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 -17- of the participation by the City in a joint powers agency or other program providing pooled insurance. If all or any part of the System shall be damaged or destroyed, the Net Proceeds realized by the City as a result thereof shall be deposited by the City with the Trustee in a special fund which the Trustee shall establish as needed in trust and applied by the City to the cost of acquiring and constructing repairs, replacements, additions, betterments, extensions or improvements to the System if (A) the City first secures and files with the Trustee a Certificate of the City showing (i) the loss in annual System Revenues, if any, suffered, or to be suffered, by the City by reason of such damage or destruction, (ii) a general description of the repairs, replacements, additions, betterment, extensions or improvements to the System then proposed to be acquired and constructed by the City from such proceeds, and (iii) an estimate of the System Revenues to be derived after- the completions of such repairs, replacements, additions, betterment, extensions or improvements; and (B) the Trustee has been furnished a Certificate of the City, certifying that the System Revenues after such repair, replacement, addition, betterment, extension or improvement of the System will sufficiently offset on a timely basis the loss of System Revenues resulting from such damage or destruction so that the ability of the City to pay all Parity Debt when due will not be substantially impaired, and such Certificate of the City shall be final and conclusive, and any balance of such proceeds not required by the City for such purpose shall be deposited in the System Revenue Fund and applied as provided in Section 4.5; provided, that if the foregoing conditions are not met, then such proceeds shall be deposited with the Trustee and applied to make Installment Payments and Parity Obligation Payments as they shall become due ratably without any discrimination or preference; provided further that the foregoing procedures for the application of Net Proceeds- consisting of insurance payments shall be subject to any similar provisions for Parity Debt on a pro rata basis. If such damage or destruction has had no effect, or at most an immaterial effect, upon the System Revenues and tile security of the Parity Debt, and a Certificate of the City to such effect has been filed with the Trustee, then the City shall forthwith deposit such proceeds in the System Revenue Fund, to be applied as provided in Section 4.5. SECTION 5.5. Records and Accounts. The City shall keep proper books of record and accounts of the System in which complete and correct entries are made of all transactions relating to the System. Said books shall, upon prior request, be subject to the reasonable inspection of the Owners of not less than 10% of the Outstanding Bonds, or their representatives authorized in writing, upon not less than two Business Days' prior notice to the City. The City shall cause the books and accounts of the System to be audited annually by an Independent Accountant not more than nine months after the close of each Fiscal Year, and shall make a copy of such report available for inspection by the Bond Owners at the office of the City and at the Trust Office of the Trustee. Such report may be part of a combined financial audit or report covering all or part of the City's finances. SECTION 5.6. Rates and Charges. (a) The City will, at all times until all Installment Payments have been fully paid or provision has been made therefor in accordance with Section 7.1, fix, prescribe -18- and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts during such Fiscal Year: (i) All current Operation and Maintenance Costs. (ii) The Installment Payments, all other Parity Obligation Payments and all payments on Subordinate Obligations as they become due and payable. (iii) All payments required for compliance with the terms of the Indenture and this Agreement. (iv) All payments to meet any other obligations of the City which are charges, liens or encumbrances upon, or payable from, the System Revenues. (b) In addition to the requirements of the foregoing subsection (a) of this Section, the City will, at all times until all Installment Payments have been fully paid or provision has been made therefor in accordance with Section 7.1, to the maximum extent permitted by law, fix, prescribe and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Net Revenues during such Fiscal Year equal to at least 110% per cent of the Annual Debt Service in such Fiscal Year; provided, an adjustment shall be made to the amount of System Net Revenues as provided in Section 4.6. The City may make or permit to be made adjustments from time to time in such rates, fees and charges and may make or permit to be made such classification thereof as it deems necessary, but shall not reduce or permit to be reduced such rates, fees and charges below those then in effect unless the System Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the requirements of this Section. 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 System Revenues or the System Net Revenues over the Installment Payments. Nothing herein limits or affects the ability of the City to issue or incur (a) Parity Obligations under Section 5.8, or (b) Subordinate Obligations. SECTION 5.8. Issuance of Parity Obligations. The City may at any time enter into or otherwise incur Parity Obligations in addition to the obligations under this Agreement and the Parity Payment Obligations under the 2003 Installment Purchase Agreement and the 2007 Installment Purchase Agreement; provided: (a) The City shall be in compliance with all agreements, conditions, covenants and terms contained in this Agreement required to be observed or performed by it, and a Certificate of the City to that effect shall have been filed with the Trustee. (b) Any debt service reserve fund established for such Parity Debt shall satisfy the following criteria: (i) such debt service reserve fund shall be held -19- by an independent trustee (who may be other than the Trustee); (ii) the required amount of such debt service reserve fund shall not exceed the lesser of the maximum annual debt service of such Parity Debt (calculated on the basis of a year ending on the principal payment date of such Parity Debt) or the maximum amount permitted under the Code, provided that, if such Parity Debt is a loan from a governmental agency, then a debt service reserve fund shall be established in the amount, if any, required or permitted by such governmental agency; and (iii) the City shall not be required to replenish withdrawals from such debt service reserve fund in greater than monthly installments equal to 1/12 of the aggregate amount needed to restore the debt service reserve fund to the required level. (c) The System Net Revenues for the last completed Fiscal Year or any 12 consecutive months within the last 18 months preceding the date of entry into or incurrence of such Parity Debt, as shown by a Certificate of the City on file with the Trustee, plus an allowance for increased System Net Revenues arising from any increase in the rates, fees and charges of the System which was duly adopted by the City Council of the City prior to the date of the entry into or incurrence of such Parity Debt but which, during all or any part of such 12 month period was not in effect in an amount equal to the amount by which the System Net Revenues would have been increased if such increase in rates, fees and charges had been in effect during the whole of such 12 month period, as shown by a Certificate of the City on file with the Trustee, shall have produced a sum equal to at least 110% of the Maximum Annual Debt Service as calculated after the entry into or incurrence of such Parity Debt; provided that in the event that all or a portion of such Parity Debt is to be issued for the purpose of refunding and retiring any Parity Debt then outstanding, interest and principal payments on the Parity Debt to be so refunded and retired from the proceeds of such Parity Debt being issued shall be excluded from the foregoing computation of Maximum Annual Debt Service; provided further, that the City may at any time enter into or incur Parity Debt without compliance with the foregoing conditions if the Annual Debt Service for each Fiscal Year during which such Parity Debt is outstanding will not be increased by reason of the entry into or incurrence of such Parity Debt; and provided further, an adjustment shall be made in the amount of System Net Revenues as provided in Section 4.6. Nothing contained in this Section shall limit the issuance of any revenue bonds, notes or other evidences of indebtedness or the entry into any installment purchase agreement by the City payable from the System Net Revenues and secured by a lien and charge on the System Net Revenues if, after the issuance of such revenue bonds or entry into such installment purchase agreement, all of the Installment Payments shall have been fully paid or provision has been made therefor in accordance with Section 7.1. Furthermore, nothing contained in this Section shall limit the issuance or incurrence of any Subordinate Obligations. SECTION 5.9. Operation of System in Efficient and Economical Manner. The City covenants and agrees to operate the System in an efficient and economical manner and to operate, maintain and preserve the System in good repair and working order. SECTION 5.10. Assignment and Amendment Hereof. The Authority and the City may at any time amend or modify any of the provisions of this Agreement, but only: (a) with the prior written consent of the Owners of a majority in aggregate principal amount -20- of the Outstanding Bonds; or (b) without the consent of the Trustee or any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to add to the covenants and agreements of the City contained in this Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, to conform to the original intention of the City and the Authority; (iii) to modify, amend or supplement this Agreement in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; and (iv) in any other respect whatsoever as the Authority and the City deem necessary or desirable, if in the opinion of Bond Counsel such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds. No such modification or amendment may (a) extend or have the effect of extending any Installment Payment Date or reducing any Installment Payment or any premium payable upon the prepayment thereof, without the express consent of the Owners of the affected Bonds, or (b) modify any of the rights or obligations of the Trustee without its written assent thereto. SECTION 5.11. Tax Covenants. (a) Private Business Use Limitation. The City shall assure that the proceeds of the Bonds are not used in a manner which would cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (b) Federal Guarantee Prohibition. The City may not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The City may not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (d) Maintenance of Tax Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. -21- (e) Rebate of Excess Investment Earnings to United States. The City shall calculate or cause to be calculated the Excess Investment Earnings in all respects at the times and in the manner required under the Tax Code. The City shall pay the full amount of Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code. Such payments shall be made by the City from any source of legally available funds of the City, and shall constitute Additional Payments hereunder. The City shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Bonds, records of the determinations made under this subsection (e). In order to provide for the administration of this subsection (e), the City may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the City may deem appropriate. The Trustee has no duty or obligation to monitor or enforce compliance by the City of any of the requirements under this subsection (e). SECTION 5.12. Continuing Disclosure The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate does not constitute an Event of Default. However, any Participating Underwriter (as that term is defined in the Continuing Disclosure Certificate) or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel the City to perform its obligations under the Continuing Disclosure Certificate, including seeking mandate or specific performance by court order. 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, other than as referred to in the preceding clauses (a) or (b), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee; provided, however, that if the City notifies the Authority and the Trustee that in its reasonable opinion the failure stated in the notice can be corrected, but not within such 30 -day period, such failure will not constitute an event of default hereunder if the City commences to cure such failure within such 30 day period and -22- thereafter diligently and in good faith cures the failure in a reasonable period of time. (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 any event of default under and as defined with respect to any Parity Debt. SECTION 6.2. Remedies on Default. If an Event of Default occurs and is continuing, the Trustee as assignee of 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. The Trustee 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, (i) the City deposits with the Trustee 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 Trustee (including any fees and expenses of its attorneys), and (iii) any and all other defaults known to the Trustee (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 Trustee and the Bond Owners hereunder, cause the appointment of -23- a receiver or receivers of the System 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. 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, the Trustee or the Owner of any Bonds 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 Trustee or such Owner, as the case may be, 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. SECTION 6.6. Trustee and Bond Owners to Exercise Rights. Such rights and remedies as are given to the Authority under this Article VI have been assigned by the Authority to the Trustee under the Indenture, to which assignment the City hereby consents. Such rights and remedies will be exercised by the Trustee and the Owners of the Bonds as provided in the Indenture. 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 irrevocably depositing with the Trustee 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 -24- (which opinion is addressed and delivered to the Trustee), together with interest to accrue thereon and together with any cash which is so deposited, 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 System Net Revenues and all other security provided by this Agreement for said obligations, will thereupon cease and terminate, excepting only the obligation of the City to make, or cause to be made, all Installment Payments from the 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. SECTION 7.2. Optional Prepayment. The City may exercise its option to prepay the principal components of the Installment Payments in whole or in part on any date on or after the Installment Payment Date relating to the October 1, 2022 Interest Payment Date. 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, and (c) the premium (if any) then required to be paid upon the corresponding redemption of the Bonds under Section 4.01(a) of the Indenture. The Trustee shall deposit the prepayment price in the Installment Payment Fund to be applied to the redemption of Bonds under Section 4.01(a) of the Indenture. If the City prepays the Installment Payments in part but not in whole, the principal components will be prepaid among such maturities and in such integral multiples of $5,000 as the City designates in written notice to the Trustee. The City shall give the Trustee written notice of its intention to exercise its option in sufficient time to enable the Trustee to give notice of redemption as required by the Indenture. The Installment Payments will otherwise be subject to prepayment in the amounts and at the times necessary to provide for redemption of the Bonds as set forth in the Indenture. SECTION 7.3. Credit for Amounts on Deposit. If the City prepays the Installment Payments in full under this Article VII, such that the Indenture is discharged by its terms as a result of the prepayment, and upon payment in full of all Additional Payments and other amounts then due and payable hereunder, all available amounts then on deposit in the funds and accounts established under the Indenture will be credited towards the amounts then required to be so prepaid. -25- 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 or the Trustee 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 or the Trustee 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 Lodi or the Authority. P.O. Box 3006 Lodi, California 95241-1910 Attention: Deputy City Manager/ Internal Services Director If to the Trustee: Union Bank, N.A. 350 California St., 11th FI. San Francisco, California 94104 Attention: Corporate Trust Department SECTION 8.3. Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of California. SECTION 8.4. Binding Effect. This Agreement inures to the benefit of and is binding upon the Authority, 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 will 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. -26- 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 will 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. SECTION 8.10. Trustee as Third Party Beneficiary. The Trustee is hereby made a third party beneficiary hereof and is entitled to the benefits of this Agreement with the same force and effect as if the Trustee were a party hereto. -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. ATTEST: By. RANDI JOHL, Secretary ATTEST: 0 City Clerk LODI PUBLIC FINANCING AUTHORITY, as Seller By Executive Director CITY OF LODI, as Purchaser 0 -28- City Manager APPENDIX A SCHEDULE OF INSTALLMENT PAYMENTS Installment Principal Interest Total Payment DateComponent Component Payment A-1 (1) Installment Payment Dates are the Business Day immediately preceding each Interest Payment Date shown in the table. A-2 INDENTURE OF TRUST Dated as of September 1, 2012 between UNION BANK, N.A., as Trustee and the LODI PUBLIC FINANCING AUTHORITY Authorizing the Issuance of S Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A TABLE OF CONTENTS ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION SECTION1.01. Definitions............................................................................................................2 SECTION1.02. Authorization.......................................................................................................2 SECTION1.03. Interpretation.......................................................................................................2 ARTICLE II The Bonds SECTION 2.01. Authorization of Bonds........................................................................................3 SECTION 2.02. Terms of the Bonds............................................................................................. 3 SECTION 2.03. Transfer and Exchange of Bonds........................................................................4 SECTION 2.04. Book -Entry System..............................................................................................5 SECTION 2.05. Registration Books..............................................................................................6 SECTION 2.06. Form and Execution of Bonds............................................................................. 7 SECTION 2.07. Bonds Mutilated, Lost, Destroyed or Stolen........................................................ 7 ARTICLE III Issuance of Bonds; Application of Proceeds SECTION 3.01. Issuance of the Bonds.........................................................................................8 SECTION 3.02. Application of Proceeds of Sale of the Bonds ..................................................... 8 SECTION 3.03. Establishment and Application of Costs of Issuance Fund.................................8 SECTION 3.04. Validity of Bonds..................................................................................................8 ARTICLE IV Redemption of Bonds SECTION 4.01. Terms of Redemption..........................................................................................9 SECTION 4.02. Selection of Bonds for Redemption.....................................................................9 SECTION 4.03. Notice of Redemption; Rescission......................................................................9 SECTION 4.04. Partial Redemption of Bonds.............................................................................10 SECTION 4.05. Effect of Redemption.........................................................................................10 ARTICLE V Authority Revenues; Funds and Accounts; Payment of Principal and Interest SECTION 5.01. Security for the Bonds; Bond Fund...................................................................11 SECTION 5.02. Allocation of Authority Revenues......................................................................11 SECTION 5.03. Application of Interest Account..........................................................................12 SECTION 5.04. Application of Principal Account........................................................................12 SECTION 5.05. Application of Reserve Account........................................................................12 SECTION 5.06. Application of Redemption Fund.......................................................................12 SECTION5.07. Investments.......................................................................................................12 SECTION 5.08. Valuation and Disposition of Investments.........................................................13 ARTICLE VI Covenants of the Authority SECTION 6.01. Punctual Payment.............................................................................................14 SECTION 6.02. Extension of Payment of Bonds........................................................................14 SECTION 6.03. Against Encumbrances.....................................................................................14 SECTION 6.04. Power to Issue Bonds and Make Pledge and Assignment................................15 SECTION 6.05. Accounting Records..........................................................................................15 SECTION 6.06. Limitation on Additional Obligations..................................................................15 SECTION 6.07. Tax Covenants..................................................................................................15 SECTION6.09. Waiver of Laws..................................................................................................16 SECTION 6.10. Further Assurances...........................................................................................16 ARTICLE VII APPENDIX A DEFINITIONS Events of Default and Remedies SECTION7.01. Events of Default...............................................................................................16 SECTION 7.02. Remedies Upon Event of Default......................................................................17 SECTION 7.03. Application of Authority Revenues Other Funds After Default ..........................17 SECTION 7.04. Trustee to Represent Bond Owners..................................................................18 SECTION 7.05. Limitation on Bond Owners' Right to Sue..........................................................18 SECTION 7.06. Absolute Obligation of Agency..........................................................................19 SECTION 7.07. Termination of Proceedings..............................................................................19 SECTION 7.08. Remedies Not Exclusive...................................................................................19 SECTION 7.09. No Waiver of Default.........................................................................................19 SECTION 7.10. Notice to Bond Owners of Default.....................................................................19 ARTICLE VIII The Trustee SECTION 8.01. Appointment of Trustee..................................................................................... 20 SECTION 8.02. Acceptance of Trusts; Removal and Resignation of Trustee ............................20 SECTION 8.03. Merger or Consolidation....................................................................................22 SECTION 8.04. Liability of Trustee.............................................................................................22 SECTION 8.05. Right to Rely on Documents..............................................................................24 SECTION 8.06. Preservation and Inspection of Documents.......................................................25 SECTION 8.07. Compensation and Indemnification...................................................................25 ARTICLE IX Modification or Amendment Hereof SECTION 9.01. Amendments Permitted.....................................................................................26 SECTION 9.02. Effect of Supplemental Indenture......................................................................27 SECTION 9.03. Endorsement of Bonds; Preparation of New Bonds..........................................27 SECTION 9.04. Amendment of Particular Bonds........................................................................27 ARTICLE X Defeasance SECTION 10.01. Discharge of Indenture....................................................................................28 SECTION 10.02. Discharge of Liability on Bonds.......................................................................28 SECTION 10.03. Deposit of Money or Securities with Trustee...................................................29 SECTION 10.04. Unclaimed Funds............................................................................................30 ARTICLE XI Miscellaneous SECTION 11.01. Liability of Authority Limited to Authority Revenues........................................30 SECTION 11.02. Limitation of Rights to Parties and Bond Owners............................................30 SECTION 11.03. Funds and Accounts........................................................................................30 SECTION 11.04. Waiver of Notice; Requirement of Mailed Notice.............................................31 SECTION 11.05. Destruction of Bonds.......................................................................................31 SECTION 11.06. Severability of Invalid Provisions.....................................................................31 SECTION11.07. Notices............................................................................................................31 SECTION 11.08. Evidence of Rights of Bond Owners................................................................32 SECTION 11.09. Disqualified Bonds...........................................................................................32 SECTION 11.10. Money Held for Particular Bonds.....................................................................32 SECTION 11.11. Waiver of Personal Liability.............................................................................33 SECTION 11.12. Successor Is Deemed Included in All References to Predecessor.....................................................................................................33 SECTION 11.13. Execution in Several Counterparts..................................................................33 SECTION 11.14. Payment on Non -Business Day......................................................................33 SECTION 11.15. Governing Law................................................................................................33 APPENDIX A DEFINITIONS APPENDIX B FORMS OF BONDS INDENTURE OF TRUST This INDENTURE OF TRUST (this "Indenture"), dated for convenience as of September 1, 2012, is between the LODI PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority"), and UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, with a corporate trust office in San Francisco, California, being qualified to accept and administer the trusts hereby created (the "Trustee"). BACKGROUND: 1. The City owns and operates a public enterprise for the collection, treatment and disposal of wastewater within the service area of the City (as defined more completely below, the "System"). 2. The City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments"), and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions, betterments, extensions, replacements and improvements to the System (the "2004 Project"). 3. The City wishes to refinance the 2004 Installment Payments. 4. The Authority has been formed for the purpose of assisting the City in the financing and refinancing of public capital improvements, and in order to accomplish the refinancing described in the previous paragraph, the Authority and the City have entered into an Installment Purchase Agreement dated as of September 1, 2012 (the "Installment Purchase Agreement"), under which the City will sell the 2004 Project to the Authority and the Authority will sell the 2004 Project to the City in consideration of the agreement by the City to pay the purchase price thereof in semiannual installment payments. 5. For the purpose of obtaining funds to refinance the 2004 Installment Payments, the Authority has authorized the issuance of its Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A in the aggregate principal amount of $ (the "Bonds") under this Indenture and under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Law"). 6. In order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof, premium (if any) and interest thereon, the Authority has authorized the execution and delivery of this Indenture. 7. The Authority has found and determines, and hereby affirms, that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture have been in all respects duly authorized. AGREEMENT: In order to secure the payment of the principal of and the interest and redemption premium (if any) on all the Outstanding Bonds under this Indenture according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the receipt of which is hereby acknowledged, the Authority and the Trustee do hereby covenant and agree with one another, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.01. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms defined in Appendix A attached to this Indenture have the respective meanings specified in that Appendix when used in this Indenture. Capitalized terms in this Indenture and not otherwise defined in this Section 1.01 have the respective meanings given them in Section 1.1 of the Installment Purchase Agreement. SECTION 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Indenture, and has taken all actions necessary to authorize the execution hereof by the officers and persons signing it. SECTION 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to 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 shall not affect the meaning, construction or effect hereof. -2- (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE BONDS SECTION 2.01. Authorization of Bonds. The Authority has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines that all things, conditions and acts required by law to exist, happen or be performed precedent to and in connection with the issuance of the Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Authority is now duly empowered, under each and every requirement of law, to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of a series of Bonds, designated the "Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A" in the aggregate principal amount of $ under the Bond Law for the purposes of providing funds to refinance the 2004 Installment Payments. The Bonds are authorized and issued under, and are subject to the terms of, this Indenture and the Bond Law. SECTION 2.02. Terms of the Bonds. (a) Payment Provisions. The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Bond has more than one maturity date. The Bonds shall mature on October 1 in each of the years and in the amounts, and bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Date Principal Interest (October 1) Amount Rate -3- Interest on the Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: (a) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest is payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than 10 days prior to such special record date. The Trustee will pay interest on the Bonds by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the United States of America by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee. SECTION 2.03. Transfer and Exchange of Bonds. (a) Transfer. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee shall collect any tax or other governmental charge on the transfer of any Bonds under this Section 2.03. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of like series, interest rate, maturity and aggregate principal amount. The Authority shall pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of Bonds. -4- (b) Exchange. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of the same series, interest rate and maturity. The Trustee shall collect any tax or other governmental charge on the exchange of any Bonds under this subsection (b). The Authority shall pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange of Bonds. (c) Limitations. The Trustee may refuse to transfer or exchange, under the provisions of this Section 2.03, any Bonds selected by the Trustee for redemption under Article IV, or any Bonds during the period established by the Trustee for the selection of Bonds for redemption. SECTION 2.04. Book -Entry System. (a) Original Delivery. The Bonds will be initially delivered in the form of a separate single fully registered bond (which may be typewritten) for each maturity of the Bonds. Upon initial delivery, the Trustee shall register the ownership of each Bond on the Registration Books in the name of the Nominee. Except as provided in subsection (c), the ownership of all of the Outstanding Bonds shall be registered in the name of the Nominee on the Registration Books. With respect to Bonds the ownership of which shall be registered in the name of the Nominee, the Authority and the Trustee has no responsibility or obligation to any Depository System Participant or to any person on behalf of which the Nominee holds an interest in the Bonds. Without limiting the generality of the immediately preceding sentence, the Authority and the Trustee has no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Depository System Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository of the beneficial interests in the Bonds to be redeemed if the Authority elects to redeem the Bonds in part, (iv) the payment to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any amount with respect to principal, premium, if any, or interest on the Bonds or (v) any consent given or other action taken by the Depository as Owner of the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered as the absolute owner of such Bond for the purpose of payment of principal of and premium, if any, and interest on such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers of ownership of such Bond, and for all other purposes whatsoever. The Trustee shall pay the principal of and the interest and premium, if any, on the Bonds only to the respective Owners or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to payment of principal of and interest and premium, if any, on the Bonds to the extent of the sum or sums so paid. No person other than a Bond Owner shall receive a Bond evidencing the obligation of the Authority to make payments of principal, interest and premium, if any, under this Indenture. Upon delivery by the Depository to the Authority of written notice to the effect that the Depository has determined to substitute a new Nominee in its place, and subject to the provisions herein with respect to Record Dates, such new nominee shall become the Nominee hereunder for all purposes; and upon receipt of such a notice the Authority shall promptly deliver a copy of the same to the Trustee. -5- (b) Representation Letter. In order to qualify the Bonds for the Depository's book -entry system, the Authority shall execute and deliver to such Depository a letter representing such matters as shall be necessary to so qualify the Bonds. The execution and delivery of such letter shall not in any way limit the provisions of subsection (a) above or in any other way impose upon the Authority or the Trustee any obligation whatsoever with respect to persons having interests in the Bonds other than the Bond Owners. Upon the written acceptance by the Trustee, the Trustee shall agree to take all action reasonably necessary for all representations of the Trustee in such letter with respect to the Trustee to at all times be complied with. In addition to the execution and delivery of such letter, the Authority may take any other actions, not inconsistent with this Indenture, to qualify the Bonds for the Depository's book -entry program. (c) Transfers Outside Book -Entry System. If either (i) the Depository determines not to continue to act as Depository for the Bonds, or (ii) the Authority determines to terminate the Depository as such, then the Authority shall thereupon discontinue the book -entry system with such Depository. In such event, the Depository shall cooperate with the Authority and the Trustee in the issuance of replacement Bonds by providing the Trustee with a list showing the interests of the Depository System Participants in the Bonds, and by surrendering the Bonds, registered in the name of the Nominee, to the Trustee on or before the date such replacement Bonds are to be issued. The Depository, by accepting delivery of the Bonds, agrees to be bound by the provisions of this subsection (c). If, prior to the termination of the Depository acting as such, the Authority fails to identify another Securities Depository to replace the Depository, then the Bonds shall no longer be required to be registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging Bonds shall designate, in accordance with the provisions hereof. If the Authority determines that it is in the best interests of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the Authority may notify the Depository System Participants of the availability of such certificated Bonds through the Depository. In such event, the Trustee will issue, transfer and exchange Bonds as required by the Depository and others in appropriate amounts; and whenever the Depository requests, the Trustee and the Authority shall cooperate with the Depository in taking appropriate action (i) to make available one or more separate certificates evidencing the Bonds to any Depository System Participant having Bonds credited to its account with the Depository, or (ii) to arrange for another Securities Depository to maintain custody of a single certificate evidencing such Bonds, all at the Authority's expense. (d) Payments to the Nominee. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal of and interest and premium, if any, on such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the letter described in subsection (b) of this Section or as otherwise instructed by the Depository. SECTION 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall upon reasonable notice as agreed to by the Trustee, be open to inspection during regular business hours by the Authority; and, upon 0 presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. SECTION 2.06. Form and Execution of Bonds. The Bonds, the form of Trustee's certificate of authentication, and the form of assignment to appear thereon, are set forth in Appendix B attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. The Chair of the Authority shall execute, and the Secretary of the Authority shall attest each Bond. Either or both of such signatures may be made manually or may be affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases to be such officer before the Closing Date, such signature will nevertheless be as effective as if the officer had remained in office until the Closing Date. Any Bond may be signed and attested on behalf of the Authority by such persons as at the actual date of the execution of such Bond are the proper officers of the Authority, duly authorized to execute debt instruments on behalf of the Authority, although on the date of such Bond any such person was not an officer of the Authority. Only those Bonds bearing a certificate of authentication in the form set forth in Appendix B, manually executed and dated by the Trustee, are valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee is conclusive evidence that such Bonds have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. SECTION 2.07. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond is mutilated, the Authority, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. The Trustee shall cancel every mutilated Bond surrendered to it and deliver such mutilated Bond to, or upon the order of, the Authority. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory and if indemnity satisfactory to the Trustee is given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Trustee in connection therewith. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds issued under this Indenture. Notwithstanding any other provision of this Section 2.07, in lieu of delivering a new Bond for which principal has become due for a Bond which has been mutilated, lost, destroyed or stolen, the Trustee may make payment of such Bond in accordance with its terms upon receipt of indemnity satisfactory to the Trustee. -7- ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS SECTION 3.01. Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee shall authenticate and, upon the Written Request of the Authority, deliver the Bonds to the Original Purchaser. SECTION 3.02. Application of Proceeds of Sale of the Bonds. Upon the receipt of payment for the Bonds on the Closing Date, in the amount of $ , representing the aggregate principal amount ($ ), plus a net original issue premium of $ , less an underwriter's discount of $ , the Trustee shall apply the proceeds of sale thereof as follows: (a) The Trustee will deposit the amount of $ in the Costs of Issuance Fund. (b) The Trustee will transfer the amount of $ , constituting the remainder of such proceeds, to the 2004 Trustee for deposit into the Escrow Fund established under the Escrow Agreement. SECTION 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the "Costs of Issuance Fund" into which the Trustee shall deposit a portion of the proceeds of sale of the Bonds under Section 3.02. The Trustee shall disburse amounts in the Costs of Issuance Fund from time to time to pay the Costs of Issuance of the Bonds upon submission of a Written Requisition of the Authority stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. The Trustee may conclusively rely on the representations and certifications set forth in such Written Requisitions and shall be fully protected in relying thereon. All such payments shall be made by check or wire transfer in accordance with payment instructions contained in the Written Requisition or in any invoice attached thereto, and the Trustee has no duty or obligation to authenticate such payment instructions or the authorization thereof. On November 1, 2012, or upon the earlier Written Request of the Authority, the Trustee shall transfer all amounts remaining in the Costs of Issuance Fund to the Interest Account, and the Trustee shall thereupon close the Costs of Issuance Fund. SECTION 3.04. Validity of Bonds. The recital contained in the Bonds that the same are issued under the Constitution and laws of the State of California shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance. M ARTICLE IV REDEMPTION OF BONDS SECTION 4.01. Terms of Redemption. (a) Optional Redemption. The Bonds maturing on or before October 1, 2022, are not subject to optional redemption prior to their respective stated maturity dates. The Bonds maturing on or after October 1, 2023, are subject to redemption in whole, or in part at the Written Request of the Authority among maturities on such basis as the Authority may designate and within a maturity as set forth in Section 4.02, at the option of the Authority, on any date on or after October 1, 2022, from any available source of funds, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. (b) Notice of Optional Redemption to the Trustee. The Authority shall give the Trustee written notice of its intention to redeem Bonds under subsection (a), and the manner of selecting such Bonds for redemption from among the maturities thereof, in sufficient time to enable the Trustee to give notice of such redemption in accordance with Section 4.03. (c) Mandatory Sinking Fund Redemption. The Term Bonds are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on October 1 in the respective years as set forth in the following tables; provided, however, that if some but not all of the Term Bonds have been redeemed under subsection (a) of this Section, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral multiples of $5,000 (as set forth in a schedule provided by the Authority to the Trustee). Bonds Maturing October 1, Sinking Fund Redemption Date Principal Amount (October 1) To Be Redeemed SECTION 4.02. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds of a single maturity, the Trustee shall select the Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. SECTION 4.03. Notice of Redemption; Rescission. The Trustee shall mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor IQ more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to one or more Securities Depositories and to the Municipal Securities Rulemaking Board. Each notice of redemption shall state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed and the maturity or maturities of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein shall affect the sufficiency of the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority. The Authority has the right to rescind any notice of the redemption of Bonds under Section 4.01(a) by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under this Section. SECTION 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. SECTION 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. All Bonds redeemed under the provisions of this Article shall be canceled by the Trustee upon surrender thereof and destroyed in accordance with the retention policy of the Trustee then in effect. -10- ARTICLE V AUTHORITY REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST SECTION 5.01. Security for the Bonds; Bond Fund. (a) Pledge of Authority Revenues and Other Amounts. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Authority Revenues and all amounts (including proceeds of the sale of the Bonds) held in any fund or account established under this Indenture are hereby pledged to secure the payment of the principal of and interest and premium (if any) on the Bonds in accordance with their terms and the provisions of this Indenture. Said pledge constitutes a lien on and security interest in the Authority Revenues and such amounts and shall attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act. (b) Assignment to Trustee. The Authority hereby irrevocably transfers, assigns and sets over to the Trustee, without recourse to the Authority, all of its rights in the Installment Purchase Agreement (excepting only the Authority's rights under Sections 4.8, 5.2 and 6.4 thereof), including but not limited to all of the Authority's rights to receive and collect all of the Installment Payments. The Trustee is entitled to collect and receive all of the Installment Payments, and any Installment Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee is also entitled to and shall, subject to the provisions of Article VIII, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the Installment Purchase Agreement. (c) Deposit of Authority Revenues in Bond Fund. All Authority Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Bond Fund" which the Trustee shall establish, maintain and hold in trust; except that all moneys received by the Trustee and required hereunder or under the Installment Purchase Agreement to be deposited in the Redemption Fund shall be promptly deposited in such funds. All Authority Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in this Indenture. Any surplus remaining in the Bond Fund, after payment in full of (i) the principal of and interest on the Bonds or provision therefore under Article X, and (ii) any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the City. SECTION 5.02. Allocation of Authority Revenues. On or before each Interest Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Bond Fund), the following amounts in the following order of priority: (a) Deposit to Interest Account. The Trustee shall deposit in the Interest Account an amount required to cause the aggregate -11- amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding. (b) Deposit to Principal Account. The Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such Interest Payment Date, including the principal amount of Term Bonds which are subject to mandatory sinking fund redemption on such Interest Payment Date under Section 4.01(c). SECTION 5.03. Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). SECTION 5.04. Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at their respective maturity dates, and the principal amount of Term Bonds which are subject to mandatory sinking fund redemption on such Interest Payment Date under Section 4.01(c). SECTION 5.05. Reserved. SECTION 5.06. Application of Redemption Fund. Upon the determination by the Authority to redeem any Bonds under Section 4.01(a), the Trustee shall establish and maintain the Redemption Fund, into which the Trustee shall deposit a portion of the Authority Revenues received, in accordance with a Written Request of the Authority, amounts in which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and premium (if any) of the Bonds to be redeemed under Section 4.01(a). At any time prior to the selection of Bonds for redemption, the Trustee may apply such amounts to the purchase of Bonds at public or private sale, when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed under a Written Request of the Authority, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. The Trustee is entitled to conclusively rely on any Written Request of the Authority received under this Section 5.06, and is fully protected in relying thereon. SECTION 5.07. Investments. Except as otherwise set forth in this Indenture, moneys in any of the funds or accounts established with the Trustee under this Indenture shall be invested by the Trustee solely in Permitted Investments. Such investments shall be directed by the Authority under a Written Request of the Authority filed with the Trustee at least two Business Days in advance of the making of such investments. In the absence of any such directions from the Authority, the Trustee shall invest any such moneys in Permitted Investments designated in paragraph (c) of the definition, provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received directions from the Authority specifying a specific money market fund and, if no such directions from the Authority is so received, the Trustee shall hold such moneys uninvested. The Trustee shall notify the Authority in writing within five business days if it -12- is holding any moneys uninvested. Permitted Investments purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. To the extent Permitted Investments are registrable, such Permitted Investments must be registered in the name of the Trustee. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be retained in such fund or account. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder. The Trustee or any of its affiliates may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made under this Section 5.07. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. The Trustee is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or is dealing as a principal for its own account. The Trustee shall furnish the Authority periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the Authority. Upon the Authority's election, such statements will be delivered via the Trustee's Online Trust and Custody service and upon electing such service, paper statements will be provided only upon request. The Authority waives the right to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The Authority further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. SECTION 5.08. Valuation and Disposition of Investments. (a) Except as otherwise provided in subsection (b) of this Section, the Authority covenants that all investments of amounts deposited in any fund or account created by or under this Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Tax Code) shall be acquired, disposed of and valued at the Fair Market Value thereof as such term is defined in subsection (d) below. The Trustee shall have no duty in connection with the determination of Fair Market Value other than to follow the investment directions of the Authority in any Written Request of the Authority. (b) Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code; provided that the Authority shall inform the Trustee which funds are subject to a yield restriction. (c) Except as provided in the preceding subsection (b), for the purpose of determining the amount in any fund or account established hereunder, the value of Permitted Investments credited to such fund shall be valued by the Trustee at least annually on or before September 15. The Trustee may sell or present for redemption, -13- any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss resulting from any such Permitted Investment. (d) For purposes of this Section 5.09, the term "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, or (iii) the investment is a United States Treasury Security -- State and Local Government Series which is acquired in accordance with applicable regulations of the United States Bureau of Public Debt. (e) To the extent of any valuations made by the Trustee hereunder, the Trustee may utilize and rely upon computerized securities pricing services that may be available to it, including those available through its regular accounting system. ARTICLE VI COVENANTS OF THE AUTHORITY SECTION 6.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of and interest and premium (if any) on all the Bonds in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of the Authority Revenues and other amounts pledged for such payment as provided in this Indenture. SECTION 6.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in this Section 6.02 limits the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance does not constitute an extension of maturity of the Bonds. SECTION 6.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Authority -14- Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes. SECTION 6.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized under law to issue the Bonds and to enter into this Indenture and to pledge and assign the Authority Revenues and other amounts purported to be pledged and assigned, respectively, under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Authority Revenues and other assets and all the rights of the Bond Owners under this Indenture against all claims and demands of all persons whomsoever. SECTION 6.05. Accounting Records. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of Bonds and all funds and accounts established under this Indenture. The Trustee shall make such books of record and account available for inspection by the Authority and the City, during business hours, upon reasonable notice, and under reasonable circumstances. SECTION 6.06. Limitation on Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Authority Revenues. SECTION 6.07. Tax Covenants. (a) Private Business Use Limitation. The Authority shall assure that the proceeds of the Bonds are not used in a manner which would cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (b) Federal Guarantee Prohibition. The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The Authority shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (d) Maintenance of Tax Exemption. The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the -15- Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (e) Rebate of Excess Investment Earnings to United States. The Authority shall calculate or cause to be calculated all amounts of Excess Investment Earnings which are required to be rebated to the United States of America under Section 148(f) of the Tax Code, at the times and in the manner required under the Tax Code. The Authority shall pay when due an amount equal to Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code, such payments to be made from any amounts provided by the City for that purpose under Section 4.8(e) of the Installment Purchase Agreement. The Authority shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Bonds, records of the determinations made under this subsection (e). SECTION 6.09. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in this Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. SECTION 6.10. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES SECTION 7.01. Events of Default. The following events constitute Events of Default hereunder: (a) Failure to pay any installment of the principal of any Bonds when due, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Failure to pay any installment of interest on the Bonds when due. (c) Failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part contained in this Indenture or in the Bonds, if such failure has continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, has been given to the Authority by the Trustee; provided, however, if in the reasonable opinion of the Authority the failure stated in the notice can be corrected, but not within such 30 -day period, such failure shall not constitute an Event of Default if the Authority institutes corrective action within -16- such 30 -day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (d) The commencement by the Authority of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. (e) The occurrence and continuation of an event of default under and as defined in the Installment Purchase Agreement. SECTION 7.02. Remedies Upon Event of Default. If any Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding shall, in each case, upon receipt of indemnification satisfactory to Trustee against the costs, expenses and liabilities to be incurred in connection with such action, upon notice in writing to the Authority, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Bonds contained to the contrary notwithstanding. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority deposits with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable fees, charges and expenses (including those of its legal counsel, including the allocated costs of internal attorneys) of the Trustee, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate has been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the City and the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. SECTION 7.03. Application of Authority Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Authority Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee in the following order of priority: (a) To the payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its legal counsel including outside counsel and the allocated costs of internal attorneys) incurred in and about the performance of its powers and duties under this Indenture; (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or -17- surrender thereof if fully paid) in accordance with the provisions of this Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and SECTION 7.04. Trustee to Represent Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, this Indenture and applicable provisions of any law. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of this Indenture. SECTION 7.05. Limitation on Bond Owners' Right to Sue. Notwithstanding any other provision hereof, no Owner of any Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Installment Purchase Agreement or any other applicable law with respect to such Bonds, unless (a) such Owner has given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding have requested the Trustee in writing to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 -day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. -18- Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, this Indenture, the Installment Purchase Agreement or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Indenture. SECTION 7.06. Absolute Obligation of Authority. Nothing in Section 7.06 or in any other provision of this Indenture or in the Bonds contained affects or impairs the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest and premium (if any) on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon acceleration or call for redemption, as herein provided, but only out of the Authority Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. SECTION 7.07. Termination of Proceedings. In case any proceedings taken by the Trustee or by any one or more Bond Owners on account of any Event of Default have been discontinued or abandoned for any reason or have been determined adversely to the Trustee or the Bond Owners, then in every such case the Authority, the Trustee and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. SECTION 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. SECTION 7.09. No Waiver of Default. No delay or omission of the Trustee or any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient by the Trustee or the Bond Owners. SECTION 7.10. Notice to Bond Owners of Default. Immediately upon becoming aware of the occurrence of an Event of Default, but in no event later than five Business Days following becoming aware of such occurrence, the Trustee shall promptly give written notice thereof by first class mail, postage prepaid, to the Owner of each Outstanding Bond, unless such Event of Default has been cured before the giving of such notice; provided, however that except in the case of an Event of Default described in Sections 7.01(a) or 7.01(b), the Trustee may elect not to give such notice to the Bond -19- Owners if and so long as the Trustee in good faith determines that it is in the best interests of the Bond Owners not to give such notice. ARTICLE VIII THE TRUSTEE SECTION 8.01. Appointment of Trustee. Union Bank, N.A., is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture. The Authority will maintain a Trustee which is qualified under the provisions of the foregoing provisions of this Article VIII so long as any Bonds are Outstanding. SECTION 8.02. Acceptance of Trusts; Removal and Resignation of Trustee. The Trustee hereby accepts the express trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (a) The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture and no implied duties or covenants shall be read into this Indenture against the Trustee. In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Authority may remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and shall remove the Trustee (a) if at any time requested to do so by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (b) if at any time the Trustee ceases to be eligible in accordance with Section 8.02, or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. Any such removal shall be made upon at least 30 days' prior written notice to the Trustee. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority and the City, and by giving the Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. In the event of the removal or resignation of the Trustee under subsections (b) or (d), -20- respectively, the Authority shall promptly appoint a successor Trustee. If no successor Trustee has been appointed and accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, must signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and after payment by the Authority of all unpaid fees and expenses of the predecessor Trustee, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein. At the Written Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the Authority shall promptly mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the Authority fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (e) Any Trustee appointed under this Indenture shall be a corporation or association organized and doing business under the laws of any state or the United States of America or the District of Columbia, shall be authorized under such laws to exercise corporate trust powers, shall have (or, in the case of a corporation or association that is a member of a bank holding company system, the related bank holding company has) a combined capital and surplus of at least $50,000,000, and shall be subject to supervision or examination by a federal or state agency, so long as any Bonds are Outstanding. If such corporation or association publishes a report of condition at least annually under law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection (e), the combined capital and surplus of such corporation or association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If the Trustee at any time ceases to be eligible in -21- accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. (f) Notwithstanding any other provision of this Indenture, the Trustee may be removed at any time for any breach of the trust set forth herein. SECTION 8.03. Merger or Consolidation. Any national banking association, bank, federal savings association, or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any national banking association, bank, federal savings association, or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any national banking association, bank, federal savings association, or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such national banking association, bank, federal savings association, or trust company shall be eligible under subsection (e) of Section 8.02 shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. SECTION 8.04. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture, the Bonds or the Installment Purchase Agreement, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations of Trustee herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. (b) The Trustee is not liable for any error of judgment made by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in accordance with the direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture or assigned to it hereunder. (d) The Trustee is not liable for any action taken by it and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. -22- (e) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder, or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until it shall have actual knowledge thereof, or a corporate trust officer shall have received written notice thereof at its Office from the City, the Authority or the Owners of at least 25% in aggregate principal amount of the Outstanding Bonds. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the Authority or the City of any of the terms, conditions, covenants or agreements herein, under the Installment Purchase Agreement or the Bonds or of any of the documents executed in connection with the Bonds, or as to the existence of a default or an Event of Default or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be required to ascertain or inquire as to the performance or observance by the City or the Authority of the terms, conditions, covenants or agreements set forth in the Installment Purchase Agreement, other than the covenants of the City to make Installment Payments to the Trustee when due and to file with the Trustee when due, such reports and certifications as the City is required to file with the Trustee thereunder. (f) No provision of this Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents, receivers or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, receiver or attorney appointed with due care by it hereunder. (h) The Trustee has no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Bond Owners under this Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities (including but not limited to fees and expenses of its attorneys) which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (i) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of Section 8.02(a), this Section 8.04 and Section 8.05, and shall be applicable to the assignment of any rights to the Trustee hereunder. (j) The Trustee is not accountable to anyone for the subsequent use or application of any moneys which are released or withdrawn in accordance with the provisions hereof. (k) The Trustee makes no representation or warranty, expressed or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or the City of the Project. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection -23- with or arising from the Installment Purchase Agreement or this Indenture for the existence, furnishing or use of the Project. (1) The Trustee has no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (m) The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail (provided, that for purposes of this Agreement, an e-mail does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such e-mail shall constitute a notice, request or other communication hereunder), 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 Authority or 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 Authority and the City agree 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. (n) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. SECTION 8.05. Right to Rely on Documents. The Trustee shall be protected and shall incur no liability in acting or refraining from acting in reliance upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Trustee is under no duty to make any investigation or inquiry as to any statements contained or matter referred to in any paper or document but may accept and conclusively rely upon the same as conclusive evidence of the truth and accuracy of any such statement or matter and shall be fully protected in relying thereon. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full -24- and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the Bonds appearing in the Registration Books as the absolute owners of the Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate, Written Request or Written Requisition of the Authority or the City, and such Written Certificate, Written Request or Written Requisition shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture in reliance upon such Written Certificate, Written Request or Written Requisition, and the Trustee shall be fully protected in relying thereon, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. SECTION 8.06. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its respective possession and in accordance with its retention policy then in effect and shall, upon reasonable notice to Trustee, be subject to the inspection of the Authority, the City and any Bond Owner, and their agents and representatives duly authorized in writing, during business hours and under reasonable conditions as agreed to by the Trustee. SECTION 8.07. Compensation and Indemnification. The Authority shall pay to the Trustee from time to time, on demand, the compensation for all services rendered under this Indenture and also all reasonable expenses, advances (including any interest on advances), charges, legal (including outside counsel and the allocated costs of internal attorneys) and consulting fees and other disbursements, incurred in and about the performance of its powers and duties under this Indenture. The Authority shall indemnify the Trustee, its officers, directors, employees and agents against any cost, loss, liability or expense whatsoever (including but not limited to fees and expenses of its attorneys) incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust and this Indenture, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder or under the Installment Purchase Agreement. As security for the performance of the obligations of the Authority under this Section 8.07, the Trustee shall have a lien prior to the lien of the Bonds upon all property and funds held or collected by the Trustee as such. The rights of the Trustee and the obligations of the Authority under this Section 8.07 shall survive the resignation or removal of the Trustee or the discharge of the Bonds and this Indenture and the Installment Purchase Agreement. -25- ARTICLE IX MODIFICATION OR AMENDMENT HEREOF SECTION 9.01. Amendments Permitted. (a) Amendments With Owner Consent. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by Supplemental Indenture, which the Authority and the Trustee may enter into when the written consents of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding are filed with the Trustee. No such modification or amendment may (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Authority Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture except as permitted herein, or deprive the Owners of the Bonds of the lien created by this Indenture on such Authority Revenues and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It is not necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. (b) Amendments Without Owner Consent. This Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any Bond Owners, if the Trustee has been furnished an opinion of counsel that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Bonds, including, without limitation, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority in this Indenture contained, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority; (ii) to cure any ambiguity, inconsistency or omission, or to cure or correct any defective provision, contained in this Indenture, or in regard to matters or questions arising under this Indenture, as the Authority deems necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners, in the opinion of Bond Counsel filed with the Trustee; (iii) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, -26- and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; and (iv) to modify, amend or supplement this Indenture in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code. (c) Limitation. The Trustee is not obligated to enter into any Supplemental Indenture authorized by subsections (a) or (b) of this Section 9.01 which materially adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. (d) Bond Counsel Opinion Requirement. Prior to the Trustee entering into any Supplemental Indenture hereunder, the Authority shall deliver to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of this Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the Bonds from gross income for purposes of federal income taxes. (e) Notice of Amendments. The Authority shall deliver or cause to be delivered a draft of any Supplemental Indenture to each rating agency which then maintains a rating on the Bonds, at least 10 days prior to the effective date of such Supplemental Indenture under this Section 9.01. SECTION 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture under this Article IX, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture under this Article may, and if the Authority so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same maturity. SECTION 9.04. Amendment of Particular Bonds. The provisions of this Article IX do not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. -27- ARTICLE X DEFEASANCE SECTION 10.01. Discharge of Indenture. Any or all of the Outstanding Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem such Bonds; or (c) by delivering all of such Bonds to the Trustee for cancellation. If the Authority also pays or causes to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Written Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any of such Bonds shall not have been surrendered for payment, this Indenture and the pledge of Authority Revenues and other assets made under this Indenture with respect to such Bonds and all covenants, agreements and other obligations of the Authority under this Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied, subject to Section 10.02. In such event, upon the Written Request of the Authority, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the Authority all moneys or securities or other property held by it under this Indenture which are not required for the payment or redemption of any of such Bonds not theretofore surrendered for such payment or redemption. The Trustee is entitled to conclusively rely on any such Written Certificate or Written Request and, in each case, is fully protected in relying thereon. SECTION 10.02. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 10.04. -28- Notwithstanding anything to the contrary in this Article X, in the event of defeasance of all Outstanding Bonds, such defeasance will not operate to discharge any of the following: (a) the obligation of the Trustee to transfer and exchange Bonds hereunder, (b) the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds, from the amounts so deposited with the Trustee, all sums due thereon, and (c) the obligations of the Authority to compensate and indemnify the Trustee under Section 8.07. The Authority may at any time surrender to the Trustee, for cancellation by Trustee, any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SECTION 10.03. Deposit of Money or Securities with Trustee. Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established under this Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) non -callable Federal Securities, the principal of and interest on which when due will, in the written opinion of an Independent Accountant filed with the City, the Authority and the Trustee, provide money sufficient to pay the principal of and interest and premium (if any) on the Bonds to be paid or redeemed, as such principal, interest and premium become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee has been made for the giving of such notice; provided, in each case, that (i) the Trustee shall have been irrevocably instructed (by the terms of this Indenture or by Written Request of the Authority) to apply such money to the payment of such principal, interest and premium (if any) with respect to such Bonds, and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel to the effect that such Bonds have been discharged in accordance with this Indenture (which opinion may rely upon and assume the accuracy of the Independent Accountant's -29- opinion referred to above). The Trustee shall be entitled to conclusively rely on such Written Request or opinion and shall be fully protected, in each case, in relying thereon. SECTION 10.04. Unclaimed Funds. Notwithstanding any provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for two years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Authority free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee shall (at the cost of the Authority) first mail to the Owners of Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS SECTION 11.01. Liability of Authority Limited to Authority Revenues . Notwithstanding anything in this Indenture or in the Bonds contained, the Authority is not required to advance any moneys derived from any source other than the Authority Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. Nevertheless, the Authority may, but is not required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. SECTION 11.02. Limitation of Rights to Parties and Bond Owners. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the City and the Owners of the Bonds. SECTION 11.03. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05 and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish such funds -30- and accounts as it deems necessary or appropriate to perform its obligations under this Indenture. SECTION 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Indenture any notice is required to be given by mail, such requirement may be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. SECTION 11.05. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee, and the delivery to the Authority, of any Bonds, the Trustee shall destroy such Bonds as may be allowed by law and deliver a certificate of such destruction to the Authority. SECTION 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. SECTION 11.07. Notices. All notices or communications to be given under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, confirmed by telephone, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City or the Trustee 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 Authority City of Lodi or the City. P.O. Box 3006 Lodi, California 95241-1910 Attention: Deputy City Manager/ Internal Services Director Fax: 209-333-6807 If to the Trustee: Union Bank, N.A. 350 California St., 11th Floor San Francisco, California 94104 Attention: Corporate Trust Department -31- SECTION 11.08. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and the Authority if made in the manner provided in this Section 11.08. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon. SECTION 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds. In case of a dispute as to such right, the Trustee shall be entitled to rely upon the advice of counsel in any decision by Trustee and shall be fully protected in relying thereon. Upon request, the Authority and the City shall specify to the Trustee those Bonds disqualified under this Section 11.09 and the Trustee may conclusively rely upon such certificate. SECTION 11.10. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, premium, if any, or principal due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04 but without any liability for interest thereon. -32- SECTION 11. 11. Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest or premium (if any) on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture. SECTION 11.12. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority, the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. SECTION 11.13. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. SECTION 11.14. Payment on Non -Business Day. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and with the same effect as if made on such preceding non -Business Day. SECTION 11.15. Governing Law. This Indenture shall be governed by and construed in accordance with the laws of the State of California. -33- IN WITNESS WHEREOF, the LODI PUBLIC FINANCING AUTHORITY has caused this Indenture to be signed in its name by its Executive Director and attested to by its Secretary, and UNION BANK, N.A. UNION BANK, N.A., in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. Attest: Secretary LODI PUBLIC FINANCING AUTHORITY By Executive Director UNION BANK, N.A., as Trustee By Authorized Officer APPENDIX A DEFINITIONS "Authority" means the Lodi Public Financing Authority, a joint exercise of powers authority duly organized and existing under the laws of the State of California. "Authority Revenues" means: (a) all of the Installment Payments, and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under this Indenture. "Authorized Representative" means: (a) with respect to the Authority, its Executive Director, Treasurer, Secretary or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director, General Counsel or Treasurer and filed with the City and the Trustee; and (b) with respect to the City, its City Manager, Deputy City Manager/Internal Services Director, City Attorney 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 Deputy City Manager/Internal Services Director and filed with the Authority and the Trustee. "Bond Counsel" means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys appointed by or acceptable to the City or 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. "Bond Fund" means the fund by that name established and held by the Trustee under Section 5.01. "Bond Law" means the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code, as in effect on the Closing Date or as thereafter amended in accordance with its terms. "Bond Year" means each twelve-month period extending from October 2 in one calendar year to October 1 of the succeeding calendar year, both dates inclusive; except that the first Bond Year commences on the Closing Date and extends to and including October 1, 2012. "Bonds" means the $ aggregate principal amount of Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A authorized by and at any time Outstanding under this Indenture. "Business Day" means a day (other than a Saturday or a Sunday) on which banks are not required or authorized to remain closed in the City in which the Office of the Trustee is located. "Closing Date" means the date of delivery of the Bonds to the Original Purchaser. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City or the Authority relating to the authorization, issuance, sale A-1 and delivery of the Bonds, including but not limited to: printing expenses; rating agency fees; filing and recording fees; initial fees, expenses and charges of the Trustee and its counsel, including the Trustee's first annual administrative fee; fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals; fees and charges for preparation, execution and safekeeping of the Bonds; and any other cost, charge or fee in connection with the original issuance of the Bonds. "Costs of Issuance Fund" means the fund by that name established and held by the Trustee under Section 3.03. "Depository" means (a) initially, DTC, and (b) any other Securities Depositories acting as Depository under Section 2.04. "Depository System Participant" means any participant in the Depository's book - entry system. "City" means the City of Lodi, a municipal corporation organized and existing under the laws of the State of California. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Escrow Agreement" means the Escrow Deposit and Trust Agreement, dated as of September 1, 2012, by and between the City and Union Bank, N.A., as escrow bank. "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), the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America; and (b) any obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "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. "Indenture" means this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture under the provisions hereof. "Interest Account" means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. "Installment Purchase Agreement" means the Installment Purchase Agreement dated as of September 1, 2012, between the City and the Authority, together with any duly authorized and executed amendments thereto. A-2 "Installment Payments" means all payments required to be paid by the City on any date under Section 4.4 of the Installment Purchase Agreement, including any amounts payable upon delinquent installments and including any prepayment thereof under Sections 7.2 of the Installment Purchase Agreement. "Interest Payment Date" means each April 1 and October 1, commencing April 1, 2013, so long as any Bonds remain unpaid. Woody's" means Moody's Investors Service, its successors and assigns. "Nominee" means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository designated under Section 2.04(a). "Office" means the corporate trust office of the Trustee in San Francisco, California, or such other or additional offices as the Trustee may designate in writing to the Corporation from time to time as the corporate trust office for purposes of this Indenture; except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporation trust agency business is conducted. "Original Purchaser" means JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus, as original purchasers of the Bonds upon their delivery by the Trustee on the Closing Date. "Outstanding", when used as of any particular time with reference to Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.02, including Bonds (or portions thereof) described in Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee under this Indenture. "Owner", whenever used herein with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. "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 (provided that the Trustee shall be entitled to rely conclusively upon any such determination by the Authority): (a) Federal Securities. (b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any federal agencies whose obligations are backed by the full faith and credit of the United States of America. (c) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and which are rated in the highest A-3 short-term rating category by S&P (such funds may include funds for which the Trustee, its affiliates, parent or subsidiaries provide investment advisory or other management services). (d) Certificates of deposit (including those of the Trustee, its parent and its affiliates) secured at all times by collateral described in (a) or (b) above, which have a maturity not greater than one year from the date of investment and which are issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated A or better by S&P, which collateral must be held by a third party and provided that the Trustee must have a perfected first security interest in such collateral. (e) Certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation or secured at all times by collateral described in (a) or (b) above. (f) Investment agreements with a financial institution the long-term debt or claims paying ability of which, or in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor or the institution is rated AA or better from S&P, by the terms of which the Trustee is permitted to withdraw the invested funds if the rating from S&P falls below AA. (g) The Local Agency Investment Fund which is administered by the California Treasurer for the investment of funds belonging to local agencies within the State of California, provided for investment of funds held by the Trustee, the Trustee is entitled to make investments and withdrawals in its own name as Trustee. "Principal Account" means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. "Record Date" means, with respect to any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established and held by the Trustee under Section 5.06. "Registration Books" means the records maintained by the Trustee under Section 2.05 for the registration and transfer of ownership of the Bonds. "Securities Depositories" means DTC; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority designates in written notice filed with the Trustee. A-4 "S&P" means Standard & Poor's, a division of the McGraw Hill Companies, of New York, New York, its successors and assigns. "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Code" means the Internal Revenue Code of 1986 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 Code. "Term" means, when used with respect to the Installment Purchase Agreement, the time during which the Installment Purchase Agreement is in effect, as provided in Section 4.2 thereof. "Term Bonds" means the Bonds maturing on October 1, "Trustee" means Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, or its successor or successors, as Trustee hereunder as provided in Article VIII. "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. A-5 APPENDIX B BOND FORM NO. R- ***$ *** UNITED STATES OF AMERICA STATE OF CALIFORNIA LODI PUBLIC FINANCING AUTHORITY 2012 REFUNDING WASTEWATER REVENUE BOND, SERIES A INTEREST RATE: MATURITY DATE: ORIGINAL ISSUE DATE: ' CUSIP: % October 1, , 2012 540257_ REGISTERED OWNER: CEDE `& CO. PRINCIPAL AMOUNT:** *** The LODLPUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "Authority"), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the "Registered Owner"), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond unless (i) this Bond is authenticated on or before an Interest Payment Date and after the close of business on the 15th day of the month preceding such interest payment date, in which event it shall bear interest from such Interest Payment Date, or (ii) this Bond is authenticated on or before March 15 2013, in which event it shall bear interest from the Original Issue Date specified above; provided, however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, at the Interest Rate per annum specified above, payable semiannually on April 1 and October 1 in each year, commencing April 1, 2013 (the "Interest Payment Dates"), calculated on the basis of a 360 -day year composed of twelve 30 -day months. Principal hereof and premium, if any, upon early redemption hereof are payable upon presentation and surrender hereof at the corporate trust office of Union Bank, N.A., as trustee (the "Trustee"), in San Francisco, California, or such other place as designated by the Trustee (the "Trust Office"). Interest hereon is payable by check of B-1 the Trustee mailed on the applicable Interest Payment Date to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each Interest Payment Date (a "Record Date"), or, upon written request filed with the Trustee as of such Record Date by a registered owner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately available funds to an account in the United States designated by such registered owner in such written request. This Bond is not a debt of the City of Lodi (the "City"), the County of San Joaquin, the State of California, or any of its political subdivisions, and neither the City, said County, said State, nor any of its political subdivisions, is liable hereon nor in any event shall this Bond be payable out of any funds or properties of the Authority other than the Authority Revenues. This Bond is one of a duly authorized issue of bonds of the Authority designated as the "Lodi Public Financing Authority 2012 Refunding Wastewater Revenue Bonds, Series A (the "Bonds"), in an aggregate principal amount of $ , all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption provisions) and all issued under the provisions of Article 4 of Chapter 5 of Division 7 of Title1 of the California Government Code (the "Bond Law"), and under an Indenture of Trust dated as of. September 1, 2012, between the Authority and the Trustee (the "Indenture") and a resolution of -the Authority adopted on , 2012, authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the Authority) and all supplements thereto for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the security for the Bonds, and the rights thereunder of the owners of the Bonds and -the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder, to all of the provisions of which the Registered Owner -of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Authority to refinance an installment payment obligation incurred by the City to finance improvements to the wastewater collection, treatment and disposal system of the City (the "Wastewater System"). The Bonds are special obligations of the Authority which are payable from and secured by a charge and lien on the Authority Revenues as defined in the Indenture, consisting principally of installment payments made by the City under an Installment Purchase Agreement dated as of September 1, 2012, between the Authority and the City (the "Installment Purchase Agreement"). As and to the extent set forth in the Indenture, all of the Authority Revenues are exclusively and irrevocably pledged in accordance with the terms of the Indenture to the payment of the principal of and interest and premium (if any) on the Bonds. The rights and obligations of the Authority and the owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each Bond so affected. The Bonds maturing on or before October 1, 2022, are not subject to optional redemption prior to their respective stated maturities. The Bonds maturing on or after B-2 October 1, 2023, are subject to redemption at the option of the Authority as a whole, or in part among maturities on such basis as determined by the Authority and within a maturity as set forth below, on any date on or after October 1, 2022, from any available source of funds, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. As provided in the Indenture, notice of redemption will be mailed by the Trustee by first class mail not less than 30 nor more than 60 days prior to the redemption date to the respective owners of any Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption or the cessation of accrual of interest thereon from and after the date fixed for redemption. The Authority has the right to rescind any optional redemption notice as set forth in the Indenture. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds of a single maturity, the Trustee shall select the Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new Series A Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. This Bond may be exchanged at the Trust Office for of the same tenor, aggregate principal amount, interest rate and maturity, of other authorized denominations. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC') to the Authority or the Trustee for registration of transfer, exchange, or payment, and any Bond issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. It is hereby certified by the Authority that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Bond Law and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond is not entitled to any benefit under the Indenture or valid or obligatory for any purpose until the certificate of authentication hereon endorsed has been manually signed by the Trustee. IN WITNESS WHEREOF, the Lodi Public Financing Authority has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its Chair and attested to by the facsimile signature of its Secretary, all as of the Original Issue Date specified above. Attest: Dated: LODI PUBLIC FINANCING AUTHORITY 0 Secretary Chair CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within -mentioned Indenture. UNION BANK, N.A., as Trustee 0 B-4 Authorized Signatory ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is the within -mentioned Bond and hereby irrevocably constitute(s) and appoints) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises: Dated: Signature Guaranteed - Note: Signature guarantee shall be made by a Note: The signature(s) on this Assignment must guarantor institution participating in the_Securities correspond with the name(s) as written on the face of Transfer Agents Medallion Program or in such other the within Bond in every particular without alteration or guarantee program acceptable to the Trustee. enlargement or any change whatsoever. B-5 U 3 W V ° PRELIMINARY OFFICIAL STATEMENT DATED AUGUST _, 2012 • NEW ISSUE - FULL BOOK -ENTRY RATINGS: Fitch: Standard & Poor's: .� See "Ratings". c; In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in ° determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. w See "TAX MATTERS. " LODI PUBLIC FINANCING AUTHORITY 2012 REFUNDING WASTEWATER REVENUE BONDS, SERIES A o .� Dated: Date of Delivery Due: October 1, as shown on inside cover w Authority for Issuance. The 2012 Refunding Wastewater Revenue Bonds, Series A (the "2012 Bonds") are being issued by the City of o Lodi Public Financing Authority (the "Authority") under a resolution adopted by the Board of Directors of the Authority on August 1, 2012, and an Indenture of Trust dated as of September 1, 2012 (the "Indenture") by and between the Authority and Union Bank, N.A., as trustee for the 2012 Bonds (the "Trustee"). See "THE 2012 BONDS - Authority for Issuance." d o Use of Proceeds. The proceeds of the 2012 Bonds will be used to (i) refinance $ principal amount of City of Lodi (the "City") Wastewater System Revenue Certificates of Participation, 2004 Series A (such amount refinanced constituting the "Refunded Certificates") and a a o related installment payment obligation of the City; and (ii) pay the costs of issuing the 2012 Bonds. See "THE REFINANCING PLAN." ° ' Security for the 2012 Bonds. Under the Indenture, the 2012 Bonds will be payable solely from and secured by Authority Revenues and ° certain funds and accounts held under the Indenture. Authority Revenues consist primarily of installment payments ("2012 Installment .° Payments") to be made by the City pursuant to an Installment Purchase Agreement dated as of September 1, 2012 (the "2012 Installment Purchase Agreement"). The obligation of the City to make the 2012 Installment Payments is a special obligation of the City that is secured by a .o pledge of and payable solely from System Net Revenues relating to the City's wastewater collection and treatment system (the "System"). The general fund of the City is not liable for, and neither the faith and credit nor the taxing power of the City is pledged to, the payment of the 2012 Installment Payments. H° The pledge of System Net Revenues to the 2012 Installment Payments is on a parity with the pledge of System Net Revenues to certain Y outstanding obligations, which will be outstanding in the principal amount of $ following defeasance of the Refunded Certificates with 8 proceeds of the 2012 Bonds (the "Existing Parity Obligations"). See "SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS - Outstanding Parity Obligations". The City is also authorized under the 2012 Installment Purchase Agreement to incur other obligations payable o from System Net Revenues on a parity with the 2012 Installment Payments and the Existing Parity Obligations. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS" and "THE SYSTEM." 0 N ° Bond Terms; Book -Entry Only. The 2012 Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on o April 1 and October 1 of each year, commencing on April 1, 2013, and will be issued in fully -registered form without coupons in integral multiples of $5,000. The 2012 Bonds will be issued in book -entry only form, initially registered in the name of Cede & Co., as nominee of The oDepository Trust Company, New York, New York ("DTC"). Purchasers of the 2012 Bonds will not receive certificates representing their c interests in the 2012 Bonds. Payments of the principal of, premium, if any, and interest on the 2012 Bonds will be made to DTC, which is � obligated in turn to remit such principal, premium, if any, and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the 2012 Bonds. See "THE 2012 BONDS - General Provisions." o Redemption. The 2012 Bonds are subject to redemption prior to maturity. See "THE 2012 BONDS - Redemption." p NEITHER THE 2012 BONDS, NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE 2012 BONDS, CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE 2012 BONDS ARE SECURED SOLELY BY THE PLEDGE OF is AUTHORITY REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE 2012 BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING POWER. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF 2012 BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE 2012 BONDS. The 2012 Bonds are offered when, as and if issued and received by the Underwriters and subject to the approval as to their legality by Jones „ N Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Y Authority by the City Attorney, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, a California. It is anticipated that the 2012 Bonds will be delivered in book -entry form through the facilities of DTC on or about September a 2012. °3 Stone & Youngberg, a Division of Stifel Nicolaus J.P. Morgan The date of this Official Statement is: August 2012. o U W W ° •� o Preliminary; subject to change. 42 a ° h � s H ° y DOCSOC/1563394vl2/022245-0260 Maturity Date (October 1) MATURITY SCHEDULE (Base CUSIPt: Principal Interest Amount Rate Price or Yield t Copyright 2012, American Bankers Association. CUSIP data provided herein is provided by Standard and Poor's CUSIP Service Bureau, a division of The McGraw Hill Companies, Inc. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. Neither the Authority, City nor the Underwriters take any responsibility for the accuracy of such numbers. DOCSOC/1563394v 12/022245-0260 LODI PUBLIC FINANCING AUTHORITY CITY OF LODI AUTHORITY BOARD/CITY COUNCIL JoAnne Mounce /Mayor/Chair Alan Nakanishi/Mayor Pro Tem/Vice-Chair Larry Hansen/Councilmember/ Member Phil Katzakian/Councilmember/Member Bob Johnson/Councilmember/Member AUTHORITY/CITY OFFICIALS Konradt Bartlam/City Manager/Executive Director Jordan Ayers/Deputy City Manager/Treasurer Randi Johl/City Clerk/Secretary Steve Schwabauer, City Attorney/Authority Counsel BOND COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California FINANCIAL ADVISOR Lamont Financial Services Corporation Los Angeles, California TRUSTEE Union Bank, N.A. San Francisco, California VERIFICATION AGENT Causey Demgen & Moore Inc. DOCSOC/1563394v 12/022245-0260 No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriters to give any information or to make any representations in connection with the offer or sale of the 2012 Bonds other than those contained herein; and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the City or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2012 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the 2012 Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the Authority and the City and from other sources that the Authority and the City believe to be reliable. The information and expression of opinion herein are subject to change without notice and neither delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. All summaries of the Resolution or other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. In connection with the offering of the 2012 Bonds, the Underwriters may overallot or effect transactions that stabilize or maintain the market price of such Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the 2012 Bonds to certain dealers and dealer banks and banks acting as agents at prices lower than the public offering prices stated on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters. The 2012 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The 2012 Bonds have not been registered or qualified under the securities laws of any state. Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. Such forward-looking statements include but are not limited to certain statements contained in the information in "THE SYSTEM" in this Official Statement. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Neither the Authority nor the City plans to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. The City maintains a website. However, the information presented therein is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2012 Bonds. DOCSOC/1563394v 12/022245-0260 TABLE OF CONTENTS INTRODUCTION RateCovenant"..........................................................................................................................2 ContinuingDisclosure...............................................................................................................2 OtherMatters............................................................................................................................. 3 THE REFINANCING PLAN Estimated Sources and Uses of Funds THE2012 BONDS................................................................................................................................ 5 Authorityfor Issuance............................................................................................................... 5 GeneralProvisions..................................................................................................................... 5 Transfer, Registration and Exchange........................................................................................ 6 Redemption............................................................................................................................... 6 Book -Entry Only System.......................................................................................................... 7 SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS ............................................ 8 Pledge of Authority Revenues... 2012 Installment Payments........ Defined Terms ........................... Pledge of System Net Revenues Rate Covenant ........................... ............. 9 ............. 9 ................10 ................11 ..........11 Application of System Revenues.............................................................................................12 Outstanding Parity Obligations...............................................................................................12 AdditionalParity Debt.............................................................................................................13 SubordinateObligations..........................................................................................................14 RateStabilization Fund...........................................................................................................14 THESYSTEM.....................................................................................................................................15 General....................................................................................................................................15 Governance and Management.................................................................................................15 Employees...............................................................................................................................16 RetirementPrograms...............................................................................................................16 Insurance.................................................................................................................................17 SystemFacilities......................................................................................................................17 Environmental Compliance.....................................................................................................19 Service Area and Customers................................................................................................... 20 Wastewater Rates and Charges............................................................................................... 22 Planned Capital Improvements................................................................................................ 25 FinancialStatements................................................................................................................26 Historical Operating Results.................................................................................................... 27 Projected Operating Results and Debt Service Coverage.......................................................28 CONTINUING DISCLOSURE........................................................................................................... 38 THEAUTHORITY............................................................................................................................. 29 RISKFACTORS................................................................................................................................. 30 Rate Covenant Not a Guarantee.............................................................................................. 30 Statutoryand Regulatory Impact............................................................................................. 30 PermitRenewal....................................................................................................................... 30 Earthquake, Flood or Other Natural Disasters......................................................................... 31 Projected Operating Results.................................................................................................... 31 Limited Recourse on Default................................................................................................... 32 Certain Limitations on the Ability of the City to Impose Taxes, Fees and Charges ............... 32 DOCSOC/1563394v 12/022245-0260 Effectof Bankruptcy............................................................................................................... 34 Lossof Tax Exemption........................................................................................................... 35 SecondaryMarket.................................................................................................................... 35 TAXMATTERS.................................................................................................................................. 35 LITIGATION .......................... APPROVAL OF LEGALITY. FINANCIAL STATEMENTS RATINGS ............................... FINANCIAL ADVISOR ........ 36 37 37 37 38 UNDERWRITING.............................................................................................................................. 38 VERIFICATION OF MATHEMATICAL COMPUTATIONS..........................................................39 EXECUTION AND DELIVERY........................................................................................................ 40 APPENDIX A: THE CITY OF LODI...............................................................................................A-1 APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2011..........................................................................................B-1 APPENDIX C: SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .......................................... C-1 APPENDIX D: FORM OF OPINION OF BOND COUNSEL.........................................................D-1 APPENDIX E: FORM OF CONTINUING DISCLOSURE AGREEMENT ................................... E-1 APPENDIX F: DTC AND THE BOOK -ENTRY ONLY SYSTEM ................................................ F-1 ii DOCSOC/1563394v 12/022245-0260 OFFICIAL STATEMENT LODI PUBLIC FINANCING AUTHORITY 2012 REFUNDING WASTEWATER REVENUE BONDS, SERIES A INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the meanings set forth in the Indenture (as defined below). See "APPENDIX C - Summary of Principal Legal Documents." Authority for Issuance. The Lodi Public Financing Authority (the "Authority") is issuing its 2012 Refunding Wastewater Revenue Bonds (the "2012 Bonds") under the following legal authority: (i) Articles 10 and 11 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, commencing with Section 6584 (the "Bond Law"), (ii) a resolution adopted by the Board of Directors (the "Board") of the Authority on August 1, 2012 (the "Authority Resolution"), and a resolution adopted by the City Council (the "City Council") of the City of Lodi (the "City") on August 1, 2012 (the "City Resolution"), and (iii) an Indenture of Trust (the "Indenture"), dated as of September 1, 2012, by and between the Authority and Union Bank, N.A., as trustee (the "Trustee"). Form of Bonds, Book Entry Only. The 2012 Bonds will be issued in fully registered form, registered in the name of The Depository Trust Company, New York, New York ("DTC"), or its nominee, which will act as securities depository for the 2012 Bonds. Purchasers of the 2012 Bonds will not receive certificates representing the 2012 Bonds that are purchased. See "THE 2012 BONDS - Book -Entry Only System" and "APPENDIX F - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Purpose of the 2012 Bonds. The 2012 Bonds are being issued to provide funds to (i) refinance $ principal amount of the City's Wastewater System Revenue Certificates of Participation, 2004 Series A (such amount refinanced constituting the "Refunded Certificates") and a related installment payment obligation of the City; and (ii) pay the costs of issuing the 2012 Bonds. Security for the 2012 Bonds. Under the Indenture, the 2012 Bonds will be payable solely from and secured by Authority Revenues and certain funds and accounts held under the Indenture. Authority Revenues consist primarily of installment payments ("Installment Payments") to be made by the City pursuant to an Installment Purchase Agreement dated as of September 1, 2012 (the "2012 Installment Purchase Agreement"). The obligation of the City to make the 2012 Installment Payments is a special obligation of the City that is secured by a pledge of and payable solely from * Preliminary; subject to change. DOCSOC/1563394v 12/022245-0260 System Net Revenues. The general fund of the City is not liable for, and neither the faith and credit nor the taxing power of the City is pledged to, the payment of the 2012 Installment Payments. The obligation of the City to make the 2012 Installment Payments does not constitute a debt of the City or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. Existing Parity Obligations. The City's pledge of System Net Revenues to the 2012 Installment Payments is on a parity with the City's pledge of System Net Revenues to certain outstanding obligations (the 2003 Installment Payments and the 2007 Installments Payments, as defined below), which are outstanding in the aggregate principal amount of $33,290,000 as of August 1, 2012 (the "Existing Parity Obligations "). See "THE FINANCING PLAN" and "SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS - Outstanding Parity Obligations". Additional Parity Obligations. The City may incur additional obligations payable from and secured by the System Net Revenues on parity with the 2012 Installment Payments and the Existing Parity Obligations. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS - Additional Parity Debt". Parity Debt. The Existing Parity Obligations, the 2012 Installment Payments and any future Parity Obligations are referred to as Parity Debt in this Official Statement. Rate Covenant The City covenants in the 2012 Installment Purchase Agreement that it will, to the maximum extent permitted by law, fix, prescribe and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Net Revenues during such Fiscal Year equal to at least 110% of the Annual Debt Service on all Parity Debt in such Fiscal Year; provided, an adjustment will be made to the amount of System Net Revenues for amounts deposited into or withdrawn from the Rate Stabilization Fund; provided that, for purposes of such calculation, the amount of System Net Revenues before any credits for transfers from the Rate Stabilization Fund to the System Revenue Fund may not be less than 100% of Annual Debt Service for such Fiscal Year. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS— Rate Covenant". NEITHER THE 2012 BONDS NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE 2012 BONDS CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE 2012 BONDS ARE SECURED SOLELY BY THE PLEDGE OF AUTHORITY REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE 2012 BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING POWER. Continuing Disclosure The City has covenanted for the benefit of the Owners and beneficial owners of the 2012 Bonds to provide certain financial information and operating data relating to the City and the System 2 DOCSOC/1563394v 12/022245-0260 annually, and to provide notices of the occurrence of certain enumerated events. See "CONTINUING DISCLOSURE". Other Matters The summaries of and references to documents, statutes, reports and other instruments referred to in this Official Statement do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute, report or instrument. The capitalization of any word not conventionally capitalized or otherwise defined in this Official Statement indicates that such word is defined in a particular agreement or other document and, as used in this Official Statement, has the meaning given it in such agreement or document. See "APPENDIX C - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS". THE REFINANCING PLAN The 2012 Bonds are being issued to provide funds to (i) refinance the Refunded Certificates and a related installment payment obligation of the City, and (ii) pay the costs of issuing the 2012 Bonds. The Refunded Certificates were executed and delivered for the purpose of (i) financing certain additions, betterments, extensions, replacements and improvements to the System (ii) funding a debt service reserve account for the Refunded Certificates and (iii) paying the costs of execution and delivery of the Refunded Certificates. The Refunded Certificates consist of the following: Wastewater System Revenue Certificates of Participation, 2004 Series A Base CUSIPI Number: 540279 Maturity Date Principal CUSIP Maturity or (October 1) Amount Numbert Prepayment Date 2012 $1,145,000 AJ5 10/1/2012 2013 1,205,000 AK2 10/1/2013 2014 1,265,000 ALO 10/1/2014 2015 1,325,000 AM8 10/1/2014 2016 1,390,000 AN6 10/1/2014 2017 1,455,000 API 10/1/2014 2018 1,535,000 AQ9 10/1/2014 2019 1,620,000 AR7 10/1/2014 2020 1,695,000 AS5 10/1/2014 2021 1,780,000 AT3 10/1/2014 2022 1,875,000 AUO 10/1/2014 2023 1,970,000 AV8 10/1/2014 2024 2,070,000 AW6 10/1/2014 t CUSIP® is a registered trademark of the American Bankers Association. Copyright© 2012 Standard & Poor's, a Division of the McGraw Hill Companies, Inc. CUSIP® data herein is provided by Standard & Poor's CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the City, the Authority, nor the Underwriters take any responsibility for the accuracy of such numbers. 3 DOCSOC/1563394v 12/022245-0260 Upon the execution and delivery of the Bonds, a portion of the proceeds and available moneys from the Refunded Certificates shall be applied to the purchase of certain direct obligations of the United States of America, which, along with uninvested cash and earnings on the obligations, will satisfy the City's payment obligations with respect to the Refunded Certificates until their payment or prepayment dates. These direct obligations and uninvested cash shall be deposited in an escrow account held by Union Bank, N.A., as escrow agent for the Refunded Certificates (the "Escrow Agent") under an escrow agreement (the "Escrow Agreement") that will require the Escrow Agent to apply the principal of and interest on such obligations, together with other moneys held by the Escrow Agent, to the payment or prepayment of the Refunded Certificates on their respective payment or prepayment dates set forth in the table below. The obligations of the United States of America so deposited with the Escrow Agent into the escrow account for the Refunded Certificates will bear interest at such rates and will be scheduled to mature at such times and in such amounts that, when paid in accordance with their terms, together with any other funds held by the Escrow Agent under the Escrow Agreement, will be sufficient to make full and timely payment of the principal of and interest evidenced and represented by the Refunded Certificates prior to their respective scheduled payment or prepayment dates and to pay the prepayment price of the outstanding Refunded Certificates on such prepayment date. For information on mathematical verification for the sufficiency of scheduled payments with respect to such obligations of the United States of America and other funds held by the Escrow Agent to make such payments with respect to the Refunded Certificates, see "VERIFICATION OF MATHEMATICAL COMPUTATIONS." Upon such irrevocable deposit with the Escrow Agent and the receipt by the Escrow Agent of irrevocable escrow instructions from the City under the Escrow Agreement, the Refunded Certificates will be defeased and the owners of the Refunded Certificates will no longer be entitled to the benefits of the legal documents under which they were executed and delivered. The amounts held and invested by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the Refunded Certificates. Neither the funds deposited in the Escrow Fund nor the interest on the invested funds will be available for the payment of debt service on the 2012 Bonds. 