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2023-08-15 Council and Public Financing Authority authorization of Lease Revenue Bond issuance for Cultural Arts District Parking Structure
City of San Luis Obispo, Council Memorandum City of San Luis Obispo Council Agenda Correspondence DATE: August 15, 2023 TO: Mayor and Council FROM: Emily Jackson, Finance Director VIA: Derek Johnson, City Manager SUBJECT: ITEM 6B - APPROVING THE SALE OF LEASE REVENUE BONDS, SERIES 2023 (CULTURAL ARTS DISTRICT PARKING PROJECT) IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $50,000,000, EXECUTION OF BOND DOCUMENTS AND RELATED ACTIONS After finalizing the Council Agenda Report for this item, staff received formal notification that S&P Global Ratings had assigned a rating of ‘AA’ for the 2023 Series Lease Revenue Bonds for the Cultural Arts Parking Project. As a part of this report, S&P Global Ratings also affirmed its ‘AA+’ issue credit rating on the City and its ‘AA’ long -term rating on the City’s lease revenue bonds outstanding. S&P Global Ratings’ report notes that the outlook for the ratings is stable. A ‘AA’ rating indicates a very strong capacity to meet financial commitments. The report from S&P is attached to this correspondence an d provides the rationale supporting the rating. In addition, staff noted an error in the Council Agenda Report after it was published. The Agenda Report notes that the underwriter’s discount will not exceed 4% of the par amount of the bonds (shown below). The 4% should be revised to 0.4%. ATTACHMENT S&P Global Ratings Report Summary: San Luis Obispo Public Finance Authority San Luis Obispo, California; Appropriations; General Obligation Primary Credit Analyst: Amahad K Brown, Dallas + 1 (214) 765 5876; amahad.brown@spglobal.com Secondary Contact: Alyssa B Farrell, Englewood + 1 (303) 721 4184; alyssa.farrell@spglobal.com Table Of Contents Credit Highlights Outlook Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 1 Summary: San Luis Obispo Public Finance Authority San Luis Obispo, California; Appropriations; General Obligation Credit Profile US$46.025 mil lse rev bnds (San Luis Obispo) (Cultural Arts Parking Project) ser 2023 due 12/01/2053 Long Term Rating AA/Stable New Credit Highlights • S&P Global Ratings assigned its 'AA' rating to San Luis Obispo (SLO), Calif.'s proposed $46 million series 2023 lease revenue bonds, issued by the San Luis Obispo Public Finance Authority. • S&P Global Ratings also affirmed its 'AA+' issuer credit rating (ICR) on the city and its 'AA' long-term rating on the city's lease revenue bonds outstanding. • The outlook is stable Security The lease revenue bonds are secured by lease payments made by the city, as lessee, to the authority, as lessor, for the use of the leased assets. In our view, the lease features and terms are standard for an abatement lease, and the leased asset meets our minimum threshold for seismic risk during the life of the bonds. Late budget adoption risk is mitigated by debt service due dates that fall well within the fiscal year (June and December). We rate these obligations one notch lower than our view of the city's general creditworthiness to account for the risk of nonappropriation associated with the lease payments. Although revenues are not specifically pledged to the bonds, we understand that the city will use revenues from its parking fund to finance the debt service payments on the series 2023 bonds, reducing general fund exposure to the new debt. Proceeds from the series 2023 bonds will be used to finance the construction of a new parking structure in SLO's cultural arts district. In addition, a portion of the proceeds will be used to refund the city's series 2012 lease revenue bonds for debt service savings. The ICR reflects our view of the city's general creditworthiness and does not incorporate the features of any particular debt instrument. Credit overview The city remains well positioned financially, with a local economy that has continued to expand post-pandemic. SLO's credit fundamentals are supported by a strong and institutionalized framework of financial management including regular budget monitoring and long-term planning. In recognition of the city's need for additional resources to support long-term fiscal stability and infrastructure maintenance, voters in the city approved the Measure G-20 sales tax (no WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 2 sunset), which increased the local sales tax rate by 1% and replaced the 2014 local sales tax measure. The Measure G-20 sales tax has contributed about $20 million of additional annual revenue to the city. This level of local support has been key to allowing SLO to fund local priorities without affecting the general fund budget or requiring significant debt financing. Despite these credit strengths, we believe that the city's exposure to large retirement liabilities remains its most salient credit weakness. As of the latest measurement date (June 30, 2021), the city reported a total California Public Employees' Retirement System (CalPERS) pension liability of about $145 million with a funded ratio of 70%. However, we understand that SLO continues to evaluate improvements to its pension funding through various means, including making additional discretionary payments to its CalPERS plans, most recently in 2022 when it made an additional $12 million discretionary payment. The city's commitment to addressing its long-term retirement obligations is now guided by a formal policy introduced with the 2023-2025 financial plan. Without material and sustained improvements in plan funding, SLO remains exposed to potential cost escalations and higher fixed costs associated with its CalPERS liabilities. However, we do not expect these liabilities to meaningfully affect budgetary performance in the near term, particularly given increasing primary revenues. The rating reflects our view of the city's: • Stable local economy that is anchored by government employment, tourism, and a higher education presence that includes California Polytechnic State University; • Strong financial profile characterized by a track record of positive operating results, maintenance of robust reserves, and a revenue profile that is largely supported by local taxes including sales, property, and transient occupancy taxes; • Comprehensive collection of financial policies and practices including a robust budget development framework, quarterly budget and investment monitoring, long-term capital and financial planning, formalized policies for debt and investments, and formal reserve policies requiring balances of at least 20% of expenditures for the general fund contingency and the capital reserve tied to the Measure G-20 sales tax; • Strong institutional framework score; and • Modest debt burden but exposure to elevated fixed costs and large long-term pension liabilities. Environmental, social, and governance We analyzed the city's environmental, social, and governance (ESG) risks relative to its economy, management, financial measures, and debt-and-liability profile. In our view, SLO is exposed to acute physical risks including flooding, wildfires, and earthquakes. Of note, it experienced two widespread flooding events in early 2023 that caused an estimated $9 million-$12 million in damages that the city considers to be a high priority, including expenditures associated with road repairs and debris removal. However, given its strong reserve and liquidity position, SLO has been able to absorb these one-time costs without materially affecting its financial position while it files for potential reimbursement from Federal Emergency Management Agency. In our view, social and governance risks are neutral within our credit analysis. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 3 Summary: San Luis Obispo Public Finance Authority San Luis Obispo, California; Appropriations; General Obligation Outlook The stable outlook reflects our expectation that SLO will be able to maintain its strong financial profile supported by positive momentum in the local economy and a robust framework of financial planning and budget monitoring. Downside scenario We could lower the rating if the city enters a period of sustained budgetary weakness leading to an erosion of general fund reserves without a credible plan to restore them. Upside scenario We could raise the rating if SLO is able to demonstrate meaningful steps to sustainably improve the funding of its pension plans, thereby mitigating budgetary exposure and cost escalations tied to its CalPERS pension plans. San Luis Obispo, California -- key credit metrics Most recent Historical information 2022 2021 2020 Very strong economy Projected per capita EBI % of U.S.114 111 110 106 Market value per capita ($)246,617 234,921 221,051 203,609 Population 46,069 46,365 46,762 County unemployment rate(%)3.0 5.3 7.8 Market value ($000)11,361,385 10,822,584 10,249,056 9,521,174 Ten largest taxpayers % of taxable value 5.3 6.3 6.1 6.7 Strong budgetary performance Operating fund result % of expenditures 4.2 16.5 2.6 Total governmental fund result % of expenditures 21.6 23.0 11.7 Very strong budgetary flexibility Available reserves % of operating expenditures 38.9 44.5 44.2 Total available reserves ($000)33,113 35,821 33,651 Very strong liquidity Total government cash % of governmental fund expenditures 210 186 180 Total government cash % of governmental fund debt service 9145 6685 5595 Very strong management Financial Management Assessment Strong Adequate debt & long-term liabilities Debt service % of governmental fund expenditures 2.3 2.8 3.2 Net direct debt % of governmental fund revenue 55 16 19 23 Overall net debt % of market value 1.7 Direct debt 10-year amortization (%)35 Required pension contribution % of governmental fund expenditures 16.7 18.1 18.4 OPEB actual contribution % of governmental fund expenditures 1.3 1.1 2.0 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 4 Summary: San Luis Obispo Public Finance Authority San Luis Obispo, California; Appropriations; General Obligation San Luis Obispo, California -- key credit metrics (cont.) Most recent Historical information 2022 2021 2020 Strong institutional framework EBI--Effective buying income. OPEB--Other postemployment benefits. Data points and ratios may reflect analytical adjustments. Related Research Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022 Ratings Detail (As Of August 11, 2023) San Luis Obispo ICR due 12/01/2055 Long Term Rating AA+/Stable Affirmed San Luis Obispo Long Term Rating AA/Stable Affirmed San Luis Obispo Public Finance Authority, California San Luis Obispo, California San Luis Obispo Pub Fin Auth APPROP Long Term Rating AA/Stable Affirmed San Luis Obispo Pub Fin Auth (San Luis Obispo) Long Term Rating AA/Stable Affirmed Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 5 Summary: San Luis Obispo Public Finance Authority San Luis Obispo, California; Appropriations; General Obligation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 11, 2023 6 STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. 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Item 6b Department: Finance Cost Center: 2001 For Agenda of: 8/15/2023 Placement: Public Hearing Estimated Time: 30 minutes FROM: Emily Jackson, Finance Director Prepared By: PFM Financial Advisors LLC and Emily Jackson, Finance Director CITY COUNCIL & PUBLIC FINANCING AUTHORITY BOARD OF DIRECTORS SUBJECT: APPROVING THE SALE OF LEASE REVENUE BONDS, SERIES 2023 (CULTURAL ARTS DISTRICT PARKING PROJECT) IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $50,000,000, EXECUTION OF BOND DOCUMENTS AND RELATED ACTIONS RECOMMENDATION City Council Action: Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo authorizing the execution and delivery by the City of a 1) Ground Lease, 2) a Lease Agreement, 3) an Indenture, 4) a Bond Purchase Agreement and a 5) Continuing Disclosure Certificate in connection with the issuance of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, approving the issuance of such bonds in an aggregate prin cipal amount of not to exceed $50,000,000, authorizing the distribution of an Official Statement in connection with the offering and sale of such bonds and authorizing the execution of necessary documents and certificates and related actions.” San Luis Obispo Public Financing Authority Board of Directors Action: Adopt a Draft Resolution entitled, “A Resolution of the Board of Directors of the San Luis Obispo Public Financing Authority authorizing the execution and delivery of a 1) Ground Lease, 2) a Lease Agreement, 3) an Indenture, and a 4) Bond Purchase Agreement in connection with the issuance of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, authorizing the issuance of such bonds in an aggregate principal amount of not to exceed $50,000,000 , authorizing the distribution of an Official Statement in connection therewith and authorizing the execution of necessary documents and certificates and related actions .” REPORT-IN-BRIEF The City has been planning for construction of a fourth parking structure in the downtown area for the last twenty years. The Cultural Arts District Parking Structure (CADPS) will be located at the corner of Palm, Nipomo and Monterey streets and will an chor and support future development of the Cultural Arts District in the downtown. The City plans to issue bonds to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of the new structure. Page 263 of 501 Item 6b In late July, the City received construction bids, with the low bid coming in at $41.1 million dollars, approximately $3.5 million below the engineer’s estimate. In addition to financing construction of the CADPS, staff is also recommending a potential refinan cing of the Series 2012 bonds in order to generate positive net present value savings and release the Damon Garcia Sports Fields which is the leased asset that currently secures those bonds. POLICY CONTEXT The recommended action is consistent with the City’s Capital Financing and Debt Management policy which requires that the City’s debt management practices are “fiscally prudent, consistent with State and Federal law, and reflective of the most opportune financing strategies to deliver on the needs and goals of the community and the City organization.” In accordance with this policy, the City’s general purpose debt capacity cannot exceed 15% of General Fund revenues, and direct debt will not exceed 2% of assessed valuations, and no more than 60% of capital improvement outlays will be funded from long-term debt. Debt should only be incurred for one -time capital expenditures and not for on-going operations. Borrowing for one-time capital expenditures allows for the cost of the project to be spread over the useful life of the asset and results in the cost being paid by future beneficiaries as well as current taxpayers. As noted, the City’s debt management policy sets a debt limit of 2% of assessed valuation, which equals $235.4 million for Fiscal Year 2022-23. Including this debt issuance, the City’s General Fund long-term debt will be approximately $67.5 million, or 0.006% of assessed valuation, well below the established debt limit. DISCUSSION Background Since 2003, the City has been planning for a fourth parking structure to fit the current and future needs of the community and downtown. Total future investments in the downtown constitute nearly $250 million. This structure will be sited on Parking Lot 14, which is located at the corner of Palm, Nipomo, and Monterey streets. The structure is known the Cultural Arts District Parking Structure (CADPS) due to its proximity to the History Museum, SLO Museum of Art, and the SLO Children’s Museu m, as well as the future site for the SLO Repertory Theater that will abut the structure The Cultural Arts District Parking Structure will be a 163,000 square foot, five -story cast- in-place concrete structure that will provide the community with 397 new pa rking spaces, 41 of which will have electric vehicle (EV) charging stations. Page 264 of 501 Item 6b Analysis The proposed transaction (the “2023 Bonds”) will be issued to fund construction of the Cultural Arts District Parking Structure. In addition, it is expected that the 2023 Bonds will fully refund the outstanding San Luis Obispo Capital Improvement Board’s Series 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”), subject to market conditions1. The 2012 Bonds are currently callable. The 2023 Bonds will be lease reven ue bonds issued by the San Luis Obispo Public Financing Authority (the “PFA”). The City will lease to the PFA its existing Marsh Street Parking Structure, located at 871 Marsh Street. The PFA will then lease the property back to the City in exchange for rental payments. The use of an existing structure as the leased asset for the 2023 Bonds that will fund the construction of the new facility, is referred to as an “asset transfer” and allows the City to avoid borrowing bond interest during the construction period, thus reducing the size of the borrowing. The City’s rental payments to the PFA will be assigned to the trustee of the 2023 Bonds and will be used to make the bond payments. This legal structure is the same as that of the City’s most recent Lease Revenue Bond financing in 2018, and the same as that of the 2012 Bonds, but for the Public Financing Authority serving in the role held by the Capital Improvement Board on the 2012 Bonds. The Resolution will authorize staff to proceed with the transaction funding the construction of the Cultural Arts District Parking Structure provided certain parameters are met. The par amount will not exceed $50,000,000, the true interest cost will not exceed 5.25%, and the underwriter’s discount will not exceed 4% of the par amount of the bonds. The City received construction bids in late July, with the low bid coming in approximately $3.5 million below the engineer’s estimate. The difference between the engineer’s estimated amount and the construction bid results is approximately $210,000 of annual debt service savings for the City. The table below provides an estimated budget for remaining project costs, provided by Public Works: Cultural Arts District Parking Structure - Phase 2, Specification No. 90435 ID Estimated Construction Costs 1 Construction Bid* $41,070,044 2 Construction Contingencies (15%) $6,160,507 3 Total Construction Bid + Contingency $47,230,551 4 Estimated Soft Costs 5 Final Design Administration, Permitting, and Construction Support $150,550 6 Construction Management/Inspection/Testing - Phase 2 $3,925,894 7 10% Design and Construction Management Contingencies $407,644 8 Easements - allowance $50,000 1 Meaning, if the City can realize debt service savings by consolidating the 2012 issuance and further combine pledged leased assets. Page 265 of 501 Item 6b 9 Phase 1A/1B Construction Contingencies $200,000 10 PG&E/Telecom Phase 2 Facility Relocations $250,000 11 Transactional Costs $480,000 12 Printing & Advertising $25,000 13 Soil Abatement (estimate) $785,565 14 Total Project Estimate $53,505,204 15 Budget 16 Current Available Project Budget $4,923,264 17 Additional Funding on 7/1/2024 (General Fund) $1,500,000 18 Additional Funding on 7/1/2025 (General Fund) $490,000 19 Phase 2 Debt Financing $47,000,000 20 Total Project Budget $53,913,264 21 Total Project Cost $53,505,204 22 Remaining Budget $408,061 In addition, staff is recommending that the refinancing of the Series 2012 bonds be authorized so long as it generates positive net present value savings. The City’s Debt Management Policy states that refinancings for economic savings should meet a minimum threshold of 5% net present value savings, except in certain circumstances. However, in this instance, the primary benefit of refinancing the 2012 Bonds is not economic savings, but to enable the release of the leased asset that currently secures them, the Damon Garcia Sports Fields. The 2012 Bonds are currently outstanding in the amount of $2,415,000, while the estimated value of the Damon Garcia Sports Fields is in excess of $10 million. The Resolutions (Attachments A and B) also approve the following transaction documents in substantially final forms2: 1. Ground Lease (Attachment C): Leases the properties from the PFA back to the City. 2. Lease Agreement (Attachment D): Leases certain property from the City to the PFA. 3. Indenture (Attachment E): Provides detailed information on terms, clauses and covenants for purposes of the Trustee’s duties and responsibilities to administer the payment of bonds and management of funds. 