4 DOCSOC/1563394v 12/022245-0260 Estimated Sources and Uses of Funds The estimated sources and uses of funds relating to the 2012 Bonds are as follows: Sources: Principal Amount Plus Original Issue Premium Less Underwriters' Discount Plus Available Money Relating to the Refunded Certificates Total Sources Uses: Escrow Fund Costs of Issuance (1) Total Uses (1) Represents funds to be used to pay Costs of Issuance, which include legal fees, printing costs, rating agency fees and other miscellaneous expenses. THE 2012 BONDS Authority for Issuance The 2012 Bonds are being issued under the Bond Law, the Authority Resolution (which was adopted by the Board of Directors of the Authority on August 1, 2012), the City Resolution (which was adopted by the City Council on August 1, 2012), and the Indenture. General Provisions Bond Terms. The 2012 Bonds will be dated their date of delivery and issued in fully registered form without coupons in integral multiples of $5,000. The 2012 Bonds will mature in the amounts and on the dates, and bear interest at the annual rates, set forth on the inside cover page of this Official Statement. Payments of Principal and Interest. Interest on the 2012 Bonds will be payable on April 1 and October 1 in each year, beginning April 1, 2013 (each an "Interest Payment Date"). Principal on the 2012 Bonds will be payable on October 1 in the amounts and in the years set forth on the inside front cover of this Official Statement. While the 2012 Bonds are subject to the book -entry system, the principal, interest and any prepayment premium with respect to the 2012 Bonds will be paid by the Trustee to DTC for subsequent disbursement to beneficial owners of the 2012 Bonds. See APPENDIX F — "DTC AND THE BOOK -ENTRY ONLY SYSTEM." Interest on the 2012 Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, 5 DOCSOC/1563394v 12/022245-0260 a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or interest on any 2012 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Principal and premium, if any, with respect to each 2012 Bond is payable upon surrender of such Bond at the Office of the Trustee in San Francisco, California, upon maturity or the earlier redemption thereof. The principal of, premium, if any, and interest on the 2012 Bonds will be payable in lawful money of the United States of America. Interest with respect to the 2012 Bonds will be computed on the basis of a 360 day year composed of twelve 30 -day months. Transfer, Registration and Exchange See "APPENDIX C - Summary of Principal Legal Documents" for a description of the provisions of the Indenture relating to the transfer, registration and exchange of the 2012 Bonds. Redemption Optional Redemption. The 2012 Bonds maturing on or before October 1, 2022, are not subject to optional redemption prior to their respective stated maturity dates. The 2012 Bonds maturing on or after October 1, 2023, are subject to redemption in whole, or in part among maturities on such basis as the Authority may designate and within a maturity as selected by the Trustee, at the option of the Authority, on any date on or after October 1, 2022, from any available source of funds, at a redemption price equal to 100% of the principal amount of the 2012 Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Series 2012 Bonds maturing on October 20_ (the "Term 2012 Bonds") are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on October 1 in the respective years as set forth in the following tables; provided, however, that if some but not all of the Term 2012 Bonds have been optionally redeemed, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of the Term 2012 Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral multiples of $5,000 (as set forth in a schedule provided by the Authority to the Trustee). Bonds Maturing October 1, Sinking Fund Redemption Date Principal Amount (October 1) To Be Redeemed 6 DOCSOC/1563394v 12/022245-0260 Notice of Redemption. Notice of redemption will be mailed by the Trustee, first class, postage prepaid, not more than 60 and not less than 30 days before any redemption date, to the respective registered Owners of any 2012 Bonds designated for redemption at their addresses appearing on the registration books maintained by the Trustee and to one or more Securities Depositories and the Municipal Securities Rulemaking Board. Neither the failure to receive any notice nor any defect therein will affect the proceedings for such redemption. Selection of 2012 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2012 Bonds of a single maturity, the Trustee will select the 2012 Bonds to be redeemed from all Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, Bonds will be deemed to be comprised of $5,000 portions and each portion will be subject to redemption as if such portion were a separate Bond. Effect of Redemption. If notice of redemption has been duly given and money for the payment of the redemption price of the 2012 Bonds called for redemption has been duly provided, such 2012 Bonds so called will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon from and after the redemption date specified in such notice. Rescission of Redemption. The Authority has the right to rescind any notice of optional redemption of 2012 Bonds by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the 2012 Bonds then called for redemption, and such cancellation shall not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Indenture. Book -Entry Only System The 2012 Bonds will be issued as fully registered bonds in book -entry only form, registered in the name of Cede & Co. as nominee of DTC, and will be available to ultimate purchasers in the integral multiples of $5,000, under the book -entry system maintained by DTC. While the 2012 Bonds are subject to the book -entry system, the principal, interest and any prepayment premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the 2012 Bonds. Purchasers of the 2012 Bonds will not receive certificates representing their interests therein, which will be held at DTC. See "APPENDIX F - DTC AND THE BOOK -ENTRY ONLY SYSTEM" for further information regarding DTC and the book -entry system. 7 DOCSOC/1563394v 12/022245-0260 DEBT SERVICE SCHEDULE The table below shows annual debt service payments on the 2012 Bonds and Existing Parity Obligations, assuming no optional redemption. * Does not reflect the refunding of the Refunded Certificates. 2012 Bonds Total Interest Debt Service SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS The principal of and interest on the 2012 Bonds are not a debt of the Authority (except to the limited extent described in this Official Statement) or the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of their respective property, or upon any of their income, receipts, or revenues except the Revenues and other amounts pledged under the Indenture. This section provides summaries of the security for the 2012 Bonds and certain provisions of the Indenture and the 2012 Installment Purchase Agreement. See "APPENDIX C - Summary of Principal Legal Documents" for a more complete summary of the Indenture and the 2012 Installment Purchase Agreement. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C. 8 DOCSOC/1563394v 12/022245-0260 Existing Parity Existing Parity Year Ending Obligations Obligations 2012 Bonds October 1 Principal* Interest* Principal 2012 $1,500,000 $2,654,273 2013 1,575,000 2,582,823 2014 1,650,000 2,508,348 2015 1,730,000 2,433,100 2016 1,810,000 2,346,088 2017 1,900,000 2,266,478 2018 2,005,000 2,168,113 2019 2,105,000 2,062,038 2020 2,210,000 1,962,688 2021 2,325,000 1,853,150 2022 2,450,000 1,731,013 2023 2,575,000 1,609,088 2024 2,700,000 1,480,925 2025 2,835,000 1,354,250 2026 2,980,000 1,212,500 2027 1,485,000 1,063,500 2028 1,565,000 989,250 2029 1,645,000 911,000 2030 1,730,000 828,750 2031 1,815,000 742,250 2032 1,910,000 651,500 2033 2,010,000 556,000 2034 2,110,000 455,500 2035 2,220,000 350,000 2036 2,330,000 239,000 2037 2,450,000 122,500 Total $53,620,000 $37,134,120 * Does not reflect the refunding of the Refunded Certificates. 2012 Bonds Total Interest Debt Service SECURITY AND SOURCES OF PAYMENT FOR THE 2012 BONDS The principal of and interest on the 2012 Bonds are not a debt of the Authority (except to the limited extent described in this Official Statement) or the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of their respective property, or upon any of their income, receipts, or revenues except the Revenues and other amounts pledged under the Indenture. This section provides summaries of the security for the 2012 Bonds and certain provisions of the Indenture and the 2012 Installment Purchase Agreement. See "APPENDIX C - Summary of Principal Legal Documents" for a more complete summary of the Indenture and the 2012 Installment Purchase Agreement. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C. 8 DOCSOC/1563394v 12/022245-0260 Pledge of Authority Revenues The 2012 Bonds are payable from and secured by a pledge of Authority Revenues and certain funds and accounts established and held by the Trustee under the Indenture. Authority Revenues, as defined in the Indenture, mean (a) all of the 2012 Installment Payments, and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture. THE 2012 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE OF REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE 2012 INSTALLMENT PAYMENTS IS PAYABLE SOLELY FROM SYSTEM NET REVENUES. NEITHER THE 2012 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE 2012 INSTALLMENT PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE COUNTY, THE STATE OF CALIFORNIA (THE "STATE") OR ANY OF ITS POLITICAL SUBDIVISIONS (INCLUDING ANY MEMBER OF THE AUTHORITY) IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS. 2012 Installment Payments The 2012 Installment Purchase Agreement provides that the City's obligation to make the 2012 Installment Payments from System Net Revenues and to perform and observe the other agreements contained therein 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 Trustee of any obligation to the City or otherwise with respect to the System, or out of indebtedness or liability at any time owing to the City by the Authority or the Trustee. Until all of the 2012 Installment Payments, all of the Additional Payments and all other amounts coming due and payable under the 2012 Installment Purchase Agreement are fully paid or prepaid, the City (a) will not suspend or discontinue payment of any 2012 Installment Payments, Additional Payments or such other amounts, (b) will perform and observe all other agreements contained in the 2012 Installment Purchase Agreement, and (c) will not terminate the 2012 Installment Purchase 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 System, sale of the System, the taking by eminent domain of title to or temporary use of any component of the System, 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 Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or the 2012 Installment Purchase Agreement. Pursuant to the Indenture, the Authority transfers, assigns and sets over to the Trustee all of the 2012 Installment Payments and any and all rights, title, interest and privileges it has in, to and under the 2012 Installment Purchase Agreement (other than its rights to expenses and indemnification), including without limitation, the right to collect and receive directly all of the 2012 Installment Payments and the right to enforce the provisions of the 2012 Installment Purchase Agreement. The City consents to such assignment in the 2012 Installment Purchase Agreement and agrees to make payments of the 2012 Installment Payments directly to the Trustee. Under the Indenture, The Trustee is also entitled to and shall, subject to the provisions of the Indenture, take all 9 DOCSOC/1563394v 12/022245-0260 steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the 2012 Installment Purchase Agreement. The Trustee is entitled to indemnification and expenses before taking such action as provided in the Indenture. The Indenture provides that all of the 2012 Installment Payments received by the Trustee shall be deposited immediately in the Bond Fund. All of the 2012 Installment Payments are to be held in trust by the Trustee for the benefit of the Owners of the 2012 Bonds and shall be disbursed and applied only as provided in the Indenture. Defined Terms For the purposes of the Indenture and the 2012 Installment Purchase Agreement, the following terms are given the following meanings: "System Net Revenues" means, for any period, System Revenues less Operation and Maintenance Costs for such period; provided that certain adjustments in the amount of System Net Revenues for a Fiscal Year may be made in connection with amounts deposited in and transferred from the Rate Stabilization Fund. "System Revenues " is defined under the 2012 Installment Purchase Agreement as all gross income and revenue received or receivable by the City from the ownership or operation of the System, determined in accordance with Generally Accepted Accounting Principles, including all fees (including connection fees), rates, charges and all amounts paid under any contracts received by or owed to the City in connection with the operation of the System and all proceeds of insurance relating to the System and investment income allocable to the System and all other income and revenue howsoever derived by the City from the ownership or operation of the System or arising from the System. System Revenues for any Fiscal Year shall include, for the purposes permitted by the 2012 Installment Purchase Agreement, amounts transferred to the System Revenue Fund from the Rate Stabilization Fund during such Fiscal Year. "Operation and Maintenance Costs" means the reasonable and necessary costs paid or incurred by the City for maintaining and operating the System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the System in good repair and working order, including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Indenture or of any Supplemental Agreement or resolution authorizing the execution of any Parity Obligations, such as compensation, reimbursement and indemnification of the Trustee and the Corporation, fees and expenses of Independent Certified Public Accountants and deposits to the Rebate Fund; but excluding in all cases (i) payment of Parity Debt and Subordinate Obligations, (ii) costs of capital additions, replacements, betterments, extensions or improvements which under Generally Accepted Accounting Principles are chargeable to a capital account, (iii) depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles, (iv) City Administrative Costs (as defined in the Indenture (the "City Administrative Expenses")), and (v) transfers from the System Revenue Fund to other funds or accounts of the City. 10 DOCSOC/1563394v 12/022245-0260 For definitions of additional terms used in the 2012 Installment Purchase Agreement and the Indenture, see "APPENDIX C — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— CERTAIN DEFINITIONS". Pledge of System Net Revenues Pursuant to the 2012 Installment Purchase Agreement, all System Net Revenues and all amounts on deposit in the System Revenue Fund are irrevocably pledged to the payment of the 2012 Installment Payments, as provided in the 2012 Installment Purchase Agreement. The 2012 Installment Purchase Agreement provides that such pledge, together with the pledge of System Net Revenues and amounts in the System Revenue Fund securing all other Parity Debt shall, subject to application as permitted in the 2012 Installment Purchase Agreement, constitute a first lien on System Net Revenues and amounts on deposit in the System Revenue Fund. The obligation of the City to make the 2012 Installment Payments is a special obligation of the City payable solely from the System Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. See "Outstanding Parity Obligations" and "Additional Parity Debt" below. Rate Covenant The 2012 Installment Purchase Agreement provides that the City will, at all times until all 2012 Installment Payments have been fully paid or provision has been made therefor in accordance with the 2012 Installment Purchase Agreement, fix, prescribe and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts during such Fiscal Year: (i) All current Operation and Maintenance Costs. (ii) The 2012 Installment Payments and all other Parity Obligation Payments and all payments on Subordinate Obligations as they become due and payable. (iii) All payments required for compliance with the terms of the Indenture and the 2012 Installment Purchase Agreement. (iv) All payments to meet any other obligations of the City which are charges, liens or encumbrances upon, or payable from, the System Revenues. In addition, the City covenants that it will, to the maximum extent permitted by law, fix, prescribe and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Net Revenues during such Fiscal Year equal to at least 110% of the Annual Debt Service in such Fiscal Year; provided an adjustment may be made to the amount of System Net Revenues for amounts deposited into or withdrawn from the Rate Stabilization Fund; provided that, for purposes of such calculation, the amount of System Net Revenues before any credits for transfers from the Rate Stabilization Fund to the System Revenue Fund may not be less than 100% of Annual Debt Service for such Fiscal Year. 11 DOCSOC/1563394v 12/022245-0260 Application of System Revenues The City agrees and covenants in the 2012 Installment Purchase Agreement that all System Revenues it receives (except for net proceeds of any casualty insurance or condemnation award) will be deposited when and as received in the System Revenue Fund, which the City has established and which the City agrees to maintain separate and apart from other moneys of the City until all Installment Payments have been fully paid or provision has been made therefor in accordance with the 2012 Installment Purchase Agreement. Moneys in the System Revenue Fund shall be used and applied only as provided in the 2012 Installment Purchase Agreement. The 2012 Installment Purchase Agreement provides that the City is to pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs the payment of which is not then immediately required) from the System Revenue Fund as they become due and payable and all remaining money in the System Revenue Fund shall be set aside and deposited by the City at the following times in the following order of priority: Installment Payments. Not later than each Installment Payment Date, the City is required to, from the moneys in the System Revenue Fund, transfer to the Trustee the 2012 Installment Payment due and payable on that Installment Payment Date. The City will also, from the moneys in the System Revenue Fund, transfer when due to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any Parity Obligation Payments in accordance with the provisions of the applicable Parity Obligation. Reserve Account. On or before the first Business Day of each month, the City shall, from the remaining moneys in the System Revenue Fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for such debt service reserve funds, if any, as may have been established in connection with Parity Obligations that sum, if any,necessary to restore such debt service reserve funds for Parity Obligations to an amount equal to the amount required to be maintained therein (including to reimburse the provider for a draw on a reserve account credit instrument). Surplus. Moneys on deposit in the System Revenue Fund not necessary to make any of the payments required above in a Fiscal Year, may be expended by the City at any time for any purpose permitted by law, including but not limited to payments with respect to Subordinate Obligations and deposits to the Rate Stabilization Fund. Outstanding Parity Obligations The City has the following outstanding obligations that are payable from System Net Revenues on a parity with the 2012 Installment Payments (referred to as the "Existing Parity Obligations" in this Official Statement): 2003 Installment Payments. The City entered into an Installment Purchase Agreement, dated as of October 1, 2003 (the "2003 Installment Purchase Agreement"), by and between the City and the California Statewide Communities Development Authority ("CSCDA"), pursuant to which the City is obligated to make certain installment payments (the "2003 Installment Payments ") to CSCDA which 2003 Installment Payments secure a portion of the debt service on the CSCDA $9,855,000 initial principal amount Water and Wastewater Revenue Bonds (Pooled Financing Program) Series 2003B (the "2003 CSCDA Bonds "). The City's share of the initial principal amount 12 DOCSOC/1563394v 12/022245-0260 of the 2003 CSCDA Bonds was $5,000,000. As of August 1, 2012, the outstanding principal obligation under the 2003 Installment Purchase Agreement was $3,415,000. 2004 Certificates. On May 12, 2004, the City caused execution and delivery of the $27,360,000 initial principal amount Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"). The 2004 Certificates are secured by and payable from installment payments (the "2004 Installment Payments") payable by the City under an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement ") between the City and the Lodi Public Improvement Corporation (the "Corporation"). Upon issuance of the 2012 Bonds and the Refunding of the Refunded Certificates, $ of the 2004 Certificates will remain outstanding. 2007 Certificates. On November 16, 2007, the City caused execution and delivery of the $30,320,000 initial principal amount Wastewater System Revenue Certificates of Participation, 2007 Series A (the "2007 Certificates"). The 2007 Certificates are secured by and payable from installment payments (the "2007 Installment Payments") payable by the City under an Installment Purchase Agreement, dated as of December 1, 2007 (the "2007 Installment Purchase Agreement ") between the City and the Corporation. As of August 1, 2012, $29,875,000 of the 2007 Certificates were outstanding. Additional Parity Debt In addition to the Existing Parity Obligations, the City is permitted under the 2012 Installment Purchase Agreement to incur obligations secured by a pledge of System Net Revenues on a parity with the 2012 Installment Payments and the Existing Parity Obligations, subject to satisfaction of the following conditions. The 2012 Installment Purchase Agreement refers to the 2012 Installment Payments and any Parity Obligations as "Parity Debt". (a) The City must be in compliance with its obligations under the 2012 Installment Purchase Agreement. (b) Any debt service reserve fund established for such Parity Debt shall satisfy the following criteria: (i) such debt service reserve fund shall be held by an independent trustee (who may be other than the Trustee); (ii) the required amount of such debt service reserve fund shall not exceed the lesser of the maximum annual debt service of such Parity Debt (calculated on the basis of a year ending on the principal payment date of such Parity Debt) or the maximum amount permitted under the Code, provided that, if such Parity Debt is a loan from a governmental agency, then a debt service reserve fund shall be established in the amount, if any, required or permitted by such governmental agency; and (iii) the City shall not be required to replenish withdrawals from such debt service reserve fund in greater than monthly installments equal to 1/12 of the aggregate amount needed to restore the debt service reserve fund to the required level. The 2012 Installment Purchase Agreement allows the debt service reserve fund for a loan from a governmental agency to be the amount required by such governmental agency. (c) The System Net Revenues for the last completed Fiscal Year or any 12 consecutive months within the last 18 months preceding the date of entry into or incurrence of the Parity Debt, as shown by a Certificate of the City on file with the Trustee, plus an allowance for increased System Net Revenues arising from any increase in the rates, fees and charges of the System which was duly adopted by the City Council of the City prior to the date of the entry into 13 DOCSOC/1563394v 12/022245-0260 or incurrence of the Parity Debt but which, during all or any part of such 12 month period, was not in effect, in an amount equal to the amount by which the System Net Revenues would have been increased if the increase in rates, fees and charges had been in effect during the whole of such 12 month period, as shown by a Certificate of the City on file with the Trustee, must have produced a sum equal to at least 110% of the Maximum Annual Debt Service as calculated after the entry into or incurrence of the Parity Debt; provided, that in the event that all or a portion of such Parity Debt is to be issued for the purpose of refunding and retiring any Parity Debt then outstanding, interest and principal payments on the Parity Debt to be so refunded and retired from the proceeds of such Parity Debt being issued shall be excluded from the foregoing computation of Maximum Annual Debt Service; provided further, that the City may at any time enter into or incur Parity Debt without compliance with the foregoing conditions if the Annual Debt Service for each Fiscal Year during which such Parity Debt is outstanding will not be increased by reason of the entry into or incurrence of such Parity Debt; and provided further, an adjustment shall be made in the amount of System Net Revenues as described in "Rate Stabilization Fund" below. Subordinate Obligations The 2012 Installment Purchase Agreement permits the City to incur obligations payable from System Net Revenues on a subordinate basis to the 2012 Installment Payments, the Existing Parity Obligations and any future Parity Debt. Rate Stabilization Fund Pursuant to the 2012 Installment Purchase Agreement, a Rate Stabilization Fund is to be held and maintained by the City until all Installment Payments have been fully paid or provision has been made therefor in accordance with the 2012 Installment Purchase Agreement. The City may, during or within 210 days after a Fiscal Year, transfer surplus System Net Revenues attributable to such Fiscal Year on the basis of Generally Accepted Accounting Principles (the "GAAP Receipt Fiscal Year") from the System Revenue Fund to the Rate Stabilization Fund. The City may at any time transfer moneys from the Rate Stabilization Fund to the System Revenue Fund. System Net Revenues deposited into the Rate Stabilization Fund will not be taken into account as System Net Revenues for the GAAP Receipt Fiscal Year for purposes of the calculations required by the covenants in the 2012 Installment Purchase Agreement relating to rate coverage and additional Parity Obligations. Amounts withdrawn from the Rate Stabilization Fund and deposited into the System Revenue Fund, may be taken into account as System Revenues for purposes of the calculations required by such covenants for the Fiscal Year in which such deposit is made; provided that, for purposes of the calculation described in the last paragraph under "Rate Covenant" above, the amount of System Net Revenues before any credits for transfers from the Rate Stabilization Fund to the System Revenue Fund may not be less than 100% of Annual Debt Service for such Fiscal Year. As of June 30, 2011, the Rate Stabilization Fund contained $500,000. The Projected Operating Results contained in Table 8 hereof do not contemplate the use of moneys in the Rate Stabilization Fund. 14 DOCSOC/1563394v 12/022245-0260 THE SYSTEM General The City of Lodi is located in the County of San Joaquin (the "County") between Stockton and Sacramento, and adjacent to U.S. Highway 99, approximately 90 miles east of San Francisco. The City was incorporated as a General Law City on December 6, 1906. The City operates under a City Council -Manager form of government and provides the following services: public safety (police, fire and graffiti abatement), public utilities services (electric, water and sewer), transportation services (streets, flood control and transit), leisure, cultural and social services (parks and recreation, library, and community center), and general government services (management, human resources administration, financial administration, building maintenance and equipment maintenance). As of January 1, 2011, the City had an estimated population of 62,473 within an area of approximately 13.9 square miles. See "APPENDIX A — THE CITY OF LODI". Since 1923, the City has been providing wastewater collection and treatment services to the community. Governance and Management The City is governed by a five -member City Council comprised of members elected at large. Each council member is elected for four years with staggered terms. The current City Council members and the expiration dates of their terms are set forth below. Council Member JoAnne Mounce Alan Nakanishi Larry D. Hansen Phil Katzakian Bob Johnson Title Mayor Mayor Pro Tempore Council Member Council Member Council Member Following are biographies of certain City staff. Expiration of Term December 5, 2012 December 3, 2014 December 3, 2014 December 3, 2014 December 5, 2012 KONRADT BARTLAM, City Manager of the City of Lodi, was appointed to the position by the City Council on November 17, 2010 after serving six -months as the interim manager. He had been Lodi's community development director for 11 of the previous 14 years. Bartlam served as Lodi's community development director from 1996 to 2005, left for other professional opportunities, and returned on a part-time basis in 2008. He has 25 years of municipal planning experience, and most recently managed the comprehensive update to Lodi's General Plan, adopted on April 7, 2010. JORDAN AYERS, Deputy City Manager/Internal Services Director, as been the City of Lodi's Deputy City Manager/Internal Services Director since December 15, 2008. As Lodi's administrative second -in -command, Ayers oversees the City's Finance, Budget and Treasury, Information Systems and Human Resources functions. Ayers came to Lodi after a 26 -year career 15 DOCSOC/1563394v 12/022245-0260 with Sacramento County. He was deputy director for administrative and business services within Sacramento County's General Services department before being hired by Lodi. Ayers began his professional career with Sacramento County following his graduation from California State University, Sacramento, in 1982 with a bachelor of science degree in business administration. WALLY SANDELIN, Public Works Director, Sandelin, who began his tenure with the City of Lodi in 2000 as city engineer, was named deputy public works director in 2008. Sandelin has a master's degree in environmental engineering from the University of California, Davis; and has a bachelor's degree in civil engineering from UC Davis. He is active in the Lodi community through his work with a Lodi service club. LARRYPARLIN, Deputy Director Utilities, oversees wastewater collection and treatment and water production and distribution for the City. He received his Bachelor of Science degree in aeronautical engineering from California State University, San Jose. He was employed in the private sector for seventeen years as a water and wastewater operator, manager, and consultant. Most recently he was employed by a municipal agency as Deputy Director of Wastewater Operations. He joined the City of Lodi 2012. Employees For Fiscal Year 2012-13, the City has 51 full-time equivalent employee positions budgeted for the System and the City's water system. Employees of the System and the City's water system are represented by the Maintenance and Operators Bargaining Unit, whose Memorandum of Understanding is set to expire on December 31, 2013. The City has never experienced a labor strike. Retirement Programs Certain Retirement Benefits. Salaries and benefits costs of the System include funding of retirement benefits for employees assigned to the System who, as City employees, participate in the California Public Employees Retirement System ("PERS"). (City employees assigned to the System constitute approximately 6.5% of all City employees.) Retirement payments paid from System Revenues, with respect to employees assigned to the System, were approximately $242,000 in Fiscal Year 2009-10, approximately $283,000 in Fiscal Year 2010-11, and approximately $283,000 in Fiscal Year 2011-12. The City estimates that the required contribution for Fiscal Year 2012-13 will be approximately $281,000, and projects that the required contribution for Fiscal Year 2013-14 will be approximately $290,000. In addition, the PERS contribution payable from the Wastewater Fund for Fiscal Year 2013-14 is projected to increase by approximately $43,000 due to a recent change in actuarial assumptions utilized by PERS. Also, PERS recently announced that investment earnings for PERS fiscal year ended June 30, 2012, were approximately 1%, significantly lower than the actuarially assumed investment earnings rate of 7.5%. Although not quantified at this time, this is also expected to result in increased City contributions. For a variety of reasons, including investment losses, the City has experienced significant unfunded liabilities, and retirement costs payable with respect to all City employees, including those assigned to the System, has increased in recent years. As a result, required contributions from the City are expected to continue to increase. See APPENDIX B "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2011" — Note 10 to the Basic Financial Statements" for a discussion of retirement liabilities payable by the City. 16 DOCSOC/1563394v 12/022245-0260 In addition to required contributions for retirement benefits for employees, the City pays certain post -employment health care and other non -pension ("OPEB") benefits for such employees. The City's OPEB related payments were approximately $700,000 in Fiscal Year 2011-12 and are projected to be approximately $830,000 in Fiscal Year 2012-13. Approximately 6.5 percent of City employees are assigned to the System and the City estimates that a similar ratio of OPEB costs is attributable to System employees. The City generally contributes the minimum amount required under State law to most retired employees. However, a limited number of employees hired prior to 1995 may be eligible for additional OPEB benefits. See APPENDIX B "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2011" Note 10 to the Basic Financial Statements" for a discussion of OPEB liabilities payable by the City, as well as the City's current unfunded OPEB liability. Payments to PERS and payments with respect to OPEB benefits constitute Operation and Maintenance Costs of the System. The City has recently completed negotiations with the labor groups which represent City employees assigned to the System. Key elements in the new contracts, which generally end on December 31, 2013, include employees paying the full share of the employee share of retirement by the end of the contract, capping City medical cost exposure at the January 2012 levels and establishing a second tier retirement system for all new hires. Insurance The City's boiler and machinery operations (including those parts of the System) are insured by Hartford Steam Boiler for up to $21,250,000 in coverage. The City, including the System, is self- insured for general liability losses for up to $500,000 and has pooled excess coverage through the California Joint Powers Risk Management Authority for up to $40 million per occurrence. The City is self-insured for workers' compensation losses for up to $250,000 and has excess coverage through the Local Agency Workers' Compensation Excess Authority for statutory coverage. System Facilities The System consists of 186.5 miles of wastewater mains, seven pump stations and one wastewater treatment plant, the White Slough Water Pollution Control Facility (the "White Slough Facility"). White Slough Facility. The White Slough Facility operates pursuant to a National Pollutant Discharge Elimination System ("NPDES") permit administered by the State of California Regional Water Quality Control Board, Central Valley Region (the "RWQCB"), which was adopted by the RWQCB on September 14, 2007. The current NPDES permit will expire on September 1, 2012. See "Environmental Compliance" below. The White Slough Facility is located in a primarily agricultural area adjacent to Interstate 5, approximately 6.5 miles southwest of the City. The White Slough Facility was originally constructed in 1966 to replace an older wastewater treatment plant located in the City. The White Slough Facility assists the City in maintaining water quality standards required for the protection of the environmentally sensitive Sacramento -San Joaquin Delta. Through the years, the White Slough Facility has been expanded and improved to meet increasingly stringent environmental protection standards. In 1992, the City expanded the White Slough Facility to a capacity of 8.5 million gallons 17 DOCSOC/1563394v 12/022245-0260 per day ("MGD"). However, the Waste Discharge Requirements ("WDRs") issued by the Regional Water Quality Control Board (the "RWQCB") established an interim limit the average dry weather flow from the White Slough Facility of 7.0 MGD to limit potential water quality impacts in Dredger Cut, a waterway connecting to White Slough. The average current daily demand on the White Slough Facility is approximately 6.5 MGD. Improvements financed with proceeds of the 2007 Certificates restored the treatment capacity to the full 8.5 MGD. The 8.5 MGD flow capacity is expected to be sufficient to accommodate the City's growth projections past 2030. The White Slough Facility consists of an activated sludge treatment system and a lagoon and storage pond system, having an approximate 100 million gallons of capacity. Preliminary treatment of the domestic wastewater is accomplished by comminutors, detritors and five rectangular clarifiers. Secondary treatment facilities consist of four activated sludge aeration basins with a fine bubble aeration system, and two circular secondary clarifiers. The aeration system is driven by four centrifugal blowers. The municipal wastewater is treated to tertiary standards then disinfected using ultraviolet light pathogen deactivation (uv disinfection) prior to surface water discharge. In addition to domestic wastewater treatment, the White Slough Facility also disposes of industrial wastewater produced primarily by Pacific Coast Producers, a local cannery. See "Service Area and Customers" below. In past years, the annual industrial flow to the White Slough Facility has exceeded 400 million gallons per year ("MGY"); however, since 2002, industrial flows have decreased to between 100 to 200 MGY due to changes in processing. Most of this flow is received during the period from June through September. During summer months (i.e., generally during the period from May 1 through September 1), treated domestic wastewater, industrial wastewater, and digested sludge are blended together and used for irrigation of an adjacent 790 acres of City -owned agricultural land. During the remainder of the year, treated domestic wastewater is discharged to Dredger Cut in the Sacramento -San Joaquin Delta, and industrial wastewater is stored in four ponds located directly north of the main treatment plant site. These ponds have a total surface area of about 40 acres. Tertiary treated domestic wastewater is also used by the adjacent Northern California Power Agency power generation facilities for various purposes, including, but not limited to, cooling, and to supply nearby ponds that are used by the Mosquito Abatement District to raise mosquito fish. Sludge is thickened and then digested in three anaerobic digestors and then stored in a concrete lined facility and periodically removed for use on City -owned agricultural land. Methane gas from the anaerobic digestion process is used for building and digester heating. Excess methane is flared off at the plant site. Collection System. The existing collection system, not including the outfall to the treatment plant, consists of approximately 187.1 miles of "4" to 42" sewers constructed of clay, concrete, and PVC plastic materials. Included in this system are six lift stations which serve outlying portions of the City and one industrial waste pumping station. The collection system currently serves over 23,000 customers (most of which is residential), 1,400 acres of commercial/industrial development, and 250 acres of schools. Over 50% of the sewers are 6" in diameter. The following contains certain information relating to the City's sewer lines. 18 DOCSOC/1563394v 12/022245-0260 Table 1 City of Lodi Wastewater System Tabulation of Existing Sewers As of July 1, 2012 Sewer Size Sewer Size (inches) Total Feet (inches) Total Feet 42 30,663 14 6,956 30 9,715 12 44,644 24 18,788 10 74,662 21 14,749 8 197,316 18 31,984 6 524,915 16 7,642 4 4,003 15 21,772 Source: City of Lodi The domestic wastewater collection system conveys all domestic and commercial flows and limited industrial flows. The industrial wastewater system conveys fruit processing water and minor amounts of cooling and process water contributed by certain industries. The wastewater collection system serves all of the developed property within the City limits. The age of the collection system ranges from new to around 100 years old. Over the past twenty-five years the City has implemented a regular cleaning schedule and localized repairs and replacements. Approximately eight years ago, the City implemented an annual capital rehabilitation program that expends a minimum of $1 million per year on sewer lining, spot repairs, and pipe replacements. Since the inception of this program, $15.5 million has been invested in the collection system. The pipelines to be replaced are identified through the regular maintenance program for these facilities performed by City crews. This program includes the systematic hydrocleaning, rodding, smoke testing and video inspection of mains throughout the City. Environmental Compliance The present discharge requirements for the City's White Slough Facility are established by the RWQCB which administers and enforces all federal and State of California discharge requirements. The RWQCB administers regulations promulgated by the United States Environmental Protection Agency through the NPDES permits. The City's NPDES discharge permit No. CA0079243 is subject to renewal every five years. The City's current NPDES permit (the "2007 Permit") was adopted on September 14, 2007 by the RWQCB. The 2007 Permit initially included an interim effluent limit of 7.0 MGD. Following completion of the improvements to the White Slough Facility financed with the proceeds of the 2007 Certificates, and approval by the RWQCB of several monitoring and compliance reports, approval was granted to increase the average daily flow to 8.5 MGD. The 2007 Permit established new discharge limits for aluminum, ammonia, chlorodibromomethane, dichlorobromomethanem, manganese, nitrate and nitrite, and reduced the applicable discharge limits for mercury. The 2007 Permit also contained more stringent discharge requirements for the treated wastewater used to irrigate the surrounding land application area. 19 DOCSOC/1563394v 12/022245-0260 Constituents included are chloride, iron, lead, nitrite, nitrate, and mercury. Operations currently comply with these requirements. The City's pretreatment program complies with the pretreatment requirements contained in the Federal Water Pollution Control Act. In general, although the City has experienced a handful of non -material instances of noncompliance, the White Slough Facility has complied with all discharge requirements contained in the 2007 Permit. The 2007 Permit expires on September 1, 2012. Discussions with RWQCB staff indicate that draft permit conditions for the next permit will be issued in November or December 2012. While approval of a new NPDES permit is pending, the White Slough Facility may continue to operate under the requirements of the 2007 Permit until a new permit is adopted by the RWQCB. The City expects the new permit conditions will required continued monitoring activities as in the 2007 Permit. Under the supervision of the RWQCB, the City is currently studying the background levels of nitrate in the vicinity of the treatment plant to determine if the City's operations may have elevated nitrate concentrations above background levels. Studies to date indicate the City is a source, however, recent plant upgrades and repairs to the City's domestic outfall sewer pipeline have reduced the concentrations of nitrogen in the City's effluent and monitoring wells. Nonetheless, the City anticipates there may be a requirement in the new permit to install liners in the storage ponds at the White Slough Facility. Recognizing this potential requirement in the new permit, a $3.0 million capital expenditure has been included in the System capital improvement plan for Fiscal Years 2013- 14 and 2014-15, and has been taken into account in connection with the preparation of the Projected Operating Results for that period. While the City does not believe that the discharge limits and other requirements for the White Slough Facility as set forth in the 2007 Permit will be significantly different in the new NPDES permit when it is issued, other than as described above, the City has not yet received draft permit conditions. There can be no assurances that the new permit, when issued, will not impose significant new and potentially more stringent conditions and requirements on the operations of the White Slough Facility, which could result in significant increases in capital and/or operating costs. See "RISK FACTORS — Permit Renewal" herein. Service Area and Customers The City provides wastewater collection and treatment to substantially all of the population of the City, representing an area of approximately 13.9 square miles in the City. The City ordinance does not allow wastewater service outside the City limits, except for wineries and other public wastewater service districts pursuant to contracts with the City. The System began providing wastewater treatment service by contract to San Joaquin County Service Area 31 (Flag City) beginning in Spring 2008. Pursuant to the contract, the City received a $250,000 one-time administrative fee, an estimated $6.5 million capacity fee and ongoing service charges. Service charges paid by County Service Area 31 accounted for approximately $140,000, or 1%, of fiscal year 2011-12 System Revenues. The System also provides service to the Van Ruiten Family Winery, which accounts for a minimum amount of System Revenues. 20 DOCSOC/1563394v 12/022245-0260 The table below shows the number of connections of the System by user type and service charge revenues by class of user. Table 2 City of Lodi Wastewater System Number of Connections by User Type as of June 30 and Percentage of Fiscal Year 2011-12 Service Charge Revenue by User Type % of FYI 1-12 Service Charge User Type 2008 2009 2010 2011 2012(1) Revenue Residential 22,277 22,277 21,974 21,956 21,895 72.3% Commercial/Industrial 1,847 1,815 1,768 1,785 1,805 27.7% Total All Users 24,124 24,042 23,742 23,741 23,700 100.0% Source: City of Lodi The table below shows the 10 largest users of the System based on service charge revenues for the Fiscal Year 2011-12. Table 3 City of Lodi Wastewater System Largest Users by Service Charge Revenues Fiscal Year 2011-12 (unaudited) User Cottage Bakery General Mills Lodi Unified School District City of Lodi Pacific Coast Producers Archer Daniels Midland. Miller Packing Lodi Memorial Hospital Blue Shield of California Armourstruxx Total Top 10 Users Total System Source: Lodi Public Works Department. Type of Business Specialty bakery, frozen dough Cereals,bread mixes, snack foods K-12, adult education Government Private label fruit canning Agricultural Processor Hot dog producer Health Care Health Insurance Armor Producer 21 DOCSOC/l563394v 12/022245-0260 Percentage of Service Total Annual Charge Service Charge Revenue Revenue $ 374,881 293,758 236,173 63,158 48,869 41,688 39,486 38,908 36,155 25,315 $ 1,198,391 $13,282,124 2.82 % 2.21 1.78 .48 .37 .31 .30 .29 .27 .19 9.02 % 100.00% Wastewater Rates and Charges The City has the power to establish rates and charges as needed to operate the System. The rates and charges are established by the City Council and are not subject to review or approval by any other agency. The City principally relies on service charges and capacity/connection fees. Service Charges. The City Council established charges for domestic system residential, commercial and industrial wastewater service in July, 2009, as follows: • Imposed a 25% system average rate increase over prior rates, effective July 16, 2009 • Authorized a second system average rate increase of 20% effective July 1, 2010 but imposed a 12% increase. • Authorized a third system average rate increase of 10% effective July 1, 2011 but imposed a 5% increase. • Authorized a fourth system average rate increase of 5% effective July 1, 2012 but imposed a 3% rate increase. • Authorized an Engineering News Record 20 -Cities Average Construct Cost Index adjustment to the fees effective July 13, 2013. Set forth below is a table showing the rates effective July 16, 2009, July 1, 2010, July 1, 2011 and July 1, 2012. The Projected Operating Results contained herein contemplate that rates will increase approximately 3% each year for Fiscal Years 2014-15 and 2015-16. Such rate increases would be subject to approval by the City Council and compliance with Proposition 218 requirements. 22 DOCSOC/1563394v 12/022245-0260 Table 4 City of Lodi Wastewater System Schedule of Wastewater Service Charges Moderate Strength (annual per Sewage Service Unit (SSU)) Service Charge Service Charge Service Charge Service Charge High Strength: (effective (effective (effective (effective For Residential Users (per month): July 16, 2009) July 1, 2010) July 1, 2011) July 1, 2012) 1 Bedroom $20.81 $23.30 $24.47 $25.20 2 Bedrooms 27.74 31.07 32.62 33.60 3 Bedrooms 34.68 38.84 40.78 42.00 4 Bedrooms 41.61 46.61 48.93 50.40 5 Bedrooms 48.55 54.37 57.09 58.80 6 Bedrooms 55.48 62.14 65.24 67.20 7 Bedrooms 62.42 69.91 73.40 75.60 Usage -Based Rates: n/a n/a n/a 22.95 Service Charge ($/month) n/a n/a n/a 2.61 Usage Charge ($/CCF)(') 2,218.78 2,485.03 2,609.28 2,687.56 BOD (per 1,000 lbs., annual basis) Service Charge Service Charge Service Charge Service Charge Winery Waste (per 1,000 gallons) (effective (effective (effective (effective For Commercial/Industrial Users: July 16, 2009) July 1, 2010) July 1, 2011) July 1, 2012) Moderate Strength (annual per Sewage Service Unit (SSU)) $332.88 $372.84 $391.44 $403.20 High Strength: Flow (annual per MG) 2,808.88 3,145.95 3,303.25 3,402.35 BOD (annual per 1,000 lbs.) 463.54 519.16 545.12 561.47 SS (annual per 1,000 lbs.) 289.83 324.61 340.84 351.07 Grease Interceptor/Septic Holding Tank Waste within City Limits (per 1,000 gal.) 245.44 274.89 288.63 297.29 Septic Holding Tank Waste outside City Limits (per 1,000 gal.) 521.03 583.55 612.73 631.11 Disposal to Storm Drain System (per MG) 257.80 288.74 303.18 312.28 Disposal to Industrial System Flow (per MG, annual basis) 2,218.78 2,485.03 2,609.28 2,687.56 BOD (per 1,000 lbs., annual basis) 20.34 22.78 23.92 24.64 Winery Waste (per 1,000 gallons) 248.53 278.35 292.27 301.04 (OWinter water usage determined as average monthly usage from December through February. There are separate charges applicable to the industrial system, which primarily apply to Pacific Coast Producers, the largest individually -monitored system user. No new users have been connected to the industrial system, except the Van Ruiten Family Winery, in several years and no new users are anticipated. The tables above include usage -based rates which are applicable to those customers which have water meters and which are used to determine the monthly wastewater service and usage charge. The City Council adopted usage based wastewater rates in 2010 that are annually calculated based upon the water usage during the prior winter months of December, January and February. In 23 DOCSOC/1 563 394v 12/022245-0260 July of each year, a new standard monthly charge is calculated based upon the winter usage and billed for the next 12 months. The Water Meter Program policy approved in 2009 established a process to transition single family residential customers from flat water and wastewater rates to usage -based water and wastewater rates. As of July 1, 2012, approximately 3,000 customers of the System were being charged usage -based rates. By July 1, 2013, an additional 3,950 customers will be charged usage -based rates The City expects that all single family residential customers will be transitioned to usage -based water and wastewater rates by January 2019. Prior to converting any customer to usage -based rates, the City provides the customer with actual water and wastewater r usage data and information regarding how the customer's bills may be affected with the change in billing. The new usage -based wastewater rate structure for single family customers includes a fixed service charge based on the size of the water meter, and a single -tier usage rate structure. Usage - based rates are expected to be revenue neutral, in the aggregate, with the prior rate structure. Capacity/Connection Fees. Capacity/connection fees are one-time only connection charges based on estimated annual usage (the City reviews large industrial users after connection to determine actual usage and, in some cases, adjusts the connection fee to reflect actual usage). Capacity/connection fees are collected at the time a building permit is granted. The capacity/connection fees were established for residential, commercial and industrial wastewater service in 2006 and are adjusted annually on July 1 based on the past annual change in the Engineering News Record 20 Cities Construction Cost Index. The current capacity/connection fees are identified in the following table: Table 5 Capacity/Connection Fees (as of July 1, 2012) Description Fees(') Moderate Strength Users Per Sewage Service Unit (SSU) $ 6,140 High Strength Users Flow (per million gallons (MG), annual basis) $46,799 BOD (per 1,000 lbs., annual basis) 12,120 SS (per 1,000 lbs., annual basis) 6,482 "' Includes 2% public art fee. Subject to annual adjustment on July 1 based on the past annual change in the Engineering News Record 20 Cities Construction Index. Source: City of Lodi. New residential development in the City is subject to a growth control ordinance that limits new residential development based on an increase in population of 2% per year. As a result, capacity connections fees have not historically constituted a significant portion of System Revenues. In Fiscal Year 2011-12, the City estimates that capacity/connection fees will constitute approximately 1% of System Revenues. 24 DOCSOC/1563394v 12/022245-0260 Collections. The City bills for water, wastewater, solid waste and electricity on the same bill. If a bill is unpaid, the City will terminate electric service to a customer within 46 days of initial billing after 48 hours notice. The annual delinquency rate has been less than 1% for the bulk of the preceding 10 fiscal years. The estimated delinquency rate for Fiscal Year 2011-12 is 0.7%. Comparison of Monthly Wastewater Service Charges of Selected Agencies. A comparison of wastewater service charges of selected agencies located in San Joaquin County for an average single-family home is set forth below. Table 6 Comparison of Monthly Wastewater Service Charges (as of July 1, 2012)(1) Agency Service Charge (Z) City of Galt $ 44.90 City of Manteca 43.30 City of Lodi 41.22 City of Tracy 34.23 City of Stockton 31.00 Average 38.93 (1) Rates shown are as of July 1, 2012. (2) For all agencies other than the City, based upon flat monthly rate charged to all single family residential customers. Rate for City reflects a fixed monthly service charge plus usage charge for median volume user. Source: City of Lodi. Planned Capital Improvements In April 2012, the City completed the final portion of significant capital improvements at the White Slough Treatment Facility that were financed with the proceeds of the 2007 Certificates. There are no planned capital improvement projects at the White Slough Facility due to long term service capabilities of the current facilities. As described herein in "Environment Compliance," the City anticipates that the new NPDES permit for the White Slough Facility may require the lining of the existing storage ponds, with an estimated cost of $3.0 million. The lining projects are scheduled for Fiscal Years 2013-14 and 2014- 15 in the Projected Operating Results. Funding for rehabilitative capital maintenance of the collection system was established via a City Council approved rate increase in October 2001. That action set aside $1 million per year for pipe lining and replacement See "Collection System" herein. Other capital maintenance improvements at White Slough and the 7 lift stations are included in the financial plan for the replacement and maintenance of equipment as it ages. Much of this capital maintenance activity is planned and scheduled through a computer-based asset management and maintenance program. In addition to the $1 million annual allocation for pipe lining and replacement, the annual planned expenditures range from $.7 million to $4.3 million over the next four years. 