4. Bond Purchase Agreement (Attachment F): Details terms of the transaction between the City, PFA, and underwriter. 5. Preliminary Official Statement (Attachment G): Primary disclosure document used to market the 2023 Bonds to investors. The Continuing Disclosure Certificate is included in this document as Appendix E and designates the City’s obligations to disclose financial information to bond investors during the period of lease or financing period. 2 The authorized officers of the City and Financing Authority can finalize documents as long as any changes do not otherwise change the terms or substantially affect the structure of the proposed financing. Page 266 of 501 Item 6b The financing team will be composed of several firms. PFM Financial Advisors LLC (PFM) will serve as municipal advisor. Raymond James & Associates, Inc. will serve as underwriter. Orrick, Herrington & Sutcliffe LLP will serve as bond and disclosure counsel. U.S. Bank Trust Company, National Association is the trustee for the 2012 Bonds and will serve as trustee for the 2023 Bonds. S&P Global Ratings will provide a bond rating, which is expected to be received by August 14th. The City may also engage a financial printer, escrow agent, escrow verification agent, title insurance provider, and other provide rs as needed in order to process and market the proposed bond sale. Sarah Hollenbeck, the City’s Municipal Advisor from PFM Financial Advisors LLP and Trish Eichar, the Bond Counsel for this issuance form Orrick, Herrington & Sutcliffe LLP will participate remotely in the August 15th presentation. Next Steps Upon Council’s approval, staff and the financing team will proceed to execute a bond transaction that meets the parameters defined in the Resolution. The 2023 Bonds are currently expected to be priced the week of August 21st, with closing and delivery of funds the week of September 11th, prior to the award of the construction contract for the Cultural Arts District Parking Structure on September 19th. Details of pricing and the final par amount for each tranche (i.e., term of bonds, 0-10, 10-20, 20-30 years) shall be reported at the September 19th meeting. As noted above, in addition to providing funding for the construction of the Cultural Arts District Parking Structure, the refunding portion of the 2023 Bonds will enable the City to unencumber the leased assets that are currently pledged to the 2012 Bonds. In particular, the refinancing will enable the City to release the Damon Garcia Sports Fields from the pledge associated with the 2012 Bonds, thus providing the City greater flexibility for future financings related to its long-term capital plans. Previous Council or Advisory Body Action The Cultural Arts District Parking Structure project has been included in the City’s Capital Improvement Plan for several years, and Council has previously appropriated funding to this project, with adoption of both the 2021-23 and 2023-25 Financial Plans. Public Engagement Representatives from Downtown SLO, San Luis Obispo Museum of Art, and San Luis Obispo Repertory Theatre have been invited to participate in the City’s Parking Operations Steering Committee meetings for the last several months. In compliance with Government Code Section 6586.5, a legal notice was published in the New Times five (5) days prior to the public hearing. Members of the general public will have the opportunity to provide comment on this item before or during the City Council meeting on August 15th. CONCURRENCE The Public Works Department is the lead on the construction of the Cultural Arts District Parking Structure and concurs with the recommendations outlined in this item, as the ability to obtain debt financing is critical in order to proceed with vertical co nstruction of the structure. Page 267 of 501 Item 6b ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Budget Year: 2023-24 Funding Identified: Yes Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $ $ $ $ State Federal Fees Other: Lease Revenue Bond $50,000,000 $50,000,000 $0 $0 Total $50,000,000* $50,000,000 $0 $0 * Staff is seeking authorization to issue bonds in an aggregate principal amount not to exceed $50,000,000, to include both the financing for the CADPS as well as the refunding of the 2012 Series bonds. The new money component of the 2023 Bonds is expect ed to result in annual debt service of $2,860,866. The refunding component is currently expected to result in approximately $28,499 of net present value debt service savings, or 1.18% of refunded par, based on market conditions as of August 2nd. The table below shows good faith estimates provided by PFM of key statistics related to the 2023 Bonds based on current market conditions, though it is important to note that conditions could change prior to bond pricing. Value Estimate Notes Par Amount $47,585,000 Principal amount of bonds issued True Interest Cost 4.37% Measure of overall interest rate Finance Charges (transaction costs) $500,743 Underwriter’s discount plus costs of issuance Total Proceeds $49,374,254 Price paid for bonds less underwriter’s discount Total Payments $88,769,052 Total debt service Page 268 of 501 Item 6b This table provides a breakdown of the good faith estimated sources and uses for both the CADPS financing as well as the refunding of the 2012 Series bonds: Sources: CADPS 2012 Refunding Total Bond Proceeds Par Amount 45,645,000 1,940,000 47,585,000 Net Premium 1,834,424 125,871 1,960,295 47,479,424 2,065,871 49,545,295 Other Sources 2012 Reserve Fund Release 405,600 405,600 47,479,424 2,471,471 49,950,895 Uses: CADPS 2012 Refunding Total Project Fund Deposit Bond Proceeds 47,000,000 47,000,000 Refunding Escrow Deposit 2012 Reserve Fund Release 405,600 405,600 Bond Proceeds 2,044,552 2,044,552 2,450,152 2,450,152 Transaction Costs Underwriter's Discount 164,068 6,973 171,041 Cost of Issuance 315,356 14,346 329,702 479,424 21,319 500,743 47,479,424 2,471,471 49,950,895 ALTERNATIVES 1. Do not adopt the proposed Resolutions. The City Council could choose not to adopt the proposed resolutions, in which case the bonds will not be issued. In this case, the project will not move forward without the bonded debt that is required to fund construction of the project and the 2012 Bonds will not be refinanced , leaving the Damon Garcia Sports Fields subject to encumbrance. 2. Direct modifications and continue the approval of the proposed Resolutions to a date certain. If additional information is needed, the direction should be provided to staff so that it can be presented on that date. Page 269 of 501 Item 6b ATTACHMENTS A – Draft Resolution of the City Council of the City of San Luis Obispo B – Draft Resolution of the Board of Directors of the San Luis Obispo Public Financing Authority C – Ground Lease D – Lease Agreement E – Indenture F – Bond Purchase Agreement G – Preliminary Official Statement (Continuing Disclosure Certificate included in Appendix E) Page 270 of 501 R ______ 4148-2267-9622.7 RESOLUTION NO. ______ (2023 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AUTHORIZING THE EXECUTION AND DELIVERY BY THE CITY OF A GROUND LEASE, A LEASE AGREEMENT, AN INDENTURE, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE CERTIFICATE IN CONNECTION WITH THE ISSUANCE OF SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023, APPROVING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $50,000,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the City of San Luis Obispo (the “City”) desires (i) to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”) and (ii) to refinance and defease its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”); and WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; and WHEREAS, the Capital Improvement Board previously issued 2012 Bonds pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and defeasing prior obligations of the City; and WHEREAS, the San Luis Obispo Public Financing Authority (the “Authority”) desires to assist the City with such financing; and WHEREAS, in order to finance the Project, the City will lease certain real property, and the improvements thereto (the “Property”), to the Authority pursuant to a Ground Lease (such Ground Lease, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Ground Lease”); and Page 271 of 501 Resolution No. ______ (2023 Series) Page 2 R ______ 4148-2267-9622.7 WHEREAS, the City will sublease the Property back from the Authority pursuant to a Lease Agreement (such Lease Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Lease Agreement”); and WHEREAS, in order to provide the funds necessary to finance the Project and to refinance and defease the 2012 Bonds, the City and the Authority desire that the Authority issue its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), in an aggregate principal amount not to exceed $50,000,000, payable from the base rental payments (the “Base Rental Payments”) to be made by the City pursuant to the Lease Agreement; and WHEREAS, the Bonds will be issued pursuant to the Marks-Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code (the “Act”); and WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee), propose to enter into an Indenture (such Indenture, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Indenture”); and WHEREAS, all rights to receive the Base Rental Payments will be assigned without recourse by the Authority to the Trustee pursuant to the Indenture; and WHEREAS, Raymond James & Associates, Inc. (the “Underwriter”), has presented a proposal, in the form of a Bond Purchase Agreement by and among the Underwriter, the Authority and the City, to purchase the Bonds from the Authority (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Purchase Agreement”); and WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”) requires that, in order to be able to purchase or sell the Bonds, the underwriters thereof must have reasonably determined that the issuer thereof has, or one or more appropriate obligated persons have, undertaken in a written agreement or contract for the benefit of the holders of the Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; and Page 272 of 501 Resolution No. ______ (2023 Series) Page 3 R ______ 4148-2267-9622.7 WHEREAS, in order to cause such requirement to be satisfied, the City desires to execute and deliver a Continuing Disclosure Certificate (such Continuing Disclosure Certificate, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Continuing Disclosure Certificate”); and WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Bonds has been prepared (such Preliminary Official Statement, in the form presented to this meeting, with such chang es, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Preliminary Official Statement”); and WHEREAS, the City Council has adopted a Debt Management Policy for the City (the “Debt Management Policy”), as last amended on November 15, 2022, that complies with Government Code Section 8855(i), and the sale and issuance of the Bonds as contemplated by this Resolution is in compliance with the Debt Management Policy; and WHEREAS, Senate Bill 450 (Chapter 625 of the 2017-2018 Session of the California Legislature) (“SB 450”) requires that the City obtain from an underwriter, municipal advisor or private lender and disclose, prior to authorization of the issuance of bonds, including debt instruments such as the Bo nds, with a term of greater than 13 months, good faith estimates of the following information in a meeting open to the public: (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bon ds calculated to the final maturity of the Bonds plus the fees and charges paid to third parties not paid with the proceeds of the Bonds; and WHEREAS, in compliance with SB 450, the City has obtained from its Municipal Advisor, the required good faith estimates and such estimates are disclosed at this meeting; and WHEREAS, the City is a member of the Authority and the Project is to be located within the boundaries of the City; and WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Ground Lease; (b) the Lease Agreement; (c) the Indenture; (d) the Purchase Agreement; (e) the Continuing Disclosure Certificate; and (f) the Preliminary Official Statement; Page 273 of 501 Resolution No. ______ (2023 Series) Page 4 R ______ 4148-2267-9622.7 WHEREAS, the City desires to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Bonds; and WHEREAS, all acts, conditions and things required by the Constitution, laws of the State of California and the City Charter of the City to exist, to have happened and to have been performed precedent to and in connection with the consummation of the transactions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such transactions for the purpose, in the manner and upon the terms herein provided. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis Obispo, as follows: and The foregoing recitals are true and correct, and the City Council of the City (the “City Council”) so finds and determines. The City Council, on behalf of the City, hereby finds that the use of the Act to assist the City in financing the Project will result in significant public benefits to the citizens of the City because it is expected that such use will provide demonstrable savings in effective interest rate costs. The form of the Ground Lease, on file with the City Clerk of the City (the “City Clerk”), is hereby approved. Each of the Mayor, the Mayor Pro Tem, the City Manager of the City, the Deputy City Manager, the Finance Director or any officer designated in writing by the City Manager (each, an “Authorized Officer”) is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Ground Lease in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Ground Lease by such Authorized Officer. The form of the Lease Agreement, on file with th e City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Lease Agreement in the form submitted to this me eting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Lease Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of the Bonds payable from the Base Rental Payments in excess of $50,000,000, shall not result in the term of the Lease Agreement terminating later than December 1, 2053 (provided that such term may be extended as provided therein) and shall not result in a true interest cost attributable to the Base Rental Payments in excess of 5.25%. Page 274 of 501 Resolution No. ______ (2023 Series) Page 5 R ______ 4148-2267-9622.7 Subject to the provisions of Section 6 hereof, the issuance of the Bonds, in an aggregate principal amount of not to exceed $50,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, be and the same is hereby authorized and approved. The Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be subject to call and redemption, shall be issued in the form and shall be as otherwise provided in the Indenture, as the same shall be completed as provided in this Resolution. The form of the Indenture, on file with the City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of the Bonds payable from the Base Rental Payments in excess of $50,000,000, shall not result in the term of the Lease Agreement terminating later than December 1, 2053 (provided that such term may be extended as provided therein) and shall not result in a true interest cost attributable to the Base Rental Payments in excess of 5.25%. The form of the Purchase Agreement, on file with the City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Purchase Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriters’ discount (not including any original issue discount) from the principal amount of the Bonds in excess of 4.00% of the aggregate principal amount of the Bonds. The form of the Continuing Disclosure Certificate, on file with the City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Continuing Disclosure Certificate in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requi rement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Certificate by such Authorized Officer. The form of the Preliminary Official Statement, on file with the City Clerk, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf Page 275 of 501 Resolution No. ______ (2023 Series) Page 6 R ______ 4148-2267-9622.7 of the City that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). The preparation and delivery of a final Official Statement (the “Official Statement”), and its use in connection with the offering and sale of the Bonds, be and the same is hereby authorized and approved . The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof . Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute the final Official Statement and any amendment or supplement thereto. With the passage of this Resolution, the City hereby certifies that the City’s Debt Management Policy complies with Government Code Section 8855(i), and that the Bonds authorized to be issued pursuant to this Resolution are consistent with such policy, and instructs Orrick, Herrington & Sutcliffe LLP, as Bond Counsel, on behalf of the City, with respect to the Bonds issued pursuant to this Resolution, (a) to cause notices of the proposed sale and final sale of the Bonds to be filed in a timely manner with the California Debt and Investment Advisory Commission pursuant to Government Code Section 8855, and (b) to check, on behalf of the City, the “Yes” box relating to such certifications in the notice of proposed sale filed pursuant to Government Code Section 8855. In accordance with SB 450, good faith estimates of the following have been obtained from the Municipal Advisor and have been disclosed at this meeting: (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bonds calculated t o the final maturity of the Bonds plus the fees and charges paid to third parties not paid with the proceeds of the Bonds. The Authorized Officers are hereby authorized to retain, in connection with the transactions contemplated by this Resolution , the firm of PFM Financial Advisors LLC, as Municipal Advisor, the firm of Orrick, Herrington & Sutcliffe LLP, as Bond Counsel and Disclosure Counsel, and to execute professional services agreement with each such firm. Additionally, the selection of U.S. Bank Trust Company, National Association, as trustee, is hereby confirmed. The City Council hereby approves the execution and delivery of all agreements, documents, certificates and instruments referred to herein with electronic signatures as may be permitted under the California Uniform Electronic Transactions Act and digital signatures as may be permitted under Section 16.5 of the California Government Code using DocuSign. Page 276 of 501 Resolution No. ______ (2023 Series) Page 7 R ______ 4148-2267-9622.7 The Authorized Officers and the officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the City to do any and all things and to execute and deliver any and all certificates, escrow agreements, tax certificates, and other documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. All actions heretofore taken by the officers and employees of the City with respect to the issuance and sale of the Bonds, or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. This Resolution shall take effect immediately upon its adoption. Upon motion of Council Member __________, seconded by Council Member ______________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________ 2023. ___________________________ Mayor Erica A. Stewart ATTEST: ___________________________ Teresa Purrington, City Clerk APPROVED AS TO FORM: ____________________________ J. Christine Dietrick, City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________ Teresa Purrington, City Clerk Page 277 of 501 Resolution No. ______ (2023 Series) Page 8 R ______ 4148-2267-9622.7 CITY CLERK’S CERTIFICATE I, the undersigned, duly appointed and qualified City Clerk of the City of San Luis Obispo (the “City”), certify that attached is a full, true and correct copy of Resolution No. _______, adopted August 15, 2023, during a meeting of the City Council of the City. Such meeting was duly and legally held at the regular meeting place of the City Council. All of the members of said council had due notice of such meeting and a majority thereof was present at such meeting. I have carefully compared the same with the original minutes of said meeting on file and of record in my office, and the foregoing is a full, true and correct copy of such resolution adopted at said meeting and entered in said minutes. Said resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. WITNESS MY HAND AND THE SEAL OF THE CITY OF SAN LUIS OBISPO. Dated: By: Teresa Purrington, City Clerk Page 278 of 501 R _______ 4143-9807-1878.7 RESOLUTION NO. _____ (2023 SERIES) A RESOLUTION OF THE BOARD OF DIRECTORS OF THE SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY OF A GROUND LEASE, A LEASE AGREEMENT, AN INDENTURE, AND A BOND PURCHASE AGREEMENT IN CONNECTION WITH THE ISSUANCE OF SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023, AUTHORIZING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $50,000,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION THEREWITH AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the San Luis Obispo Public Financing Authority (the “Authority”) has been created pursuant to a Joint Exercise of Powers Agreement, effective September 15, 2014 (the “Joint Powers Agreement”), between the City of San Luis Obispo (the “City”) and the Parking Authority of the City of San Luis Obispo; and WHEREAS, the City desires (i) to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”) and (ii) to refinance and defease its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”); and WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; and WHEREAS, the Capital Improvement Board previously issued 2012 Bonds pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and defeasing prior obligations of the City; and WHEREAS, the Authority desires to assist the City with such financing; and WHEREAS, in order to finance the Project, the City will lease certain real property, and the improvements thereto (the “Property”), to the Authority pursuant to a Ground Lease (such Ground Lease, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Ground Lease”); and WHEREAS, the City will sublease the Property back from the Authority pursuant to a Lease Agreement (such Lease Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Lease Agreement”); and Page 279 of 501 Resolution No. _____ (2023 Series) Page 2 R _____ 4143-9807-1878.7 WHEREAS, in order to provide the funds necessary to finance the Project and to refinance and defease the 2012 Bonds, the City and the Authority desire that the Authority issue its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), in an aggregate principal amount not to exceed $50,000,000, payable from the base rental payments (the “Base Rental Payments”) to be made by the City pursuant to the Lease Agreement; and WHEREAS, on this date, the City held a public hearing on the financing of the Project in accordance with Section 6586.5 of the Act, which hearing was held at 990 Palm Street, San Luis Obispo, California; and WHEREAS, in accordance with Section 6586.5 of the Act, n otice of such hearing was published once at least five days prior to the hearing in the New Times, a newspaper of general circulation in the City; and WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), propose to enter into an Indenture (such Indenture, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Indenture”); and WHEREAS, all rights to receive the Base Rental Payments will be assigned without recourse by the Authority to the Trustee pursuant to the Indenture; and WHEREAS, Raymond James & Associates, Inc. (the “Underwriter”) has presented a proposal, in the form of a Bond Purchase Agreement by and among the Underwriter, the Authority and the City, to purchase the Bonds from the Authority (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolu tion, being referred to herein as the “Purchase Agreement”); and WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Bonds has been prepared (such Preliminary Official Statement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Preliminary Official Statement”); and WHEREAS, the City is a member of the Authority and the Project is to be located within the boundaries of the City; and WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Ground Lease; (b) the Lease Agreement; (c) the Indenture; (d) the Purchase Agreement; and (e) the Preliminary Official Statement; Page 280 of 501 Resolution No. _____ (2023 Series) Page 3 R _____ 4143-9807-1878.7 WHEREAS, the Authority desires to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Bonds; and WHEREAS, Section 5852.1 of the California Government Code (the “Government Code”) requires that the Board of Directors of the Authority (“Board of Directors”) obtain from an underwriter, financial advisor or private lender and disclose, in a meeting open to the public, prior to authorization of the issuance of the Bonds, good faith estimates of (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bonds calculated to the final maturity of the Bonds, plus the fees and charges paid to third parties not paid with the proceeds of the Bonds; and WHEREAS, in compliance with Government Code Section 5852.1, the Board of Directors has obtained from PFM Financial Advisors LLC, as the City’s municipal advisor (the “Municipal Advisor”), the required good faith estimates and such estimates have been disclosed at this meeting; and WHEREAS, all acts, conditions and things required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the transactions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Authority is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such transactions for the purpose, in the manner and upon the terms herein provided. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the San Luis Obispo Public Financing Authority, as follows: The foregoing recitals are true and correct, and the Board of Directors so finds and determines. The form of the Ground Lease, on file with the Secretary of the Authority (the “Secretary”), is hereby approved. Each of the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director, the Treasurer or any officer designated in writing by the Executive Director (each, an “Authorized Officer”) is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Authority, to execute and deliver the Ground Lease in the form submitted to this meeting, with such changes, insertions and omissions as the Author ized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Ground Lease by such Authorized Officer. The form of the Lease Agreement, on file with the Secretary, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Authority, to execute and deliver the Lease Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may Page 281 of 501 Resolution No. _____ (2023 Series) Page 4 R _____ 4143-9807-1878.7 require or approve, such requirement or approval to be conclusively evidenced by the execution of the Lease Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of the Bonds payable from the Base Rental Payments in excess of $50,000,000, shall not result in the term of the Lease Agreement terminating later than December 1, 2053 (provided that such term may be extended as provided therein) and shall not result in a true interest cost attributable to the Base Rental Payments exceeding 5.25%. Subject to the provisions of Section 5 hereof, the issuance of the Bonds, in an aggregate principal amount of not to exceed $50,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, be and the same is hereby authorized and approved . The Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be subject to call and redemption, shall be issued in the form and shall be as otherwise provided in the Indenture, as the same shall be completed as provided in this Resolution. The form of the Indenture, on file with the Secretary, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Authority, to execute and deliver the Indenture in the form submitted to this me eting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer; provided, howeve r, that such changes, insertions and omissions shall not result in an aggregate principal amount of Bonds in excess of $50,000,000, shall not result in a final maturity date of the Bonds later than December 1, 2053 and shall not result in a true interest cost for the Bonds in excess of 5.25%. The form of the Purchase Agreement, on file with the Secretary, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Authority, to execute and deliver the Purchase Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriter ’s discount (not including any original issue discount) from the principal amount of the Bonds in excess of 4.00% of the aggregate principal amount of the Bonds. The form of the Preliminary Official Statement, on file with the Secretary, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the Authority that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (except for the omission of certain final pricing, rating and related information as permitted by said Rule). Page 282 of 501 Resolution No. _____ (2023 Series) Page 5 R _____ 4143-9807-1878.7 The preparation and delivery of a final Official Statement (the “Official Statement”), and its use in connection with the offering and sale of the Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Authority, to execute the final Official Statement and any amendment or supplement thereto. The Board of Directors hereby approves the execution and delivery of all agreements, documents, certificates and instruments referred to herein with electronic signatures as may be permitted under the California Uniform Electronic Transactions Act and digital signatures as may be permitted under Section 16.5 of the California Government Code using DocuSign. The officers and agents of the Authority are, and each of them is, hereby authorized and directed, for and in the name of the Authority to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. All actions heretofore taken by the officers and agents of the Authority with respect to the issuance and sale of the Bonds or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. Page 283 of 501 Resolution No. _____ (2023 Series) Page 6 R _____ 4143-9807-1878.7 The Secretary shall certify to the adoption of this Resolution and thenceforth and thereafter the same shall be in full force and effect. This Resolution shall take effect immediately upon its adoption. Upon motion of San Luis Obispo Public Financing Authority Board Member _________, seconded by Board Member ___________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________ 2023. _________________________ Chair Erica A. Stewart ATTEST: Teresa Purrington, Secretary APPROVED AS TO FORM: J. Christine Dietrick, Authority Counsel IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________ Teresa Purrington, Secretary Page 284 of 501 Resolution No. _____ (2023 Series) Page 7 R _____ 4143-9807-1878.7 SECRETARY’S CERTIFICATE I, the undersigned, duly appointed and qualified Secretary of the San Luis Obispo Public Financing Authority (the “Authority”), certify that attached is a full, true and correct copy of Authority Resolution No. _____, adopted August 15, 2023, during a meeting of the governing board of the Authority. Such meeting was duly and legally held at the regular meeting place of the Authority. All of the members of said governing board had due notice of such meeting and a majority thereof was present at such meeting. I have carefully compared the same with the original minutes of said meeting on file and of record in my office, and the foregoing is a full, true and correct copy of such resolution adopted at said meeting and entered in said minu tes. Said resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. WITNESS MY HAND AND THE SEAL OF THE CITY OF SAN LUIS OBISPO. Dated: By: __________________________________ Teresa Purrington, Secretary Page 285 of 501 Page 286 of 501 OHS 08/03/2023 4157-5237-3830.7 TO BE RECORDED FOR THE BENEFIT OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA AND WHEN RECORDED RETURN TO: Orrick, Herrington & Sutcliffe LLP 777 South Figueroa Street, 32nd Floor Los Angeles, California 90017 Attention: Laura Gao THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11929 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. GROUND LEASE by and between CITY OF SAN LUIS OBISPO and SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Dated as of [September 1, 2023] Page 287 of 501 4157-5237-3830.7 GROUND LEASE THIS GROUND LEASE (this “Ground Lease”), dated as of [September 1, 2023], is by and between the CITY OF SAN LUIS OBISPO, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), as lessor, and the SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), as lessee. RECITALS WHEREAS, the Authority is a joint exercise of powers authority duly organized and operating pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California; WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California authorizes and empowers joint powers authorities to issue bonds to assist local agencies in financing projects and programs consisting of certain public improvements or working capital or liability and other insurance needs whenever a local agency determines that there are significant public benefits from so doing; WHEREAS, the City desires to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”); WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; WHEREAS, the Capital Improvement Board previously issued its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”) pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and defeasing prior obligations of the City; WHEREAS, the City proposes to refinance the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, the Authority is empowered pursuant to the aforementioned Article 4 to issue its bonds and to apply the proceeds thereof to assist in financing the Project and the refinancing of the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, in order to finance the Project and to refinance and defease the 2012 Bonds, the City is leasing certain real property, and the improvements thereto (the “Property”), to the Authority pursuant to this Ground Lease, dated as of the date hereof, and the City is subleasing the Property back from the Authority pursuant to the Lease Agreement, dated as of the date hereof (the “Lease Agreement”); WHEREAS, the Property is more particularly described in Exhibit A attached hereto; WHEREAS, in order to provide the funds necessary to finance the Project and to refinance and defease the 2012 Bonds, the Authority is issuing $[PAR AMOUNT] aggregate principal amount of its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), payable from the base rental payments to be made by the City pursuant to the Lease Agreement; and Page 288 of 501 2 4157-5237-3830.7 WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Ground Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Ground Lease; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, or unless the context clearly otherwise requires, capitalized undefined terms used herein shall have the meanings ascribed thereto in the Lease Agreement. ARTICLE II LEASE OF THE PROPERTY; RENTAL Section 2.01. Lease of Property. The City hereby leases to the Authority, and the Authority hereby leases from the City, for the benefit of the Owners of the Bonds, the Property, subject only to Permitted Encumbrances, to have and to hold for the term of this Ground Lease. Section 2.02. Rental. (a) The Authority shall pay to the City as and for rental of the Property hereunder, the sum of not to exceed $[LEASE PAYMENT] (the “Ground Lease Payment”). The Ground Lease Payment shall be paid from the proceeds of the Bonds; provided, however, that in the event the available proceeds of the Bonds are not sufficient to enable the Authority to pay such amount in full, the remaining amount of the Ground Lease Payment shall be reduced to an amount equal to the amount of such available proceeds. (b) The City shall deposit the Ground Lease Payment in one or more separate funds or accounts to be held and administered for the purpose of financing the Project. The Authority and the City hereby find and determine that the amount of the Ground Lease Payment does not exceed the fair market value of the leasehold interest in the Property that is conveyed hereunder by the City to the Authority. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Property under this Ground Lease. ARTICLE III QUIET ENJOYMENT The parties intend that the Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. Subject to any rights the City may have under the Lease Agreement (in the absence of a Lease Default Event) to possession and enjoyment of the Property, the City hereby covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Property during the term hereof and will, at the request of the Authority and at the City’s cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. Page 289 of 501 3 4157-5237-3830.7 ARTICLE IV SPECIAL COVENANTS AND PROVISIONS Section 4.01. Waste. At all times that the Authority is in possession of the Property, it shall not commit, suffer or permit any waste on the Property, and shall not willfully or knowingly use or permit the use of the Property for any illegal purpose or act. Section 4.02. Further Assurances and Corrective Instruments. Each of the City and the Authority 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 Property hereby leased or intended so to be or for carrying out the expressed intention of this Ground Lease, the Indenture and the Lease Agreement. Section 4.03. Waiver of Personal Liability. (a) All liabilities under this Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint powers authority, and the City hereby releases each and every director, officer and employee of the Authority of and from any personal or individual liability under this Ground Lease. No director, officer or employee of the Authority shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority hereunder. (b) All liabilities under this Ground Lease on the part of the City shall be solely liabilities of the City as a city and municipal corporation, and the Authority hereby releases each and every member, officer and employee of the City of and from any personal or individual liability under this Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City hereunder. Section 4.04. Taxes. The City shall pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Property. Section 4.05. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Property at any reasonable time to inspect the same. Section 4.06. Representations and Warranties of the City. The City represents and warrants as follows: (a) the City has the full power and authority to enter into, to execute and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution of this Ground Lease; (b) except for Permitted Encumbrances, the Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Property for governmental purposes as contemplated by the City; and (c) all taxes, assessments or impositions of any kind with respect to the Property, except current taxes, have been paid in full. Section 4.07. Representations and Warranties of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver this Page 290 of 501 4 4157-5237-3830.7 Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Ground Lease. ARTICLE V RESTRICTIONS ON CITY Except with respect to Permitted Encumbrances, the City shall not mortgage, sell, encumber, assign, transfer or convey the Property or any portion thereof during the term of this Ground Lease. ARTICLE VI IMPROVEMENTS Title to all improvements made on the Property during the term hereof shall vest in the City. ARTICLE VII TERM; TERMINATION Section 7.01. Term. The term of this Ground Lease shall commence as of the date of commencement of the term of the Lease Agreement and shall remain in full force and effect from such date to and including [December 1, 20__], unless such term is extended or sooner terminated as hereinafter provided. Section 7.02. Extension; Early Termination. If, on [December 1, 20__], the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of this Ground Lease shall be automatically extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, except that the term of this Ground Lease shall in no event be extended more than ten years. If, prior to [December 1, 20__], all Bonds shall be fully paid, or provisions therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, the term of this Ground Lease shall end simultaneously therewith. ARTICLE VIII MISCELLANEOUS Section 8.01. Binding Effect. This Ground Lease shall inure to the benefit of and shall be binding upon the City, the Authority and their respective successors and assigns. Section 8.02. Severability. In the event any provision of this Ground Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 8.03. Amendments; Substitution and Release. This Ground Lease may be amended, supplemented or otherwise modified only in accordance with the provisions of the Lease Agreement. The City shall have the right to substitute alternate real property for the Property or to release portions of the Property as provided in the Lease Agreement. Page 291 of 501 5 4157-5237-3830.7 Section 8.04. Assignment. The Authority and City acknowledge that the Authority has assigned and transferred certain of its right, title and interest in and to this Ground Lease to the Trustee pursuant to the Indenture. The City consents to such assignment. Section 8.05. Section Headings. Headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Ground Lease. Section 8.06. Governing Laws. This Ground Lease shall be governed by and construed in accordance with the laws of the State of California. Section 8.07. Execution in Counterparts. This Ground Lease 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 shall together constitute but one and the same instrument. Page 292 of 501 6 4157-5237-3830.7 IN WITNESS WHEREOF, the parties hereto have caused this Ground Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. CITY OF SAN LUIS OBISPO, as Lessor By: Derek Johnson, City Manager SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, as Lessee By: Derek Jonson, Treasurer Page 293 of 501 A-1 4157-5237-3830.7 EXHIBIT A DESCRIPTION OF THE PROPERTY All of that real property situated in the City of San Luis Obispo, County of San Luis Obispo, State of California, described as follows, and any improvements thereto: [TO COME] Page 294 of 501 4157-5237-3830.7 ACKNOWLEDGMENT STATE OF CALIFORNIA ) ) ss COUNTY OF SAN LUIS OBISPO ) On _____________, 2023, before me, ________________________, Notary Public, personally appeared ________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature [SEAL] Page 295 of 501 4157-5237-3830.7 STATE OF CALIFORNIA ) ) ss COUNTY OF SAN LUIS OBISPO ) On _____________, 2023, before me, ________________________, Notary Public, personally appeared ________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature [SEAL] Page 296 of 501 4157-5237-3830.7 CERTIFICATE OF ACCEPTANCE In accordance with Section 27281 of the California Government Code, this is to certify that the interest in the real property conveyed by the Ground Lease, dated as of [September 1, 2023], by and between the City of San Luis Obispo, a municipal corporation and charter city organized and existing under and by virtue of the laws of the State of California (the “City”), and the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), from the City to the Authority, is hereby accepted by the undersigned on behalf of the Authority pursuant to authority conferred by resolution of the Board of Directors of the Authority adopted on August 15, 2023, and the Authority consents to recordation thereof by its duly authorized officer. Dated: ____________ SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Derek Johnson, Treasurer Page 297 of 501 Page 298 of 501 OHS DRAFT 08/03/2023 4142-7460-2566.8 LEASE AGREEMENT by and between CITY OF SAN LUIS OBISPO and SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Dated as of [September 1, 2023] Page 299 of 501 TABLE OF CONTENTS Page i 4142-7460-2566.8 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION .................................................................... 2 Definitions ................................................................................................................... 2 Rules of Construction .................................................................................................. 4 ARTICLE II LEASE OF PROPERTY; TERM ........................................................................................... 5 Lease of Property ........................................................................................................ 5 Occupancy; Term ........................................................................................................ 5 ARTICLE III RENTAL PAYMENTS ........................................................................................................ 6 Rental Payments .......................................................................................................... 6 Base Rental Payments ................................................................................................. 6 Additional Rental Payments ........................................................................................ 6 Fair Rental Value ........................................................................................................ 7 Payment Provisions ..................................................................................................... 7 Appropriations Covenant ............................................................................................ 7 Rental Abatement ........................................................................................................ 7 Prepayment .................................................................................................................. 8 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS ............................... 8 Quiet Enjoyment ......................................................................................................... 8 Net-Net-Net Lease ....................................................................................................... 8 Right of Entry .............................................................................................................. 8 Maintenance and Utilities ............................................................................................ 9 Additions to Property .................................................................................................. 9 Installation of City’s Equipment ................................................................................. 9 Mechanics’, Etc. Liens ................................................................................................ 9 Other Liens .................................................................................................................. 9 ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN .................................................. 10 Public Liability and Property Damage Insurance; Workers’ Compensation Insurance ................................................................................................................... 10 Title Insurance ........................................................................................................... 11 Additional Insurance Provision; Form of Policies .................................................... 11 Self-Insurance ............................................................................................................ 11 Damage or Destruction .............................................................................................. 11 Page 300 of 501 TABLE OF CONTENTS (continued) Page ii 4142-7460-2566.8 Net Proceeds of Title Insurance ................................................................................ 12 Eminent Domain ....................................................................................................... 13 ARTICLE VI REPRESENTATIONS; COVENANTS ............................................................................. 13 Representations of the City ....................................................................................... 13 Representation of the Authority ................................................................................ 13 Recordation ............................................................................................................... 13 Use of the Property .................................................................................................... 13 Other Liens ................................................................................................................ 13 Taxes ......................................................................................................................... 14 No Liability; Indemnification .................................................................................... 14 Further Assurances .................................................................................................... 15 ARTICLE VII LEASE DEFAULT EVENTS AND REMEDIES ............................................................. 15 Lease Default Events and Remedies ......................................................................... 15 Waiver ....................................................................................................................... 17 ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE ................................................................................................................. 18 Amendments .............................................................................................................. 18 Assignment and Subleasing....................................................................................... 19 Substitution or Release of the Property ..................................................................... 19 ARTICLE IX MISCELLANEOUS ........................................................................................................... 20 Assignment to Trustee ............................................................................................... 20 Validity and Severability ........................................................................................... 20 Notices ....................................................................................................................... 20 Section Headings ....................................................................................................... 21 Governing Laws ........................................................................................................ 21 Electronic Signature .................................................................................................. 21 Execution in Counterparts ......................................................................................... 