25 DOCSOC/1 563 394v 12/022245-0260 Financial Statements The audited Comprehensive Annual Financial Report for the City as of June 30, 2011 is included in Appendix B to this Official Statement. The Comprehensive Annual Financial Report includes all funds and accounts of the City, including the City's General Fund. The 2012 Installment Payments are special obligations of the City payable solely from the System Net Revenues, and are not payable from the City's General Fund. The Comprehensive Annual Financial Report has been audited by Macias, Gini & Company LLP, Sacramento, California, independent accountants (the "Independent Accountants") as stated in their report appearing in Appendix B. No review or investigation with respect to subsequent events has been undertaken in connection with such General Purpose Financial Statements by the Independent Accountants and the Independent Accountants have not been asked to consent to the City including the General Purpose Financial Statements in this Official Statement. Sale of Recycled Water The City is a party to (i) an Agreement to Supply Recycled Water dated March 22, 2010 (the "NCPA Recycled Water Agreement") with the Northern California Power Agency ("NCPA") and (ii) an Amended and Restated Ground Lease dated March 22, 2010 (the "NCPA Ground Lease"). The City owns certain real property adjacent to the White Slough Facility that it purchased prior to 1990. Under the NCPA Ground Lease, the City leases that real property (the "NCPA-Leased Property") to NCPA, and NCPA uses the NCPA-Leased Property for operation of a gas turbine power generation plant and ancillary uses. The term of the NCPA Ground Lease commenced on January 1, 1993 and continues for 50 years; NCPA has a right to extend the lease for another 50 years. In fiscal year 2010-11, the City received approximately $61,000 of rent from NCPA under the NCPA Ground Lease. Pursuant to the NCPA Recycled Water Agreement, the City supplies NCPA with recycled water and NCPA agrees to use recycled water to generate electricity or to irrigate landscaping associated with its generating facilities. NCPA pays (i) a base price per acre foot per year ("afy") for 1600 afy of recycled water, which NCPA pays for whether or not it uses it, (ii) 125% of the base price for any incremental quantity of recycled water greater than 1600 afy up to 1800 afy, and (iii) 150% of the base price for any incremental quantity of recycled water above 1800 afy; the base price increases 2.5% annually (subject to a 10 -year price review procedure). In fiscal year 2012-13, the City expects to receive $960,000 from NCPA under the NCPA Recycled Water Agreement. The term of the NCPA Recycled Water Agreement is tied to the term of the NCPA Ground Lease. The aggregate payments received by the City from NCPA under the two agreements do not exceed the fair rental value for the NCPA-Leased Property (which is not an asset of the System), and the recycled water provided to NCPA does not have any value (the transfer of recycled water to NCPA avoids the cost of alternative disposal methods). Consequently, the City deposits the payments it receives from NCPA under the NCPA Recycled Water Agreement and the NCPA Ground Lease in its general fund rather than the System Revenue Fund, as it would be required to do if the payments received from NCPA were System Revenues. No claim has been filed or threatened alleging that all or a portion of the payments received by the City from NCPA and deposited into the City's general fund are System Revenues. Although 26 DOCSOC/1563394v 12/022245-0260 the City believes that the payments received from NCPA may legally be deposited into its general fund, it cannot predict the outcome of any litigation of the issue. If a court were to conclude that all or a portion of the payments received by the City from NCPA were System Revenues, then the City would be obligated to deposit future such payments into the System Revenue Fund rather than the City's general fund, and, because the statute of limitations applicable to any such claim would be three years, the City could be obligated to reimburse the System Revenue Fund for any such payments for the preceding three years. The obligation to deposit all or a portion of the NCPA payments into the System Revenue Fund would obviously benefit the System. However, if the City were unable to reimburse the System Revenue Fund, the City could be obligated to rebate to System customers an amount equal to three years' of rates and charges attributable to the payments from NCPA that were held to be System Revenues. The City believes that any such obligation to reimburse System customers would not adversely impact its ability to make the Installment Payments when due. Historical Operating Results The following table sets forth historical revenues, expenses and debt service coverage of the System, based on the City's audited financial statements for fiscal years 2006-07 through 2010-11. The coverage ratios have been computed in accordance with the requirements of the Existing Parity Obligations, including the definitions of System Net Revenues and Operation and Maintenance Costs. Table 7 City of Lodi Wastewater System Historical Operating Results and Debt Service Coverage Fiscal Years 2006-07 through 2010-11 Operating Revenues Charges for Services Non -Operating Revenues Interest Income Rent Other(') Total System Revenues Operating Expenses Personnel services Supplies, Materials and services Utilities Total Operating Expenses System Net Revenues Parity Debt Service 1991 Installment Payments 2003 Installment Payments 2004 Installment Payments 2007 Installment Payments Total Parity Debt Service Debt Service Coverage Non -Operating Expenses Transfers (In)/Out(') DOCSOC/1563394v 12/022245-0260 2006-07 2007-08 2008-09 2009-10 2010-11 $ 8,523,530 $ 9,091,220 $ 9,276,217 $ 11,513,389 $ 13,089,679 922,153 836,862 428,586 298,337 220,600 176,202 165,931 221,422 259,618 435,935 838,007 472,578 3,198,194 $9,881,503 $10,529,948 $10,764,232 $12,284,304 $16,508,473 $2,289,035 $2,996,028 $2,984,049 $2,800,891 $3,257,618 2,314,233 2,394,804 2,067,646 2,532,246 1,955,464 683,669 798,652 869,129 847,167 758,934 $5,286,937 6 189 484 $5,920,824 $6,180,304 $5,972,016 $4,594,566 $4,340,464 $4,843,408 $6,104,000 $10,536,457 $800,755 $311,127 380,698 381,848 382,648 $382,733 $381,393 2,151,194 2,144,438 2,134,856 2,138,700 2,147,600 852,239 1,591,200 1,631,500 1,588,750 $3,332,647 $3,689,652 $4,108,704 $4,152,933 $4,117,743 1.38 1.18 1.17 1.47 2.56 $1,315,191 $575,326 $1,451,478 $1,451,478 $1,451,480 27 Total Non -Operating Expenses 1,315,191 575,326 1,451,478 1,451,478 1,451,480 Net Cashflow Before Capital Expenditures $ (53,372) $ 75,487 $ (716,744) $ 499,590 $ 4,967,234 (1) What does this consist of? In particular, explain $3.1 million in 2010-11. (2) Explain this line item. [ADD FOOTNOTES NOTED] Source: City of Lodi Financial Report Management's Discussion of Operating Results. The System is operated as a separate enterprise activity within the City government. This structure is essentially the same as for its water and electric utility enterprises. Functionally, the System is operated jointly with the water utility by the Water/Wastewater Division within the Department of Public Works. This arrangement is designed by the City to provide for improved efficiency in cross training and utilization of staff and in the purchase and use of equipment and facilities. In order to reflect increased debt service resulting from the issuance of the 2007 Certificates (which, as described herein, provided funding for significant treatment capacity upgrades at the White Slough Facility), from Fiscal Years 2008-09 through 2012-13, the City approved aggregate rate increase in excess of 45%. The Projected Operating Results assume modest rate increases of approximately 3% per year through the remainder of the projection period. The Wastewater Fund cash balance at June 30, 2012 is approximately $12.3 million. The Operating fund cash balance is approximately $6.3 million and significantly exceeds the reserve policy goal of 25% of operating expenses, which was established by the City Council as pa water rate model. The $12.3 million noted above also includes the Rate Stabilization Fund reserve of $500,000, $2.9 million set aside for capital improvements through the City Impact Mitigation Fee program and an additional $2.6 million designated for infrastructure replacement, but which could also be used for operations or debt service. Projected Operating Results and Debt Service Coverage The City's estimated projected operating results for the System for the Fiscal Years ending June 30, 2012 through 2016 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the City's estimate of projected financial results based upon its judgment of the probable occurrence of future events. The assumptions set forth in part in the footnotes to the chart set forth below are material in the development of the City's financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. The following table also sets forth debt service coverage ratios with respect to the 2012 Bonds and the Existing Parity Obligations. Such coverage ratios have been computed in accordance with the requirements of the 2012 Installment Purchase Agreement. 28 DOCSOC/1563394v 12/022245-0260 Table 8 City of Lodi Wastewater System Projected Operating Results and Debt Service Coverage Fiscal Years 2011-12 through 2015-16 Source: Revised City Budget estimates for Fiscal Year 2011-12 and adopted City Budget estimates for fiscal year 2012-13. City of Lodi provided revenue and expense projections for fiscal year 2013-14 through fiscal year 2015-16. THE AUTHORITY The Authority was created in July 2010 by a joint exercise of powers agreement, which was entered into between the City and Industrial Development Authority of the City of Lodi ("IDA"), pursuant to the provisions of the Act. Under the Joint Exercise of Powers Agreement, the Authority is a public entity, separate from the City and the IDA. The debts, liabilities and obligations of the Authority are not debts, liabilities and obligations of either the City or the IDA. The Authority is administered by a governing board consisting of the members of the Lodi City Council. 29 DOCSOC/1563394v 12/022245-0260 2011-12 2012-13 2013-14 2014-15 2015-16 Operating Revenues Charges for Services ��� $ 13,468,081 $ 13,873,500 $ 14,175,000 $ 14,629,000 $ 15,097,000 Non -Operating Revenues Interest Income (2) 47,540 177,040 97,000 105,000 103,000 Other(3) 186,671 160,000 176,000 181,500 187,000 Total System Revenues $13,702,292 $14,210,540 $14,448,000 $14,915,500 $15,387,000 Operating Expenses (4) Personnel services $3,525,721 $3,239,330 $3,346,000 $3,459,000 $3,577,000 Supplies, Materials and services 2,275,320 2,049,890 2,497,000 2,609,000 2,726,000 Utilities 857,350 707,400 671,000 701,000 732,000 Other (5) 643,500 398,500 128,800 132,300 135,800 Total Operating Expenses $7,301,891 $6,395,120 $6,642,800 $6,901,300 $7,170,800 System Net Revenues $6,400,401 $7,815,420 $7,805,200 $8,014,200 $8,216,200 Parity Debt Service 2003 Installment Payments 381,420 383,370 377,310 378,318 378,013 2004 Installment Payments 2,144,350 2,143,480 2,139,725 2,139,556 2,134,731 2007 Installment Payments 1,601,900 1,601,800 1,603,550 1,602,850 1,606,850 Total Parity Debt Service (6) $4,127,670 $4,128,650 $4,120,585 $4,120,724 $4,119,594 Debt Service Coverage 1.55 1.89 1.89 1.94 1.99 Non -Operating Expenses Transfers (In)/Out $1,451,480 $1,451,480 $1,451,480 $1,451,480 $1,451,480 Total Non -Operating Expenses $1,451,480 $1,451,480 $1,451,480 $1,451,480 $1,451,480 Net Cashflow Before Capital Expenditures $ 821,251 $ 2,235,290 $ 2,233,135 $ 2,441,996 $ 2,645,126 (1) Charges for services projected for fiscal year 2012-13 and thereafter to increase at annually by 3%. (2) Annual interest earnings projected at 1.5% in fiscal year 2011-12 and 1% thereafter times the projected average annual fund balance. (3) Includes Operating Grants, Sewer Tap Fees and Septic Dumping Charges. Sewer Tap Fees and Septic Dumping Charges projected at 3% annual growth rate estimate. (4) Excludes depreciation. Projected to increase annually at varying rates: personnel costs at 3.4%, utility costs at 4.5%, supplies and other at 4.5%, with variations for regulatory studies, etc. (5) Includes equipment, rebates, special payments/fees. In 2011-12, includes a one-time refund of $313,934 to Lodi Unified School District. (6) Does not reflecting refunding of the Refunded Certificates. Source: Revised City Budget estimates for Fiscal Year 2011-12 and adopted City Budget estimates for fiscal year 2012-13. City of Lodi provided revenue and expense projections for fiscal year 2013-14 through fiscal year 2015-16. THE AUTHORITY The Authority was created in July 2010 by a joint exercise of powers agreement, which was entered into between the City and Industrial Development Authority of the City of Lodi ("IDA"), pursuant to the provisions of the Act. Under the Joint Exercise of Powers Agreement, the Authority is a public entity, separate from the City and the IDA. The debts, liabilities and obligations of the Authority are not debts, liabilities and obligations of either the City or the IDA. The Authority is administered by a governing board consisting of the members of the Lodi City Council. 29 DOCSOC/1563394v 12/022245-0260 RISK FACTORS The following factors, which represent certain risk factors, should be considered along with all other information in this Official Statement by potential investors in evaluating the Series 2012 Bonds. The following is not intended to be an exhaustive list and there can be no assurance made that other risk factors do not currently exist or will not become evident at any future time. Rate Covenant Not a Guarantee The ability of the City to make the 2012 Installment Payments and thereby pay the principal of and interest on the Series 2012 Bonds depends on the ability of the City to generate System Net Revenues in the levels required by the 2012 Installment Purchase Agreement . Although, as more particularly described herein, the City expects that sufficient revenues will be generated through the imposition and collection of impact fees, service fees and other System Revenues described herein, there is no assurance that such imposition of impact fees, service fees, or other System Revenues will result in the generation of System Net Revenues in the amounts required by the 2012 Installment Purchase Agreement . As a result, the City's covenant does not constitute a guarantee that sufficient System Net Revenues will be available to make debt service payments on the 2012 Bonds. Statutory and Regulatory Impact Laws and regulations governing treatment and disposal of wastewater are enacted and promulgated by government agencies on the federal, state and local levels. Compliance with these laws and regulations may be extremely costly, and, as more stringent standards are developed to protect the environment, these costs will likely increase. See "THE SYSTEM - Environmental Compliance." Claims against the City for violations of regulations with respect to its facilities and services could be significant. Such claims are payable from assets of the System or from other legally available sources. Although the City has covenanted in the 2012 Installment Purchase Agreement to fix, prescribe and collect rates, fees and charges during each Fiscal Year at specified levels, no assurance can be given that the cost of compliance with such laws and regulations will not materially adversely affect the ability of the City to generate System Net Revenues in the amounts required by the 2012 Installment Purchase Agreement and to pay the 2012 Installment Payments. Certain potential increasing regulatory standards could materially increase the cost to the City of providing sewer services. Permit Renewal The 2007 Permit expires on September 1, 2012. Discussions with RWQCB staff indicate that draft permit conditions for the next permit will be issued in November or December 2012. While approval of a new NPDES permit is pending, the White Slough Facility may continue to operate under the requirements of the 2007 Permit until a new permit is adopted by the RWQCB. While the City does not believe that the discharge limits and other requirements for the White Slough Facility as set forth in the 2007 Permit will be significantly different in the new NPDES permit when it is issued, as described above, the City has not yet received draft permit conditions. There can be no assurances that the new permit, when issued, will not impose significant new and potentially more 30 DOCSOC/1563394v 12/022245-0260 stringent conditions and requirements on the operations of the White Slough Facility, which could result in significant increases in capital and/or operating costs. Earthquake, Flood or Other Natural Disasters The occurrence of an earthquake, flood or other natural disaster which resulted in the temporary or permanent closure of major components of the System or resulted in significantly increased costs could materially adversely affect the ability of the City to operate the System or to generate System Net Revenues at the levels required by the 2012 Installment Purchase Agreement. Flood. Based on revised flood risk evaluations prepared by the Federal Emergency Management Agency (FEMA) for the City of Lodi and San Joaquin County in 1987, flood hazards are a constraint to development only in the area immediately adjacent to the Mokelumne River in the 100 -year floodplain. The levee system along the Mokelumne River is of sufficient height to protect nearly all of the City from 100 -year floodflow, but the majority of the area is subject to overland flooding (sheet flow, generally less than two feet in depth) during the 500 -year flood event. Significant portions of the area are high enough to be free of the 500 -year hazard. The property on which the White Slough Facility sits within a 100 -year flood zone associated with the San Joaquin Delta. However, the White Slough Facility itself is constructed at or above the flood elevation. Projected Operating Results The Projected Operating Results included herein are based on certain assumptions and forecasts. Any forecast is subject to uncertainties. There will usually be differences between actual and forecast results because not all events and circumstances occur as expected, and those differences may be material. Accordingly, the Projected Operating Results are not necessarily indicative of future performance, and the City does not assume any responsibility for the failure to meet such projections. In addition, certain assumptions with respect to future business and financing decisions of the City are subject to change. No representation is made or intended, nor should any representation be inferred, with respect to the likely existence of any particular future set of facts or circumstances, and prospective purchasers of the 2012 Bonds are cautioned not to place undue reliance upon the Projected Operating Results. If actual results are less favorable than the results projected or if the assumptions used in preparing such projections prove to be incorrect, the amount of System Net Revenues may be materially less than expected and consequently, the ability of the City to make timely payment of the principal of and interest on the 2012 Bonds may be materially adversely affected. Neither the City's independent auditors, nor any other independent accountants have compiled, examined or performed any procedures with respect to the Projected Operating Results, nor have they expressed any opinion or any form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, Projected Operating Results, nor have they expressed any opinion or any form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, Projected Operating Results. 31 DOCSOC/1563394v 12/022245-0260 Limited Recourse on Default Failure by the City to make the 2012 Installment Payments, when due, constitutes an event of default under the 2012 Installment Purchase Agreement and the Authority is permitted to pursue remedies at law or in equity to enforce the City's obligation to make the 2012 Installment Payments. Although the Trustee, as assignee of the Authority, has the right to accelerate the total unpaid principal component of the 2012 Installment Payments, there is no assurance that the City will have sufficient System Net Revenues to pay the principal component of the 2012 Installment Payments upon acceleration. See also "Certain Limitations on the Ability of the City to Impose Taxes, Fees and Charges" below. Certain Limitations on the Ability of the City to Impose Taxes, Fees and Charges On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the "Right to Vote on Taxes Act" ("Proposition 218"). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes, assessments, fees and charges. Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996. "Fees" and "charges" are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID ("SB 919"). However, on July 24, 2006, the California Supreme Court ruled in Bighorn -Desert View Water Agency v. Virjil (Kelley) (the "Bighorn Decision") that charges for ongoing water delivery are property related fees and charges within the meaning of Article XIIID and are also fees or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. In the Bighorn Decision, the Supreme Court did state that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter -approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge. The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the 32 DOCSOC/1563394v 12/022245-0260 limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters within the service area of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges. Article XIIID defines a "fee" or "charge" as any levy other than an ad valorem tax, special tax, or assessment imposed upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property -related service. A "property -related service" is defined as "a public service having a direct relationship to a property ownership." In the Bighorn Decision, the California Supreme Court held that a public water agency's charges for ongoing water delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any property -related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, the local government's ability to increase such fee or charge may be limited by a majority protest. The City believes that it has complied with the applicable notice and protest procedures of Article XIIID for all increases in its rates and charges approved since the effective date of Article XIIID, and that the Bighorn decision will not require any changes in the procedures it has utilized. There has not been nor is there any pending challenge to any of the City's fees and charges approved since the effective date of Proposition 218. In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property -related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property -related fees or charges based on potential or future use of a service are not permitted. On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution by expanding the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, for performing investigations, inspections, and audits, for enforcing agricultural marketing orders, and for the administrative enforcement and adjudication thereof, (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; 33 DOCSOC/1563394v 12/022245-0260 (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property -related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bears a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. As of the date of this Official Statement, the City is unaware of any fees relating to the Sewer System that would have to be reduced or eliminated because of Proposition 26. Articles XIIIA, XIIIB, XIIIC and XIIID were adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiatives could be proposed and adopted affecting the City's revenues or ability to increase revenues. The City covenants in the 2012 Installment Purchase Agreement that it will, to the maximum extent permitted by law, fix, prescribe and collect rates, fees and charges and manage the operation of the System for each Fiscal Year so as to yield System Net Revenues during such Fiscal Year equal to at least 110% of the Annual Debt Service on all Parity Debt in such Fiscal Year; provided, an adjustment will be made to the amount of System Net Revenues for amounts deposited into or withdrawn from the Rate Stabilization Fund; provided that, for purposes of such calculation, the amount of System Net Revenues before any credits for transfers from the Rate Stabilization Fund to the System Revenue Fund may not be less than 100% of Annual Debt Service for such Fiscal Year. In the event that proposed increased service charges cannot be imposed as a result of a majority protest, such circumstances may adversely effect the ability of the System to generate revenues in the amounts required by the Installment Purchase Agreement, and to make 2012 Payments representing principal and interest with respect to the 2012 Bonds. Effect of Bankruptcy In addition to the limitations on remedies contained in the 2012 Installment Purchase Agreement and the Indenture, the rights and obligations under the Bonds, the Lease and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the 2012 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. 34 DOCSOC/1563394v 12/022245-0260 Loss of Tax Exemption The City has covenanted in the 2012 Installment Purchase Agreement, and the Authority has covenanted in the Indenture, that each will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest or the 2012 Bonds under Section 103 of the Internal Revenue Code of 1986. In the event either the City or the Authority fails to comply with the foregoing tax covenant, interest or the 2012 Bonds may be includable in the gross income of the Owners thereof for federal tax purposes. See "TAX MATTERS". Secondary Market There can be no guarantee that there will be a secondary market for the 2012 Bonds or, if a secondary market exists, that any 2012 Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then -prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the 2012 Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the 2012 Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the 2012 Bonds or obligations that present similar tax issues as the 2012 Bonds. TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. 35 DOCSOC/1563394v 12/022245-0260 Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. LITIGATION Litigation Concerning the 2012 Bonds. To the knowledge of the City, there is no controversy or litigation of any nature now pending or threatened restraining or enjoining the execution and delivery of the 2012 Bonds, the Indenture, the 2012 Installment Purchase Agreement or in any way contesting or affecting the validity of the 2012 Bonds or any proceedings of the City or the Authority taken with respect to the execution and delivery thereof. Prior Environmental Litigation Involving the City. The City of Lodi initiated litigation in 2000 to address PCE and TCE contamination that threatened the City's water supply. The litigation exposed the City to several economic risks associated with: 1) the costs of the litigation; 2) the financing of the litigation; and 3) the City's wastewater system because the PCE had been discharged by private parties to, and may have leaked from the City's wastewater collection system. The City has now fully resolved the environmental clean up litigation, and all of the associated litigation that 36 DOCSOC/1563394v 12/022245-0260 arose out of the economic risks referenced above. In exchange for money to fund the clean-up, the settlements require the City to perform the clean-up. The City estimates that its global unfunded liability for the contamination litigation is approximately $34.4 million, including a $15 million contingency. The City is paying the costs of the clean-up from revenues of the City's water system. The City raised its water rates an average of $10.50 per month in September of 2005 to meet this liability and the City believes that the revenues generated from this rate increase will fully fund the City's clean-up costs. The City does not expect that any funds from the System will be used for the costs relating to the clean-up. APPROVAL OF LEGALITY The 2012 Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California. Payment of the fees and expenses of Bond Counsel and Underwriters' Counsel is contingent upon execution and delivery of the 2012 Bonds. FINANCIAL STATEMENTS Macias, Gini & O'Connell, Certified Public Accountants (the "Auditor"), audited the financial statements of the City for the Fiscal Year ended June 30, 2011. The Auditor's examination was made in accordance with generally accepted auditing standards and Governmental Auditing Standards, issued by the Comptroller General of the United States. See "APPENDIX B — Audited Financial Statements of the City for Fiscal Year Ended June 30, 2011." The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post -audit review of the financial condition or operations of the City. RATINGS Standard & Poor's and Fitch are expected to assign the 2012 Bonds the long-term ratings of and "_", respectively, by Standard & Poor's and Fitch. The ratings reflect only the respective views of the rating agencies, and any explanation of the significance of such ratings may be obtained only from such rating agencies as follows: Standard & Poor's, 55 Water Street, 38th Floor, New York, New York 10041; and Fitch Ratings, One State Street Plaza, New York, New York 10004. There is no assurance that the ratings will remain in effect for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, or either of them, if, in their respective judgments, circumstances so warrant. The City undertakes no responsibility to oppose any such revisions or withdrawal. Any downward revision or withdrawal of any rating may have an adverse effect on the market price of the 2012 Bonds. 37 DOCSOC/1563394v 12/022245-0260 CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the 2012 Bonds to provide certain financial information and operating data relating to the City by not later than 210 days after the end of each fiscal year of the City (currently June 30th), commencing with the report for the 2011-12 fiscal year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. Such reports are required to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system ("EMMA"). The specific nature of the information to be contained in the Annual Report or the notices of material events is described in "APPENDIX D— Form of Continuing Disclosure Agreement," attached to this Official Statement. These covenants have been made in order to assist the underwriters of the 2012 Bonds in complying with Securities Exchange Commission Rule 15c2 12(b)(5). The City has entered into a number of continuing disclosure undertakings in connection with City obligations, including obligations payable from the City's General Fund, as well as obligations payable from the revenues relating to the City's electric, wastewater and water utilities. During the past five years, the City has prepared continuing disclosure reports pursuant to these undertakings and transmitted such reports to its dissemination agent in December following City Council receipt of the Comprehensive Annual Financial Report. However, the reports generally were filed on EMMA after the date required, and frequently certain of the reports were not filed so as to be linked on EMMA with all of the CUSIP numbers for the respective City obligations to which such reports related. Upon discovery of these issues in connection with the preparation of documentation with respect to the Bonds, the City corrected the filings on EMMA (so that the appropriate reports are "linked" on EMMA to the City obligations to which they relate). The City also will confirm that the dissemination agent files timely reports in the future. FINANCIAL ADVISOR Lamont Financial Services Corp. (the "Financial Advisor") has assisted the City with various matters relating to the planning, structuring and delivery of the 2012 Bonds. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Financial Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Financial Advisor will receive compensation from the City contingent upon the sale and delivery of the 2012 Bonds. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the 2012 Bonds at a price of $ , representing the aggregate principal amount of the 2012 Bonds plus $ net original issue premium and less $ Underwriters' discount). The Purchase Contract for the 2012 Bonds provides that the Underwriters will purchase all the 2012 Bonds, if any are purchased. The 2012 Bonds may be offered and sold by the Underwriters to certain dealers and others at prices lower than the public offering price stated on the inside cover page of this Official Statement, and such public offering price may be changed, from time to time, by the Underwriters. J.P. Morgan Securities LLC ("JPMS") provided the information contained in this paragraph for inclusion in this Official Statement and the City does not take any responsibility for or make any 38 DOCSOC/1563394v 12/022245-0260 representation as to its accuracy or completeness. JPMS, one of the underwriters of the 2012 Bonds, has entered into negotiated dealer agreements (each, a "Dealer Agreement") with each of UBS Financial Services Inc. ("UBSFS") and Charles Schwab & Co., Inc. ("CS&Co.") for the retail distribution of ertain securities offerings, including the 2012 Bonds, at the original issue prices. Pursuant to each Dealer Agreement, each of UBSFS and CS&Co. will purchase the 2012 Bonds from JPMS at the original issue prices less a negotiated portion of the selling concession applicable to any 2012 Bonds that such firm sells. VERIFICATION OF MATHEMATICAL COMPUTATIONS Upon delivery of the 2012 Bonds, [[Causey Demgen & Moore Inc.]], independent certified public accountants, will deliver a report stating that the firm has verified the mathematical accuracy of certain computations relating to the adequacy of the amounts deposited pursuant to the Escrow Agreement to pay the applicable redemption price of and accrued interest on, the Refunded Certificates on their respective payment and redemption dates. 