21 Exhibit A DESCRIPTION OF THE PROPERTY ...................................................................................A-1 Exhibit B DESCRIPTION OF THE PROJECT ...................................................................................... B-1 Page 301 of 501 4142-7460-2566.8 LEASE AGREEMENT THIS LEASE AGREEMENT (this “Lease Agreement”), dated as of [September 1, 2023], is by and between the CITY OF SAN LUIS OBISPO, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), as lessee, and the SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), as lessor. RECITALS WHEREAS, the Authority is a joint exercise of powers authority duly organized and operating pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California; WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California authorizes and empowers joint powers authorities to issue bonds to assist local agencies in financing projects and programs consisting of certain public improvements or working capital or liability and other insurance needs whenever a local agency determines that there are significant public benefits from so doing; WHEREAS, the City desires to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”); WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; WHEREAS, the Capital Improvement Board previously issued its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”) pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and defeasing prior obligations of the City; WHEREAS, the City proposes to refinance the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, the Authority is empowered pursuant to the aforementioned Article 4 to issue its bonds and to apply the proceeds thereof to assist in financing the Project and the refinancing of the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, in order to finance the Project and to refinance and defease the 2012 Bonds, the City is leasing certain real property, and the improvements thereto (the “Property”), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Property back from the Authority pursuant to this Lease Agreement; WHEREAS, the Property is more particularly described in Exhibit A attached hereto; WHEREAS, in order to provide the funds necessary to finance the Project and to refinance and defease the 2012 Bonds, the Authority is issuing $[PAR AMOUNT] aggregate principal amount of its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Page 302 of 501 2 4142-7460-2566.8 Series 2023 (the “Bonds”), payable from the base rental payments to be made by the City pursuant to this Lease Agreement; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Lease Agreement, have the meanings herein specified, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. “Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 hereof. “Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. “Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Base Rental Deposit Date” has the meaning given to such term in Section 3.02 hereof. “Base Rental Payments” means all amounts payable to the Authority from the City as Base Rental Payments pursuant to Section 3.02 hereof. “Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023. “City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Code” means the Internal Revenue Code of 1986. “Closing Date” means [CLOSING DATE]. “Fair Rental Value” means, with respect to the Property, the annual fair rental value thereof. Page 303 of 501 3 4142-7460-2566.8 “Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City. “Ground Lease” means the Ground Lease, dated as of [September 1, 2023], by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and hereof. “Indenture” means the Indenture, dated as of [September 1, 2023], by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee, as originally executed and as it may be amended or supplemented from time to time in accordance with the provisions thereof. “Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. “Lease Agreement” means this Lease Agreement, dated as of [September 1, 2023], by and between the City and the Authority, as the same may be amended or supplemented pursuant to the provisions hereof. “Lease Default Event” means any event or circumstance specified in Section 7.01 hereof as a Lease Default Event. “Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. “Outstanding” has the meaning ascribed to such term in the Indenture. “Permitted Encumbrances” means with respect to the Property, as of any particular time (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or that the City may, pursuant to provisions of Section 6.06 hereof, permit to remain unpaid, (b) this Lease Agreement, (c) the Ground Lease, (d) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Property for the purposes for which it was acquired or is held by the City, (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions that exist of record as of the Closing Date, (f) any license with respect to the use of, or lease agreement for, the solar equipment and footprint thereof as may be entered into by the City in support of a loan by the State of California Energy Commission that the City certifies in writing does not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date that the City certifies in writing do not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture. “Project” means costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District [and certain other Page 304 of 501 4 4142-7460-2566.8 public capital improvements], as described in Exhibit B hereto, all or a portion of the costs of which are to be financed with proceeds of the Bonds. “Property” means the real property described in Exhibit A hereto and any improvements thereto. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. “Rental Period” means the period from the Closing Date through [December 31, 2024] and, thereafter, the twelve-month period commencing on [January 1] of each year during the term of the Lease Agreement. “Scheduled Termination Date” means [December 1, 20__]. “State” means the State of California. “Trustee” means U.S. Bank Trust Company, National Association, as trustee under the Indenture, or any successor thereto as trustee thereunder substituted in its place as provided therein. “Written Certificate” and “Written Request” of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Rules of Construction. (a) The terms defined herein expressed in the singular shall, unless the context otherwise indicates, include the plural and vice versa. (b) The use herein of the masculine, feminine or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine or neuter gender, as appropriate. (c) References herein to a document shall include all amendments, supplements or other modifications to such document, and any replacements, substitutions or novation of, that document. (d) Any term defined herein by reference to another document shall continue to have the meaning ascribed thereto whether or not such other document remains in effect. (e) The use herein of the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation.” (f) 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. (g) All references herein to designated “Articles,” “Sections,” “Exhibits,” “subsections,” “paragraphs,” “clauses,” and other subdivisions are to the designated Articles, Sections, Exhibits, subsections, paragraphs, clauses, and other subdivisions of this Lease Agreement. (h) The words “hereof” (except when preceded by a specific Section or Article reference) “herein,” “hereby,” “hereunder,” “hereinabove,” “hereinafter,” and other equivalent words and phrases Page 305 of 501 5 4142-7460-2566.8 used herein refer to this Indenture and not solely to the particular portion hereof in which any such word is used. ARTICLE II LEASE OF PROPERTY; TERM Lease of Property. (a) The Authority hereby leases to the City and the City hereby leases from the Authority the Property, on the terms and conditions hereinafter set forth, and subject to all Permitted Encumbrances. (b) The parties intend and agree that the leasing of the Property by the City to the Authority under the Ground Lease does not affect or result in a merger of the City’s leasehold estate in the Property as lessee under this Lease Agreement and its leasehold or fee estate, as applicable, in the Property as lessor under the Ground Lease, and the Authority will continue to have a leasehold estate in the Property under the Ground Lease throughout the terms of both leases. This Lease Agreement constitutes a sublease with respect to the Property. The leasehold interest in the Property granted by the City to the Authority pursuant to the Ground Lease is independent of this Lease Agreement and this Lease Agreement is not an assignment or surrender of the leasehold interest in the Property granted to the Authority under the Ground Lease. Occupancy; Term. (a) The City shall take possession of the Property on the Closing Date. (b) The term of this Lease Agreement shall commence on the Closing Date and shall end on the Scheduled Termination Date, unless such term is extended or sooner terminated as hereinafter provided. (c) If all of the Property shall be taken under the power of eminent domain, and the City does not elect to cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, as provided in clause (i) of Section 5.07(c) hereof but, rather, elects to deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds, as provided in clause (ii) of Section 5.07(c) hereof, then, on the date that possession thereof shall be so taken, the term of this Lease Agreement shall terminate. (d) If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with Article X of the Indenture, then, on the date of such payment or deemed payment, the term of this Lease Agreement shall terminate. (e) If on the Scheduled Termination Date, the Rental Payments payable hereunder shall have been abated at any time and for any reason, then the term of this Lease Agreement shall be extended until the date upon which all such Rental Payments shall have been paid in full, except that the term of this Lease Agreement shall in no event be extended more than ten years beyond the Scheduled Termination Date. (f) Upon the termination of the term of this Lease Agreement (other than as provided in Section 7.01 hereof), and the first date upon which the Bonds are no longer Outstanding, all right, title and interest in and to the Property shall vest in the City. Upon any such termination or expiration, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Page 306 of 501 6 4142-7460-2566.8 ARTICLE III RENTAL PAYMENTS Rental Payments. (a) Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. (b) The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. (c) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of this Lease Agreement, as so extended. Base Rental Payments. (a) The City, subject to the provisions of Section 3.07 hereof, shall pay Base Rental Payments to the Authority. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. (b) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the Base Rental Payments shall be established so that the Base Rental Payment payable on each Base Rental Deposit Date after the Scheduled Termination Date shall be equal to the principal, if any, of and interest on the Bonds remaining due and payable on such Base Rental Deposit Date; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Property. Additional Rental Payments. (a) The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; (ii) insurance premiums for all insurance required pursuant to Article V hereof; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. (b) Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Page 307 of 501 7 4142-7460-2566.8 Fair Rental Value. The parties hereto have agreed and determined that the Fair Rental Value of the Property is not less than $[RENTAL VALUE] as of the Closing Date. In making such determinations of Fair Rental Value, consideration has been given to the uses and purposes that may be served by the Property and the benefits therefrom that will accrue to the City and the general public. Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period. Payment Provisions. Each installment of Base Rental Payments payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the Principal Office of the Trustee, or such other place or entity as the Authority shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment that shall not be paid by the City when due and payable under the terms of this Lease Agreement shall bear interest from the date when the same is due hereunder until the same shall be paid a rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due hereunder or refunded at the time of such determination. Appropriations Covenant. The City shall take such action as may be necessary to include all Rental Payments due hereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. Rental Abatement. (a) Except as otherwise specifically provided in this Section, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate this Lease Agreement by virtue of any such interference, and this Lease Agreement shall continue in full force and effect. The City and the Authority shall, in a reasonable manner and in good faith, determine the amount of such abatement; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall provide the Trustee with a certificate setting forth the amount of abatement and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed. (b) Notwithstanding the foregoing, to the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments, Rental Payments shall not be abated as provided in subsection (a) of this Section but, rather, shall be payable by the City as a special obligation payable solely from such Net Proceeds. Page 308 of 501 8 4142-7460-2566.8 Prepayment. (a) The City may cause all or a portion of the Bonds to be optionally redeemed pursuant to Section 4.02 of the Indenture by prepaying on any date on or after December 1, ____, all or a portion of the Base Rental Payments from any source of available funds, which prepayment shall be accomplished by the City’s paying an amount sufficient to cause such Bonds to be redeemed pursuant to Section 4.02 of the Indenture on such prepayment date. (b) The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Indenture sufficient to make such Base Rental Payments when due or to make such Base Rental payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to subsection (a) of this Section, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. (c) If less than all of the Base Rental Payments are prepaid pursuant to this Section then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the principal and interest components of the Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of Base Rental Payments, the Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. (d) If all of the Base Rental Payments are prepaid in accordance with the provisions of this Lease Agreement then, as of the date of such prepayment pursuant to subsection (a) of this Section, or deposit pursuant to subsection (b) of this Section, the term of this Lease Agreement shall be terminated. (e) Before making any prepayment pursuant to this Article, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 days prior to the prepayment date, unless such notice shall be waived by the Authority and the Trustee. ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS Quiet Enjoyment. The Authority hereby covenants and agrees that it will not take any action to prevent the City, so long as the City is keeping and performing the covenants and agreements herein contained, from having quiet and peaceable possession and enjoyment of the Property during the term hereof. Net-Net-Net Lease. This Lease Agreement shall be deemed and construed to be a “net-net-net lease” and the City hereby agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever and notwithstanding any dispute between the City and the Authority. Right of Entry. The Authority shall have the right to enter upon and to examine and inspect the Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority’s rights or obligations under this Lease Agreement, and for all other lawful purposes. Page 309 of 501 9 4142-7460-2566.8 Maintenance and Utilities. Throughout the term of this Lease Agreement, as part of the consideration for rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Property. Additions to Property. Subject to Section 4.07 hereof, the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value that is at least equal to the value of the Property immediately prior to the making of such additions, modifications and improvements. Installation of City’s Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Property resulting from the installation, modification or removal of any such items; and the Property, upon completion of any installations, modifications or removals made pursuant to this Section, shall be of a value that is at least equal to the value of the Property immediately prior to the making of such installations, modifications or removals. Nothing in this Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this Section under a conditional sale or lease purchase contract, or subject to a vendor’s lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Property. Mechanics’, Etc. Liens. In the event the City shall at any time during the term of this Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Property and that may be secured by a mechanics’, materialmen’s or other lien against the Property or the Authority’s interest therein, and shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contest is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Other Liens. The City shall keep the Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the Page 310 of 501 10 4142-7460-2566.8 City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN Public Liability and Property Damage Insurance; Workers’ Compensation Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations under this subsection may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of Section 5.04 hereof. (b) The City shall maintain or cause to be maintained casualty insurance insuring the Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as provided in Section 5.05 hereof. The City’s obligations under this subsection may be satisfied by self-insurance, provided that such self- insurance complies with the provisions of Section 5.04 hereof. (c) The City shall maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to subsection (b) of this Section in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City’s right to the use or occupancy of the Property. The City’s obligations under this subsection may not be satisfied by self-insurance. (d) The insurance required by this Section other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the Page 311 of 501 11 4142-7460-2566.8 City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. Title Insurance. The City shall provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Property (b) the Authority’s ground leasehold estate in the Property under the Ground Lease, and (c) the City’s leasehold estate hereunder in the Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. The Net Proceeds of such title insurance shall be applied as provided as provided in Section 5.06 hereof. Additional Insurance Provision; Form of Policies. (a) The City shall pay or cause to be paid when due the premiums for all insurance policies required by Section 5.01 hereof, and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City. (b) The City shall cause to be delivered to the Trustee, within 90 days following the close of each Fiscal Year, a schedule of the insurance policies being maintained in accordance herewith and a Written Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of