39 DOCSOC/1563394v 12/022245-0260 EXECUTION AND DELIVERY The execution and delivery of this Official Statement have been authorized by the Board of Directors of the Authority and the City Council of the City. LODI PUBLIC FINANCING AUTHORITY M. Executive Director CITY OF LODI City Manager 40 DOCSOC/1563394v 12/022245-0260 APPENDIX A THE CITY OF LODI A-1 DOCSOC/1563394v 12/022245-0260 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2011 B-1 DOCSOC/1563394v 12/022245-0260 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS C-1 DOCSOC/1563394v 12/022245-0260 APPENDIX D FORM OF OPINION OF BOND COUNSEL D-1 DOCSOC/1563394v 12/022245-0260 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT E-1 DOCSOC/1563394v 12/022245-0260 APPENDIX F DTC AND THE BOOK -ENTRY ONLY SYSTEM F-1 DOCSOC/1563394v 12/022245-0260 RESOLUTION NO. 2012-125 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LODI APPROVING DOCUMENTS AND ACTIONS RELATING TO THE REFINANCING OF 2002 CERTIFICATES OF PARTICIPATION ------------------------------------------------------------------ ------------------------------------------------------------------ WHEREAS, the City of Lodi (the "City") has previously entered into a Trust Agreement dated as of January 1, 2002, with the Lodi Public Improvement Corporation and U.S. Bank National Association, as successor trustee, under which $26,745,000 aggregate principal amount of Certificates of Participation (2002 Public Improvement Financing Project) (the "2002 Certificates") were executed and delivered for the purpose of financing and refinancing various municipal facilities of the City; and WHEREAS, in order to take advantage of prevailing bond market conditions, the City Council wishes to authorize the refinancing of the 2002 Certificates; and WHEREAS, to that end, the City has proposed to lease the real property constituting its new police building and Carnegie Forum, including land and improvements (the "Leased Property") to the Lodi Public Financing Authority (the "Authority") in consideration of the payment by the Authority of an upfront rental payment which is sufficient to provide funds to refinance the 2002 Certificates; and WHEREAS, in order to raise funds for such purpose, the Authority proposes to issue and sell its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of not to exceed $20,000,000 (the "Refunding Bonds") under Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Law"); and WHEREAS, in order to secure the payments of principal of and interest on the Refunding Bonds, the Authority proposes to lease the Leased Property back to the City under a Lease Agreement (the "Lease Agreement"), under which the City is obligated to pay semiannual lease payments as rental for the Leased Property, and the Authority will assign substantially all of its rights under the Lease Agreement to U.S. Bank National Association, as trustee for the Refunding Bonds; and WHEREAS, the City Council wishes at this time to approve all proceedings to which it is a party relating to the issuance and sale of the Refunding Bonds and the refinancing of the 2002 Certificates. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as follows: SECTION 1. Issuance of Refunding Bonds. The City Council hereby approves the issuance of the Refunding Bonds by the Authority under the Bond Law in the maximum principal amount of $20,000,000 for the purpose of providing funds to refinance the 2002 Certificates. SECTION 2. Approval of Related Financing Agreements. The City Council hereby approves each of the following agreements required for the issuance and sale of the Refunding Bonds and the refinancing of the 2002 Certificates, in substantially the respective forms on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the City Manager, the Deputy City Manager/internal Services Director or the City Attorney (each, an "Authorized Officer"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. An Authorized Officer is hereby authorized and directed for and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of each such agreement, as follows: • Site Lease, between the City as lessor and the Authority as lessee, under which the City leases the Leased Property to the Authority in consideration of the payment of an amount which will be applied by the City to refinance the 2002 Certificates. • Lease Agreement, between the Authority as lessor and the City as lessee, under which the Authority leases the Leased Property back to the City and the City agrees to pay semiannual lease payments which are sufficient to provide revenues with which to pay principal of and interest on the Refunding Bonds when due; and • Escrow Deposit and Trust Agreement, between the City and the successor trustee for the 2002 Certificates, providing the deposit, investment and application of funds to refinancethe 2002 Certificates. • Continuins Disclosure Certificate, to be executed by the City. SECTION 3. Negotiated Sale of Refunding Bonds. The City Council hereby approves the negotiated sale of the Refunding Bonds by the Authority to JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter'). The Refunding Bonds shall be sold pursuant to the terms and provisions of a Bond Purchase Agreement among the Authority, the City and the Underwriter in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by an Authorized Officer. The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal amount of the outstanding 2002 Certificates, as such savings shall be verified and conclusively determined by the City's Financial Advisor (the "Minimum Savings Requirement").The Underwriter's discount shall not exceed 1.0%. SECTION 4. Official Statement. The City Council hereby approves the preliminary Official Statement describing the Refunding Bonds in substantially the form on file with the City Clerk. The City Manager is hereby authorized and directed to approve any changes in or additions to said preliminary Official Statement and to execute an appropriate certificate stating the City Manager's determination that the preliminary Official Statement (together with any changes therein or additions thereto) has been deemed nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934. Distribution cf the preliminary Official Statement by the Underwriter is hereby approved. The City Manager is hereby authorized and directed to approve any changes in or additions to a final form of said Official Statement, and the execution thereof by the City Manager shall be conclusive evidence of approval of any such changes and additions. The City Council hereby authorizes the distribution of the final Official Statement by the Underwriter. The final Official Statement shall be executed on behalf of the City by the City Manager. -2- SECTION 5. Official Actions. The Mayor, the Deputy City Manager/Internal Services Director, the City Attorney, the City Clerk and all other officers of the City are each authorized and directed on behalf of the City to make any and all leases, assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance or termination, warrants and other documents, which they or any of them deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution. An Authorized Officer may revise the identity of the Leased Property as necessary in order to accomplish the purposes of this Resolution. Whenever in this Resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. SECTION 6. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: August 1, 2012 (�L Mayor hereby certify that Resolution No. 2012-125 was passed and adopted by the City Council of the City of Lodi in a regular/special joint meeting held August 1, 2012, by the following vote: AYES: NOES: ABSENT: ABSTAIN COUNCIL MEMBERS — Hansen, Johnson, Katzakian, Nakanishi, and Mayor Mounce COUNCIL MEMBERS — None COUNCIL MEMBERS — None COUNCIL MEMBERS — None 2012-125 -3- RANDIJOHL City Clerk RESOLUTION NO. LPFA2012-01 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LODI PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE AND SALE OF 2012 REFUNDING LEASE REVENUE BONDS TO REFINANCE OUTSTANDING 2002 CERTIFICATES OF PARTICIPATION, AND APPROVING RELATED DOCUMENTS AND OFFICIAL ACTIONS ------------------------------------------------------------------ ------------------------------------------------------------------ WHEREAS, the City of Lodi (the "City") has previously entered into a Trust Agreement dated as of January 1, 2002, with the Lodi Public Improvement Corporation and BNY Western Trust Company, as successor trustee, under which $26,745,000 aggregate principal amount of Certificates of Participation (2002 Public Improvement Financing Project) (the "2002 certificates") were executed and delivered for the purpose of financing and refinancing various municipal facilities of the City; and WHEREAS, in order to take advantage of prevailing bond market conditions, the City Council wishes to authorize the refinancing of the 2002 Certificates; and WHEREAS, to that end, the City has proposed to lease the real property constituting its new police building and Carnegie Forum, including land and improvements (the "Leased Property") to the Lodi Public Financing Authority (the "Authority") in consideration of the payment by the Authority of an upfront rental payment which is sufficient to provide funds to refinance the 2002 Certificates; and WHEREAS, in order to raise funds for such purpose, the Authority proposes to issue and sell its Lodi Public Financing Authority 2012 Refunding Lease Revenue Bonds in the aggregate principal amount of not to exceed $20,000,000 (the "Refunding Bonds") under Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Law"); and WHEREAS, in order to secure the payments of principal of and interest on the Refunding Bonds, the Authority proposes to lease the Leased Property back to the City under a Lease Agreement (the "Lease Agreement"), under which the City is obligated to pay semiannual lease payments as rental for the Leased Property, and the Authority will assign substantially all of its rights under the Lease Agreement to U.S. Bank National Association, as trustee for the Refunding Bonds; and WHEREAS, the Board of Directors wishes at this time to approve all proceedings to which it is a party relating to the issuance and sale of the Refunding Bonds and assist the City in the refinancing of the 2002 Certificates. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi Public Financing Authority as follows: SECTION 1. Issuance of Refunding Bonds. The Board of Directors hereby authorizes the issuance of the Refunding Bonds under the Bond Law in the maximum principal amount of $20,000,000 for the purpose of providing funds to refinance the 2002 Certificates. The Refunding Bonds shall be issued under the Bond Law and the Indentureof Trust that is approved below. SECTION 2. Approval of Related Financing Agreements. The Board of Directors hereby approves each of the following agreements required for the issuance and sale of the Refunding Bonds and the refinancing of the 2002 Certificates, in substantially the respective forms on file with the Secretary together with any changes therein or additions thereto deemed advisable by the Executive Director, the Treasurer or the General Counsel (each, an "Authorized Officer"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. An Authorized Officer is hereby authorized and directed for and on behalf of the Authority to execute, and the Secretary is hereby authorized and directed to attest, the final form of each such agreement, as follows: • Indenture of Trust, between the Authority and U.S. Bank National Association, as trustee (the "Trustee"), setting forth the terms and provisions relating to the Refunding Bonds. • Site Lease, between the City as lessor and the Authority as lessee, under which the City leases the Leased Property to the Authority in consideration of the payment of an amount which will be applied by the City to refinance the 2002 Certificates. • Lease Agreement, between the Authority as lessor and the City as lessee, under which the Authority leases the Leased Property back to the City and the City agrees to pay semiannual lease payments which are sufficient to provide revenues with which to pay principal of and interest on the Refunding Bonds when due; and • Assignment Agreement, between the Authority and the Trustee, whereby the Authority assigns certain of its rights under the Lease Agreement to the Trustee for the benefit of the Refunding Bond owners. SECTION 3. Negotiated Sale of Refunding Bonds. The Board of Directors hereby authorizes and directs the negotiated sale of the Refunding Bonds to JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter'). The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal amount of the outstanding 2002 Certificates, as such savings shall be verified and conclusively determined by the City's Financial Advisor (the "Minimum Savings Requirement"). The Underwriter's discount shall not exceed 1.0%. SECTION 4. Official Statement. The Board of Directors hereby approves the preliminary Official Statement describing the Refunding Bonds in substantially the form on file with the Secretary. The Executive Director is hereby authorized and directed to approve any changes in or additions to said preliminary Official Statement and to execute an appropriate certificate stating the Executive Director's determination that the preliminary Official Statement (together with any changes therein or additions thereto) has been deemed nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934. Distribution of the preliminary Official Statement by the Underwriter is hereby approved. The Executive Director is hereby authorized and directed to approve any changes in or additions to a final form of said Official Statement, and the execution thereof by the Executive Director shall be conclusive evidence of -2- approval of any such changes and additions. The Board of Directors hereby authorizes the distribution of the final Official Statement by the Underwriter. The final Official Statement shall be executed on behalf of the Authority by the Executive Director. SECTION 5. Official Actions. The Chair, the Executive Director, the Treasurer, the General Counsel, the Secretary and all other officers of the Authority are each authorized and directed on behalf of the Authority to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance and other documents, which they or any of them deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution. An Authorized Officer may revise the identity of the Leased Property as necessary in order to accomplish the purposes of this Resolution. Whenever in this resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf if such officer is absent or unavailable. SECTION 6. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: August 1, 2012 hereby certify that Resolution No. LPFA2012-01 was passed and adopted by the Board of Directors of the Lodi Public Financing Authority in a regular/special joint meeting held August 1, 2012, by the following vote: AYES: BOARD MEMBERS — Hansen, Johnson, Katzakian, Nakanishi, and Chairperson Mounce NOES: BOARD MEMBERS — None ABSENT: BOARD MEMBERS— None ABSTAIN: BOARD MEMBERS — None RA JOHL Secretary LPFA2012-01 -3- RESOLUTION NO. 2012-126 A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING DOCUMENTSAND OFFICIALACTIONS RELATING TO THE REFINANCING OF AN OUTSTANDING INSTALLMENT PAYMENT OBLIGATION OF THE CITY OF LODI RELATING TO ITS WASTEWATER SYSTEM AND THE ISSUANCEAND SALE OF REFUNDING WASTEWATER REVENUE BONDS BY THE LODI PUBLIC FINANCING AUTHORITY ------------------------------------------------------------------------ ------------------------------------------------------------------------ WHEREAS, the City of Lodi (the "City") owns and operates facilities and property for the collection, treatment, and disposal of wastewater within the service area of the City (the "System"); and WHEREAS, the City previously entered into an Installment Purchase Agreement, dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments"), and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement, dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions, betterments, extensions, replacements, and improvements to the System (the "2004 Project"); and WHEREAS, under current economic conditions, it is possible for the City to refinance the 2004 Installment Payments and achieve savings for the benefit of the customers of the System; and WHEREAS, the debt service reserve fund for the 2004 Certificates was invested in an Investment Agreement with FSA Capital Management Services LLC, which currently pays the City an interest rate of 5.455°/x, and staff has concluded that, unless circumstances change, it is beneficialto the City to leavethe Investment Agreement outstanding at this time; and WHEREAS, in order to leave the Investment Agreement outstanding, the City must leave the final maturity of the 2004 Certificates (which matures October 1, 2024) outstanding; and WHEREAS, in order to provide funds to refinance the 2004 Installment Payments, the Authority proposes to issue its 2012 Refunding Wastewater Revenue Bonds (the "Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the "Bond Law"); and WHEREAS, in order to provide revenues which are sufficient to pay debt service on the Bonds, the City proposes to sell the 2004 Project to the Authority and the Authority proposes to sell the 2004 Project back to the City under an Installment Purchase Agreement, with the purchase price to be paid by the City in semiannual installments during the term of the Bonds; and WHEREAS, the obligations of the City under the proposed Installment Purchase Agreement will be secured by a pledge of and lien on the net revenues of the System, on a parity with a pledge of and lien on the net revenues securing a 2003 installment payment obligation, a 2007 installment payment obligation and the 2004 Installment Payments corresponding to the 2004 Certificates maturing on October 1, 2024; and WHEREAS, the City Council wishes at this time to take action approving such financing transactions and all related documents and actions. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as follows: Section 1. Approval of Refinancing Plan; Authorization of Bonds. The City Council hereby approves the refinancing plan described in the recitals of this Resolution. To that end, the City Council hereby approves the issuance of the Bonds by the Authority under the Bond Law in the aggregate principal amount of not to exceed $22,000,000. Section 2. Approval of Installment Purchase Agreement. The City Council hereby approves the Installment Purchase Agreement between the Authority and the City, underwhich the City agrees to sell the 2004 Project to the Authority and the Authority agrees to sell the 2004 Project back to the City for a purchase price to be paid in semiannual installment payments. As provided in the Installment Purchase Agreement, the installment payments thereunder shall be payable from and secured by a pledge of and lien on the net revenues of the System on a parity with a pledge of and lien on the net revenues securing a 2003 installment payment obligation and a 2007 installment payment obligation. The Installment Purchase Agreement is hereby approved in substantial lythe form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the City Manager, the Deputy City Manager/Internal Services Director or the City Attorney (each, an "Authorized Officer"). An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of the Installment Purchase Agreement, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 3. Approval of Escrow Deposit and Agreement. The City Council hereby approves an Escrow Deposit and Trust Agreement between the City and the 2004 Trustee, as escrow bank, providing for the deposit, investment and application of funds to refinance the 2004 Installment Payments and defease and prepay the 2004 Certificates. The City Council authorizes the City Manager to determine whether it is in the best interests of the City to refinance all of the 2004 Installment Payments or to leave the 2004 Installment Payments corresponding to the final maturity of the 2004 Certificates outstanding. The Escrow Deposit and Trust Agreement is hereby approved in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by an Authorized Officer. An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of the Escrow Deposit and Trust Agreement, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 4. Sale of Bonds; Approval of Bond Purchase Agreement. The City Council hereby approves the negotiated sale of the Bonds by the Authority to JP Morgan and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter'). The Bonds shall be sold pursuant to the terms and provisions of a Bond Purchase Agreement among the Authority, the City and the Underwriter in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by an Authorized Officer. The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal component of the outstanding 2004 Installment Payments being refinanced, as such savings shall be verified and conclusively determined by the City's financial advisor (the "Minimum Savings Requirement"). The Underwriter's discount shall not 62 exceed 1.0%. The final form of the Bond Purchase Agreement shall be executed in the name and on behalf of the City by an Authorized Officer. Section 5. Official Statement; Continuing Disclosure Certificate. The City Council hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the Preliminary Official Statement describing the Bonds in the form on file with the City Clerk, together with such modifications thereof as may be approved by an Authorized Officer. An Authorized Officer is hereby authorized and directed to (a) execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official Statement to be nearly final as of its date within the meaning of such Rule, (b) approve any changes in or additions to cause the Official Statement to be put in final form, and (c) execute the final Official Statement for and in the name and on behalf of the City. The City Council hereby authorizes the distribution of the Preliminary Official Statement and the Final Official Statement by the Underwriter. The City Council hereby approves execution by an Authorized Officer of a Continuing Disclosure Certificate in substantially the form attached as an appendix to the Preliminary Official Statement. Section 6. Official Actions. The Mayor, the City Manager, the Deputy City Manager/Internal Services Director, the City Clerk, the City Attorney and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution, including any documentation relating to municipal bond insurance if an Authorized Officer concludes, after consultation with the City's bond counsel, the City's financial advisor and the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in this Resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in case such officer is absent or unavailable. Section 7. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: August 1, 2012 ayor ___________________--- ----------- I I hereby certify that Resolution No. 2012-126 was passed and adopted by the City Council of the City of Lodi in a regular/special joint meeting held August 1, 2012, by the following vote: AYES: NOES: ABSENT: ABSTAIN: COUNCIL MEMBERS— Hansen, Johnson, Katzakian, Nakanishi, and Mayor Mounce COUNCIL MEMBERS— None COUNCIL MEMBERS— None COUNCIL MEMBERS— None 2012-126 -3- f'MMJOHL City Clerk RESOLUTION NO. LPFA2012-02 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LODI PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCEAND SALE OF REFUNDING WASTEWATER REVENUE BONDS TO REFINANCEAN INSTALLMENT PAYMENT OBLIGATION OF THE CITY OF LODI, AND APPROVING RELATED DOCUMENTS AND OFFICIALACTIONS ------------------------------------------------------------------ .................................................................. WHEREAS, the City of Lodi (the `City") owns and operates facilities and property for the collection, treatment and disposal of wastewater within the service area of the City (the "System"); and WHEREAS, the City previously entered into an Installment Purchase Agreement: dated as of May 1, 2004 (the "2004 Installment Purchase Agreement") with the Lodi Public Improvement Corporation (the "Corporation"), pursuant to which the City agreed to make certain installment payments in the aggregate principal amount of $27,360,000 (the "2004 Installment Payments"), and caused execution and delivery of Wastewater System Revenue Certificates of Participation, 2004 Series A (the "2004 Certificates"), pursuant to a Trust Agreement: dated as of May 1, 2004 (the "2004 Trust Agreement"), between the Corporation and Union Bank, N.A., as successor trustee (the "2004 Trustee"), all for the purpose of financing certain additions: betterments, extensions, replacements and improvements to the System (the "2004 Project"); and WHEREAS, under current economic conditions, it is possible for the City to refinance the 2004 Installment Payments and achieve savings for the benefit of the customers of the System; and WHEREAS, the debt service reserve fund for the 2004 Certificates was invested in an Investment Agreement with FSA Capital Management Services LLC, which currently pays the City an interest rate of 5.455%, and staff has concluded that, unless circumstances change, it is beneficial to the City to leave the Investment Agreement outstanding at this time; and WHEREAS, in order to leave the Investment Agreement outstanding, the City must leave the final maturity of the 2004 Certificates (which matures October 1, 2024) outstanding; and WHEREAS, in order to provide funds to refinance the 2004 Installment Payments: the Authority proposes to issue its 2012 Refunding Wastewater Revenue Bonds (the "Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California: commencing with Section 6584 of said Code (the "Bond Law"); and WHEREAS, in order to provide revenues which are sufficient to pay debt service on the Bonds, the City proposes to sell the 2004 Project to the Authority and the Authority proposes to sell the 2004 Project back to the City under an Installment Purchase Agreement, with the purchase price to be paid by the City in semiannual installments during the term of the Bonds; and WHEREAS, the Authority proposes to sell the Bonds on a negotiated basis to JP Morgan Securities LLC and Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus (collectively, the "Underwriter"); and WHEREAS, the Board of Directors of the Authority wishes at this time to take action approving such financing transactions and all related documents and actions. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi Public Financing Authority as follows: Section 1. Approval of Refinancing Plan; Authorization of Bonds. The Board of Directors hereby approves the refinancing plan described in the recitals of this Resolution. To that end, the Board of Directors hereby authorizes the issuance of the Bonds under the Bond Law in the aggregate principal amount of not to exceed $20,000,000. Section 2. Approval of Related Financing Agreements. The Board of Directors hereby approves each of the following agreements required to implement the financing plan to be accomplished by the Bonds, in substantially the respective forms on file with the Secretary together with any changes therein or additions thereto deemed advisable by the Executive Director, the Treasurer or the General Counsel (each, an "Authorized Officer"), and the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such changes or additions. (a) Indenture of Trust between the Authority and Union Bank, N.A., as trustee, prescribing the terms and conditions upon which the Bonds will be issued. (b) Installment Purchase Agreement between the Authority and the City, under which the City agrees to sell the 2004 Project to the Authority and the Authority agrees to sell the 2004 Project back to the City in consideration of semiannual installment payments. (c) Bond Purchase Agreement among the Authority, the City and the Underwriter, under which the Underwriter agrees to purchase the Bonds from the Authority. An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the Authority to execute, and the Secretary is hereby authorized and directed to attest the final form of each of the foregoing agreements, and such execution shall be conclusive evidence of the approval of the final form thereof. Section 3. Sale of Bonds. The Board of Directors hereby approves the negotiated sale of the Bonds to the Underwriter. The Bonds shall be sold upon the terms and conditions set forth in the Bond Purchase Agreement that is approved under Section 2. The Refunding Bonds shall be sold at such price and shall bear interest at such rates as shall produce a minimum net present value savings to the City of at least 3% of the principal component of the outstanding 2004 Installment Payments to be refinanced, as such savings shall be verified and conclusively determined by the City's financial advisor (the "Minimum Savings Requirement"). The Underwriter's discount shall not exceed 1.0%. The final form of the Bond Purchase Agreement shall be executed in the name and on behalf of the Authority by an Authorized Officer. N Section 4. Official Statement. The Board of Directors hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the Preliminary Official Statement describing the Bonds in the form on file with the Secretary, together with such modifications thereof as may be approved by an Authorized Officer. An Authorized Officer is hereby authorized and directed to (a) execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official Statement to be nearly final as of its date within the meaning of such Rule, (b) approve any changes in or additions to cause the Official Statement to be put in final form, and (c) execute the Final Official Statement for and in the name and on behalf of the Authority. The Board of Directors hereby authorizes the distribution of the Preliminary Official Statement and the Final Official Statement by the Underwriter. Section 5. Official Actions. The Chair, the Executive Director, the Treasurer, the Secretary, the General Counsel and all other officers of the Authority are each authorized and directed in the name and on behalf of the Authority to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution, including any documentation relating to municipal bond insurance if an Authorized Officer concludes, after consultation with the Authority's bond counsel, the Authority's financial advisor and the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in this Resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. Section 6. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: August 1, 2012 ------------------------------------------------------------------ ------------------------------------------------------------------ hereby certify that Resolution No. LPFA2012-02 was passed and adopted by the Board of Directors of the Lodi Public Financing Authority in a regular/special joint meeting held August 1, 2012, by the following vote: AYES: BOARD MEMBERS— Hansen, Johnson, Katzakian, Nakanishi, and Chairperson Mounce NOES: BOARD MEMBERS— None ABSENT: BOARD MEMBERS— None ABSTAIN: BOARD MEMBERS —N L Secretary LPFA2012-02 -3- Refinancing Opportunities City Council Meeting August 1, 2012 Bonds to Refinance ■ General Fund 0 2002 Certificates of Participation ■ $21,025,000 outstanding ■ Refund all ■ Wastewater Fund 2004 Certificates of Participation ■ $20,330,000 outstanding ■ Refund $18,260,000 ■ Keep final maturity (2024) outstanding ❑ Secured by Guaranteed Investment Contract IM Proposed Refunding -GF COPS ■ Estimated savings - $1.96 million o Structure to capture savings over first 5 years o Use savings to fund replacement of Fire Station 2 3 Proposed Refunding—WW COPS ■ Estimated savings - $1.2 million o Structure for level savings over remaining life of bonds M Requested Action ■ Adopt resolutions of the City Council and the Lodi Public Financing Authority to approve refinancing of the 2002 General Fund COPS and 2004 Wastewater COPS Questions?