this Article. The Trustee shall be entitled to rely upon said Written Certificate of the City as to the City’s compliance with this Article. The Trustee shall not be responsible for the sufficiency of coverage or amounts of such policies. Self-Insurance. Any self-insurance maintained by the City pursuant to this Article shall comply with the following terms: (a) the self-insurance program shall be approved in writing by the City’s professionally qualified risk manager or by an independent insurance consultant; (b) the self-insurance program shall include an actuarially sound claims reserve fund out of which each self-insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi-annual basis by the City’s professionally qualified risk manager or by an independent insurance consultant and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of the City’s professionally qualified risk manager or such independent insurance consultant, as applicable; and (c) in the event the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City’s professionally qualified risk manager or by an independent insurance consultant, shall be maintained. Damage or Destruction. (a) If the Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. Page 312 of 501 12 4142-7460-2566.8 (b) If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. (c) If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. Net Proceeds of Title Insurance. (a) If a defect in title to the Property results in the creation of a right to receive Net Proceeds under any policy of title insurance with respect to the Property or any portion thereof, the City shall, within 30 days of the creation of such right, notify the Trustee in writing of the City’s determination as to whether or not such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b) If the City determines that such title defect will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, such Net Proceeds shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) within 60 days of the creation of such right to receive such Net Proceeds, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered such Net Proceeds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. Page 313 of 501 13 4142-7460-2566.8 Eminent Domain. (a) If all or a portion of the Property shall be taken under the power of eminent domain, the City shall, no later than 45 days prior to the day that possession thereof shall be so taken, notify the Trustee in writing of the City’s determination as to whether or not such taking will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b) If the City determines that such taking will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, any award made in eminent domain proceedings for such taking shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such taking will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) no later than 60 days prior to the day that possession thereof shall be so taken, cause alternate real property to be substituted for all or a portion of the Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. ARTICLE VI REPRESENTATIONS; COVENANTS Representations of the City. The City represents and warrants (a) that the City has the full power and authority to enter into, to execute and to deliver this Lease Agreement and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Lease Agreement, and (b) the Property will be used in the performance of essential governmental functions. Representation of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver this Lease Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement and the Indenture. Recordation. The City shall record, or cause to be recorded, with the Riverside County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 of the Indenture. Use of the Property. The City will not use, operate or maintain the Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner that does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Property or its interest or rights under this Lease Agreement. Other Liens. The City shall keep the Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and Page 314 of 501 14 4142-7460-2566.8 other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Taxes. (a) The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the term of this Lease Agreement as and when the same become due. (b) After giving notice to the Authority and the Trustee, the City or any sublessee may, at the City’s or such sublessee’s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Property will be materially endangered or the Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss that may result from nonpayment, in form satisfactory to the Authority. No Liability; Indemnification. (a) The Authority and its directors, officers, agents and employees, shall not be liable to the City or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Property. To the extent permitted by law, the City shall, at its expense, indemnify and hold the Authority and the Trustee and all directors, members, officers and employees thereof harmless against and from any and all claims by or on behalf of Person arising from the acquisition, construction, occupation, use, operation, maintenance, possession, conduct or management of or from any work done in or about the Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restrictions, laws, ordinances, or regulations affecting the Property or the occupancy or use thereof, but excepting the negligence or willful misconduct of the persons or entity seeking indemnity. The City also covenants and agrees, at its expense, to pay and indemnify and save the Authority and the Trustee and all directors, officers and employees thereof harmless against and from any and all claims arising from (i) any condition of the Property and the adjoining sidewalks and passageways, (ii) any breach or default on the part of the City in the performance of any covenant or agreement to be performed by the City pursuant to this Lease Agreement, (iii) any act or negligence of licensees in connection with their use, occupancy or operation of the Property, or (iv) any accident, injury or damage whatsoever caused to any person, firm or corporation in or about the Property or upon or under the sidewalks and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any claim referred to in this Section, but excepting the negligence or willful misconduct of the person or entity seeking indemnity. In the event that any action or proceeding is brought against the Authority or the Trustee or any director, member, officer or employee thereof, by reason of any such claim, the City, upon notice from the Authority or the Trustee or such director, member, officer or employee thereof, covenants Page 315 of 501 15 4142-7460-2566.8 to resist or defend such action or proceeding by counsel reasonably satisfactory to the Authority or the Trustee or such director, member, officer or employee thereof. (b) In no event shall the Authority be liable for any incidental, indirect, special or consequential damage in connection with or arising out of this Lease Agreement or the City’s use of the Property. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Lease Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided in this Lease Agreement. ARTICLE VII LEASE DEFAULT EVENTS AND REMEDIES Lease Default Events and Remedies. (a) If (i) the City shall fail (A) to pay any Rental Payment payable hereunder when the same becomes due and payable, time being expressly declared to be of the essence in this Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained herein to be kept or performed by the City, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority, or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, (ii) except as otherwise provided in Article VIII hereof, the City’s interest in this Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, (iii) the City or the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute, or (iv) the City shall fail to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, such failure or event shall constitute a Lease Default Event under this Lease Agreement. (b) Upon the occurrence of any Lease Default Event hereunder, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (i) To terminate this Lease Agreement in the manner hereinafter provided on account of such Lease Default Event, notwithstanding any re-entry or re-letting of the Property as hereinafter provided for in subparagraph (ii) hereof, and to re-enter the Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Property, without let or hindrance, and to pay the Authority all Page 316 of 501 16 4142-7460-2566.8 damages recoverable at law that the Authority may incur by reason of such Lease Default Event, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. Neither notice to pay Rental Payments or to deliver up possession of the Property given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of a Lease Default Event hereunder shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease Agreement. The City covenants and agrees that no surrender of the Property or of the remainder of the term hereof or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (ii) Without terminating this Lease Agreement, (A) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions hereof to be kept or performed by the City, regardless of whether or not the City has abandoned the Property, or (B) to exercise any and all rights of entry and re-entry upon the Property. In the event the Authority does not elect to terminate this Lease Agreement in the manner provided for in subparagraph (i) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, if the Property is not re- let, to pay the full amount of the Rental Payments to the end of the term of this Lease Agreement or, in the event that the Property is re-let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and/or Rental Payment deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of Rental Payments hereunder, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments herein specified, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property. Should the Authority elect to re-enter as herein provided, the City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re-let the Property, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re-let the Property in the event of such re-entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of this Lease Agreement irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, upon the occurrence of a Lease Default Event hereunder, the right to terminate this Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in subparagraph (i) hereof. The City further agrees to pay the Authority the cost of any alterations or Page 317 of 501 17 4142-7460-2566.8 additions to the Property necessary to place the Property in condition for re-letting immediately upon notice to the City of the completion and installation of such additions or alterations. The City hereby waives any and all claims for damages caused or that may be caused by the Authority in re-entering and taking possession of the Property as herein provided and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Property. (c) In addition to the other remedies set forth in this Section, upon the occurrence of a Lease Default Event hereunder, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by this Lease Agreement or by law. The provisions of this Lease Agreement and the duties of the City and of its board, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions: (i) Accounting. By action or suit in equity to require the City and its board, officers and employees and its assigns to account as the trustee of an express trust. (ii) Injunction. By action or suit in equity to enjoin any acts or things that may be unlawful or in violation of the rights of the Authority. (iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided herein. (d) Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege hereunder shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used in this Section shall include, but not be limited to, re-letting by means of the operation by the Authority of the Property. If any statute or rule of law validly shall limit the remedies given to the Authority hereunder, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. (e) In the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of this Lease Agreement, the City agrees to pay a reasonable amount as and for attorney’s fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority hereunder. (f) Notwithstanding anything to the contrary contained in this Lease Agreement, the Authority shall have no right upon a default by the City hereunder, a Lease Default Event hereunder or otherwise to accelerate Rental Payments. (g) Notwithstanding anything herein to the contrary, the termination of this Lease Agreement by the Authority on account of a Lease Default Event hereunder shall not effect or result in a termination of the lease of the Property by the City to the Authority pursuant to the Ground Lease. Waiver. Failure of the Authority to take advantage of any default on the part of the City shall not be, or be construed as, a waiver thereof, nor shall any custom or practice that may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the City of any term, covenant or condition hereof, or Page 318 of 501 18 4142-7460-2566.8 to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of any other default or of the same default subsequently occurring. The acceptance of Rental Payments hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease Agreement. ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE Amendments. (a) This Lease Agreement and the Ground Lease, and the rights and obligations of the Authority and the City hereunder and thereunder, may be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, but only with the prior written consent of the Owners of a majority of the aggregate principal amount the Bonds then Outstanding, provided that no such amendment shall (i) extend the payment date of any Base Rental Payment or reduce any Base Rental Payment, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the aggregate principal amount the Bonds, the consent of the Owners of which is required for the execution of any amendment of this Lease Agreement or the Ground Lease, without the prior written consent of the Owners of all the Bonds then Outstanding. (b) This Lease Agreement and the Ground Lease, and the rights and obligations of the City and the Authority hereunder and thereunder, may also be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed herein or therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved herein or therein to or conferred herein or therein on the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or therein or in regard to questions arising hereunder or thereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and that shall not materially adversely affect the rights or interests of the Owners; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds or maintain any federal interest subsidies expected to be received with respect to any Bonds; or (iv) [Reserved]; (v) to provide for the substitution or release of a portion of the Property in accordance with the provisions of Section 8.03 hereof; or (vi) to make such other changes herein or therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and that shall not materially adversely affect the interests of the Owners. Page 319 of 501 19 4142-7460-2566.8 Assignment and Subleasing. Neither this Lease Agreement nor any interest of the City hereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation of law or otherwise; provided, however, that the Property may be subleased in whole or in part by the City, provided that any such sublease shall be subject to all of the following conditions: (a) this Lease Agreement and the obligation of the City to make all Rental Payments hereunder shall remain the primary obligation of the City; (b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) any sublease of the Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under this Lease Agreement, including, the right to re-enter and re-let the Property or terminate this Lease Agreement upon a Lease Default Event hereunder; and (d) the City shall furnish the Authority and the Trustee with an Opinion of Bond Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Substitution or Release of the Property. The City shall have the right to substitute alternate real property for any portion of the Property or to release a portion of the Property from this Lease Agreement. The City shall bear all costs and expenses incurred in connection with any substitution or release. A substitution or release under this Section 8.03 will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. Each substitution or release of any portion of the Property is subject to the following conditions, which are conditions precedent to such a substitution or release: (a) the City and the Authority must have executed, and the Trustee must have consented to, amendments to the Ground Lease and this Lease Agreement that contain the amended description of the Property as constituted after the substitution and release, and the City must have caused the amendments to be duly recorded with San Luis Obispo County Clerk/Recorder; (b) the City must have filed with the Trustee a Written Certificate of the City certifying that (1) the sum of Base Rental Payments plus Additional Rental Payments due under the Lease Agreement in any Rental Period is not in excess of the annual fair-rental value of the Property as constituted after the substitution or release, (2) the Property as constituted after the substitution or release has a useful life equal to or greater than the remaining term of the Bonds, and (3) the City has beneficial use and occupancy of the Property as constituted after such substitution or release; (c) the City must have obtained or caused to be obtained an ALTA or CLTA owner’s title-insurance policy or policies (or an amendment or endorsement to an existing policy or policies) with respect to the Property as constituted after the substitution or release, in substantially the same form as required by Section 5.02 and in an amount at least equal to the principal amount of the Bonds then Outstanding. (d) The City must have filed or caused to be filed with the Trustee an Opinion of Counsel to the effect that the substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income-tax purposes. Page 320 of 501 20 4142-7460-2566.8 ARTICLE IX MISCELLANEOUS Assignment to Trustee. The City understands and agrees that, upon the execution and delivery of the Indenture (which is occurring simultaneously with the execution and delivery hereof), certain right, title and interest of the Authority in and to this Lease Agreement will be sold, assigned and transferred to the Trustee for the benefit of the Owners of the Bonds. The City hereby consents to such sale, assignment and transfer. Upon the execution and delivery of the Indenture, references in the operative provisions hereof to the Authority shall be deemed to be references to the Trustee, as assignee of the Authority. Validity and Severability. If for any reason this Lease Agreement shall be held by a court of competent jurisdiction to be void, voidable or unenforceable by the Authority or by the City, or if for any reason it is held by such a court that any of the covenants and conditions of the City hereunder, including the covenant to pay Rental Payments, is unenforceable for the full term hereof, then and in such event this Lease Agreement is and shall be deemed to be a lease agreement under which the Rental Payments are to be paid by the City annually in consideration of the right of the City to possess, occupy and use the Property, and all of the terms, provisions and conditions of this Lease Agreement, except to the extent that such terms, provisions and conditions are contrary to or inconsistent with such holding, shall remain in full force and effect. Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Authority: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Trustee: U.S. Bank Trust Company, National Association 633 W 5th Street, 24th Floor Los Angeles, California 90071 Attention: Global Corporate Trust Services Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if Page 321 of 501 21 4142-7460-2566.8 given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Lease Agreement. Governing Laws. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Lease Agreement may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Lease Agreement using an electronic signature, it is signing, adopting, and accepting this Lease Agreement and that signing this Lease Agreement using an electronic signature is the legal equivalent of having placed its handwritten signature on this Lease Agreement on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Lease Agreement in a usable format. Execution in Counterparts. This Lease Agreement 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 shall together constitute but one and the same instrument. Page 322 of 501 22 4142-7460-2566.8 IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, as Lessor By: Derek Johnson, Treasurer CITY OF SAN LUIS OBISPO, Lessee By: Derek Johnson, City Manager Page 323 of 501 A-1 4142-7460-2566.8 EXHIBIT A DESCRIPTION OF THE PROPERTY All of that real property situated in the City of San Luis Obispo, County of San Luis Obispo, State of California, described as follows, and any improvements thereto: [TO COME] Page 324 of 501 B-1 4142-7460-2566.8 EXHIBIT B DESCRIPTION OF THE PROJECT The acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City of San Luis Obispo’s Cultural Arts District and other public capital improvements throughout the City. Page 325 of 501 Page 326 of 501 OHS DRAFT 08/03/2023 4132-8330-4518.9 INDENTURE by and among SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY and CITY OF SAN LUIS OBISPO and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE Dated as of [September 1, 2023] Relating to San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Page 327 of 501 TABLE OF CONTENTS Page i 4132-8330-4518.9 DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY ................................ 2 Section 1.01. Definitions ...................................................................................................... 2 Section 1.02. Rules of Construction ..................................................................................... 8 Section 1.03. Equal Security ................................................................................................ 9 THE BONDS .......................................................................................................................... 9 Section 2.01. Authorization of Bonds .................................................................................. 9 Section 2.02. Terms of Bonds ............................................................................................ 10 Section 2.03. Execution of Bonds ...................................................................................... 11 Section 2.04. Authentication of Bonds ............................................................................... 11 Section 2.05. Registration Books ....................................................................................... 11 Section 2.06. Transfer and Exchange of Bonds ................................................................. 11 Section 2.07. Book-Entry System ...................................................................................... 12 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ................................................ 14 Section 2.09. Temporary Bonds ......................................................................................... 14 DELIVERY OF BONDS; APPLICATION OF AMOUNTS ............................................. 14 Section 3.01. Issuance of the Bonds ................................................................................... 14 Section 3.02. Issuance of the Bonds; Application of Proceeds .......................................... 15 Section 3.03. Costs of Issuance Fund ................................................................................. 15 Section 3.04. Project Fund ................................................................................................. 15 REDEMPTION OF BONDS .............................................................................................. 16 Section 4.01. Extraordinary Redemption ........................................................................... 16 Section 4.02. Optional Redemption ................................................................................... 16 Section 4.03. Mandatory Sinking Fund Redemption ......................................................... 16 Section 4.04. Notice of Redemption .................................................................................. 17 Section 4.05. Selection of Bonds for Redemption ............................................................. 18 Section 4.06. Partial Redemption of Bonds ....................................................................... 18 Section 4.07. Effect of Notice of Redemption ................................................................... 18 PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS ........................................... 18 Section 5.01. Pledge and Assignment ................................................................................ 18 Section 5.02. Payment Fund ............................................................................................... 19 Section 5.03. Redemption Fund ......................................................................................... 19 Section 5.04. [Reserved]. ................................................................................................... 19 Section 5.05. Rebate Fund.................................................................................................. 20 Section 5.06. Reserved ....................................................................................................... 20 Section 5.07. Investments................................................................................................... 20 Page 328 of 501 TABLE OF CONTENTS (continued) Page ii 4132-8330-4518.9 NET PROCEEDS AND TITLE INSURANCE; COVENANTS ........................................ 21 Section 6.01. Application of Net Proceeds ........................................................................ 21 Section 6.02. Title Insurance .............................................................................................. 22 Section 6.03. Punctual Payment ......................................................................................... 22 Section 6.04. Compliance with Indenture .......................................................................... 23 Section 6.05. Compliance with Ground Lease and Lease Agreement ............................... 23 Section 6.06. Observance of Laws and Regulations .......................................................... 23 Section 6.07. Other Liens ................................................................................................... 23 Section 6.08. Prosecution and Defense of Suits ................................................................. 23 Section 6.09. Recordation .................................................................................................. 23 Section 6.10. Tax Covenants .............................................................................................. 24 Section 6.11. Continuing Disclosure .................................................................................. 24 Section 6.12. Notifications Required by the Act ................................................................ 24 Section 6.13. Further Assurances ....................................................................................... 24 EVENTS OF DEFAULT AND REMEDIES .................................................................... 24 Section 7.01. Events of Default .......................................................................................... 24 Section 7.02. Action on Default ......................................................................................... 25 Section 7.03. Other Remedies ............................................................................................ 25 Section 7.04. Remedies Not Exclusive .............................................................................. 26 Section 7.05. Application of Amounts After Default ......................................................... 26 Section 7.06. Power of Trustee to Enforce ......................................................................... 26 Section 7.07. Owners’ Direction of Proceedings ............................................................... 26 Section 7.08. Limitation on Owners’ Right to Sue ............................................................ 26 Section 7.09. Termination of Proceedings ......................................................................... 27 Section 7.10. No Waiver of Default ................................................................................... 27 THE TRUSTEE................................................................................................................ 27 Section 8.01. Duties and Liabilities of Trustee .................................................................. 27 Section 8.02. Qualifications; Removal and Resignation; Successors ................................ 27 Section 8.03. Liability of Trustee ....................................................................................... 29 Section 8.04. Right to Rely on Documents and Opinions .................................................. 30 Section 8.05. Accounting Records and Financial Statements ............................................ 32 Section 8.06. Preservation and Inspection of Documents .................................................. 32 Section 8.07. Compensation and Indemnification of the Trustee ...................................... 32 SUPPLEMENTAL INDENTURES ................................................................................... 32 Section 9.01. Supplemental Indentures .............................................................................. 32 Section 9.02. Effect of Supplemental Indenture ................................................................. 33 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ..................................... 33 Page 329 of 501 TABLE OF CONTENTS (continued) Page iii 4132-8330-4518.9 Section 9.04. Amendment of Particular Bonds .................................................................. 34 DEFEASANCE .................................................................................................................... 34 Section 10.01. Discharge of Indenture ................................................................................. 34 Section 10.02. Bonds Deemed to Have Been Paid ............................................................... 34 Section 10.03. Unclaimed Moneys ...................................................................................... 35 MISCELLANEOUS ........................................................................................................... 36 Section 11.01. Successor Deemed Included in all References to Predecessor ..................... 36 Section 11.02. Limitation of Rights ..................................................................................... 36 Section 11.03. Destruction of Bonds .................................................................................... 36 Section 11.04. Severability of Invalid Provisions ................................................................ 36 Section 11.05. Notices .......................................................................................................... 36 Section 11.06. Evidence of Rights of Owners...................................................................... 37 Section 11.07. Disqualified Bonds ....................................................................................... 37 Section 11.08. Money Held for Particular Bonds ................................................................ 38 Section 11.09. Funds and Accounts ..................................................................................... 38 Section 11.10. Business Days .............................................................................................. 38 Section 11.11. Waiver of Personal Liability ........................................................................ 38 Section 11.12. Conclusive Evidence of Regularity .............................................................. 38 Section 11.13. Partial Invalidity ........................................................................................... 38 Section 11.14. Governing Laws ........................................................................................... 39 Section 11.15. Electronic Signature ..................................................................................... 39 Section 11.16. Execution in Counterparts ............................................................................ 39 EXHIBIT A PERMITTED INVESTMENTS ..........................................................................................A-1 EXHIBIT B FORM OF BOND ............................................................................................................... B-1 Page 330 of 501 4132-8330-4518.9 INDENTURE THIS INDENTURE (this “Indenture”), dated as of [September 1, 2023], is by and among the SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), the CITY OF SAN LUIS OBISPO, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as Trustee (the “Trustee”). W I T N E S S E T H: WHEREAS, the Authority is a joint exercise of powers authority duly organized and operating pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California; WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California authorizes and empowers joint powers authorities to issue bonds to assist local agencies in financing projects and programs consisting of certain public improvements or working capital or liability and other insurance needs whenever a local agency determines that there are significant public benefits from so doing; WHEREAS, the City desires to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”); WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; WHEREAS, the Capital Improvement Board previously issued its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”) pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and defeasing prior obligations of the City; WHEREAS, the City proposes to refinance the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, the Authority is empowered pursuant to the aforementioned Article 4 to issue its bonds and to apply the proceeds thereof to assist in financing the Project and the refinancing of the 2012 Lease to allow for the defeasance and refunding of the 2012 Bonds; WHEREAS, the Authority desires to assist the City with the financing of the Project and the refinancing and defeasing of the 2012 Bonds; WHEREAS, in order to finance the Project and to refinance and defease the 2012 Bonds, the City is leasing certain real property, and the improvements thereto (the “Property”), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the “Lease Agreement”); Page 331 of 501 2 4132-8330-4518.9 WHEREAS, in order to provide the funds necessary to finance the Project and to refinance and defease the 2012 Bonds, the Authority and the City desire to provide for the issuance of $[Par Amount] aggregate principal amount of its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), payable from the Base Rental Payments to be made by the City pursuant to the Lease Agreement; WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, each of the Authority and the City has authorized the execution and delivery of this Indenture; WHEREAS, the Authority and the City have determined 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 and binding 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 has been in all respects duly authorized; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Indenture do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Indenture. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, and premium, if any, and interest on all Bonds at any time issued and outstanding 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 consideration, the receipt whereof is hereby acknowledged, the Authority and the City do hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Lease Agreement. “Act” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code. “Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 of the Lease Agreement. “Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the scheduled principal amount of Page 332 of 501 3 4132-8330-4518.9 the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). “Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. “Authorized Denominations” means, with respect to the Bonds, $5,000 and integral multiples thereof. “Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Average Annual Debt Service” means the average of the Annual Debt Service for all Bond Years, including the Bond Year in which the calculation is made. “Base Rental Payments” means all amounts payable to the Authority by the City as Base Rental Payments pursuant to Section 3.02 of the Lease Agreement. “Beneficial Owners” means those Persons for which the Participants have caused the Depository to hold Book-Entry Bonds. “Bond Year” means the twelve-month period beginning on [December] 1 each year and extending to the next succeeding [November 30], both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on [December 1, 2023]. “Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023. “Book-Entry Bonds” means the Bonds registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of Section 2.07. “Business Day” means a day that is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. “Capital Improvement Board” means the City of San Luis Obispo Capital Improvement Board. “Cede & Co.” means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to Book-Entry Bonds. “City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Closing Date” means the date upon which the Bonds are delivered to the Original Purchaser, being [Closing Date]. Page 333 of 501 4 4132-8330-4518.9 “Code” means the Internal Revenue Code of 1986. “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated as of [September 1, 2023], executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Costs of Issuance” means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with this Indenture, the Lease Agreement, the Ground Lease, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03 hereof. “Defeasance Securities” means (a) non-callable direct obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America (“United States Treasury Obligations”), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. “Depository” means DTC, and its successors as securities depository for any Book-Entry Bonds, including any such successor appointed pursuant to Section 2.07 hereof. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. “Electronic Means” means e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder. “Event of Default” means any event or circumstance specified in Section 7.01 hereof. “Fair Market Value” means, with respect to any investment, 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, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with Page 334 of 501 5 4132-8330-4518.9 applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. “Ground Lease” means the Ground Lease, dated as of [September 1, 2023], by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement. “Indenture” means this Indenture, dated as of [September 1, 2023], by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee, as originally executed and as it may from time to time be amended or supplemented by any Supplemental Indenture. “Independent Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by or acceptable to the City, and who, or each of whom: (a) is in fact independent and not under domination of the City; (b) does not have any substantial interest, direct or indirect, with the City; and (c) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. “Interest Account” means the Interest Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. “Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. “Lease Agreement” means the Lease Agreement, dated as of [September 1, 2023], by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Lease Default Event” means an event of default pursuant to and as described in Section 7.01 of the Lease Agreement. “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. “Letter of Representations” means the Letter of Representations from the Authority to the Depository, in which the Authority makes certain representations with respect to issues of its securities for deposit by the Depository. “Maximum Annual Debt Service” means the largest Annual Debt Service for any Bond Year, including the Bond Year the calculation is made. “Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.07 hereof. Page 335 of 501 6 4132-8330-4518.9 “Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City in writing; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the Authority and the City by the Trustee in writing. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. “Original Purchaser” means the original purchaser of the Bonds from the Authority. “Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of Section 11.07 hereof, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.01 hereof, and (c) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee, or that have been paid without surrender thereof, pursuant to Section 2.08 hereof. “Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. “Participant” means any entity that is recognized as a participant by DTC in the book-entry system of maintaining records with respect to Book-Entry Bonds. “Participating Underwriters” has the meaning ascribed thereto in the Continuing Disclosure Certificate. “Payment Fund” means the fund by that name established in accordance with Section 5.02 hereof. “Permitted Investments” is defined in Exhibit A attached hereto. “Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. “Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. “Principal Payment Date” means a date on which the principal of the Bonds becomes due and payable as a result of the maturity thereof or by mandatory sinking fund redemption. “Project” means the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements. “Project Costs” means all costs of constructing and installing the Project, including but not limited to (a) all costs which the Authority or the City shall be required to pay to a seller or any other Page 336 of 501 7 4132-8330-4518.9 Person under the terms of any contract or contracts for the purchase of the Project, (b) all costs which the Authority or the City shall be required to pay a contractor or any other Person for the acquisition, construction and installation of the Project, (c) obligations of the Authority or the City incurred for services (including obligations payable to the Authority or the City for actual out-of-pocket expenses of the Authority or the City) in connection with the acquisition, construction and installation of the Project, including reimbursement to the Authority or the City for all advances and payments made in connection with the Project prior to or after issuance of the Bonds, (d) the actual out-of-pocket costs of the Authority or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the Project, including administrative expenses under the Lease Agreement and hereunder relating to the acquisition, construction and installation of the Project, and (e) any sums required to reimburse the Authority or the City for advances made by the Authority or the City for any of the above items or for any other costs incurred and for work done by the Authority or the City that are properly chargeable to the Project. “Project Fund” means the fund by that name established pursuant to Section 3.04 hereof. “Rebate Fund” means the fund by that name established pursuant to Section 5.05 hereof. “Rebate Requirement” has the meaning ascribed thereto in the Tax Certificate. “Record Date” means, with respect to interest payable on 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 pursuant to Section 5.03 hereof. “Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05 hereof. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. “Rental Period” means the period from the Closing Date through [December 31, 2024] and, thereafter, the twelve-month period commencing on [January 1] of each year during the term of the Lease Agreement. “Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds pursuant to this Indenture. “S&P” means S&P Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. “Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. Page 337 of 501 8 4132-8330-4518.9 “State” means the State of California. “Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. “Tax Certificate” means the Tax Certificate executed by the Authority at the time of issuance of the Bonds, relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Tax-Exempt” means, with respect to interest on any obligations of a state or local government, including interest on the Bonds, that such interest is excluded from the gross income of the holders thereof for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code. “Trustee” means U.S. Bank Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee hereunder substituted in its place as provided herein. “Verification Report” means, with respect to the deemed payment of Bonds pursuant to Section 10.02(a) hereof, a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of clause (ii)(B) of subsection (a) of Section 10.02(a) hereof. “Written Certificate” and “Written Request” (a) of the Authority mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Representative of the Authority, and (b) of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. “2012 Bonds” means the City of San Luis Obispo Capital Improvement Board 2012 Lease Revenue Refunding Bonds, issued pursuant to an Indenture of Trust, dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee. “2012 Escrow Agreement” means the Escrow Agreement, dated as of [September 1, 2023], by and between the Capital Improvement Board and U.S. Bank Trust Company, National Association as escrow agent for 2012 Bonds for the purpose of defeasing and refunding of the 2012 Bonds. “2012 Lease” means the Lease Agreement, dated as of June 1, 2012 between the City and the Capital Improvement Board. Section 1.02. Rules of Construction. (a) The terms defined herein expressed in the singular shall, unless the context otherwise indicates, include the plural and vice versa. (b) The use herein of the masculine, feminine or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine or neuter gender, as appropriate. Page 338 of 501 9 4132-8330-4518.9 (c) References herein to a document shall include all amendments, supplements or other modifications to such document, and any replacements, substitutions or novation of, that document. (d) Any term defined herein by reference to another document shall continue to have the meaning ascribed thereto whether or not such other document remains in effect. (e) The use herein of the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation.” (f) 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. (g) All references herein to designated “Articles,” “Sections,” “Exhibits,” “subsections,” “paragraphs,” “clauses,” and other subdivisions are to the designated Articles, Sections, Exhibits, subsections, paragraphs, clauses, and other subdivisions of this Indenture. (h) The words “hereof” (except when preceded by a specific Section or Article reference) “herein,” “hereby,” “hereunder,” “hereinabove,” “hereinafter,” and other equivalent words and phrases used herein refer to this Indenture and not solely to the particular portion hereof in which any such word is used. Section 1.03. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, and premium, if any, and interest on all Bonds that may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Authority or the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. THE BONDS Section 2.01. Authorization of Bonds. (a) The Authority hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Act and other applicable laws of the State. (b) The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. (c) Notwithstanding anything to the contrary contained herein, if, as a result of the limitations contained in Section 3.07 of the Lease Agreement, Base Rental Payments cannot be paid by the City in an amount sufficient to pay the principal of, or interest on, the Bonds otherwise payable on any date, such principal or interest shall be deemed not to be payable on such date, the nonpayment thereof on such date shall not constitute a default or an Event of Default under this Indenture and such principal or Page 339 of 501 10 4132-8330-4518.9 interest shall become payable on the date on which such Base Rental Payments becomes payable under and pursuant to the Lease Agreement. Section 2.02. Terms of Bonds. (a) The Bonds shall be designated “San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023.” The aggregate principal amount of Bonds that may be issued and Outstanding under this Indenture shall not exceed $[Par Amount], except as may be otherwise provided in Section 2.08 hereof. The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $[Par Amount], shall mature on December 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts as follows: Maturity Date (December 1) Principal Amount Interest Rate $ % (b) Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) 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 interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid 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, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of the Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee 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 to be established by the Trustee for Page 340 of 501 11 4132-8330-4518.9 the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (c) The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (d) The Bonds shall be in substantially the form set forth in Exhibit B hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. Section 2.04. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Bonds, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.05. Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as herein provided. Section 2.06. Transfer and Exchange of Bonds. (a) Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any Authorized Denomination. 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. (b) The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. Page 341 of 501 12 4132-8330-4518.9 (c) The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period commencing on the date five days before the date of selection of Bonds of such Series for redemption and ending on the date of mailing notice of such redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.07. Book-Entry System. (a) Prior to the issuance of a Series of Bonds, the Authority may provide that such Series of Bonds shall initially be issued as Book-Entry Bonds, and in such event, the Bonds of such Series for each maturity date shall be in the form of a separate single fully registered Bond (which may be typewritten); provided, however, that if different CUSIP numbers are assigned to Bonds of a Series maturing in a single year or, if Bonds of the same Series maturing in a single year are issued with different interest rates, additional bond certificates shall be prepared for each such maturity. Upon initial issuance, the ownership of each such Bond of such Series shall be registered in the Registration Books in the name of the Nominee, as nominee of the Depository. The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books. (b) With respect to Book-Entry Bonds, the Authority, the City and the Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of which such a Participant holds an interest in such Book-Entry Bonds. Without limiting the immediately preceding sentence, the Authority, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in Book-Entry Bonds, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any notice with respect to Book-Entry Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in Book- Entry Bonds of a maturity to be redeemed in the event such Book-Entry Bonds are redeemed in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any amount with respect to principal of, or premium, if any, or interest on Book-Entry Bonds, or (v) any consent given or other action taken by the Depository as Owner. (c) The Authority, the City and the Trustee may treat and consider the Person in whose name each Book-Entry Bond is registered in the Registration Books as the absolute Owner of such Book-Entry Bond for the purpose of payment of principal of, and premium, if any, and interest on such Bond, for the purpose of selecting any Bonds, or portions thereof, to be redeemed, for the purpose of giving notices of redemption and other matters with respect to such Book-Entry Bond, for the purpose of registering transfers with respect to such Book-Entry Bond, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the Authority, the City and the Trustee shall not be affected by any notice to the contrary. (d) In the event of a redemption of all or a portion of a Book-Entry Bond, the Depository, in its discretion (i) may request the Trustee to authenticate and deliver a new Book-Entry Bond, or (ii) if the Depository is the sole Owner of such Book-Entry Bond, shall make an appropriate notation on the Book- Entry Bond indicating the date and amounts of the reduction in principal thereof resulting from such redemption, except in the case of final payment, in which case such Book-Entry Bond must be presented to the Trustee prior to payment. Page 342 of 501 13 4132-8330-4518.9 (e) The Trustee shall pay all principal of, and premium, if any, and interest on the Book- Entry Bonds only to or “upon the order of” (as that term is used in the Uniform Commercial Code as adopted in the State) the respective Owner, as shown in the Registration Books, or such Owner’s respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the obligations with respect to payment of principal of, and premium, if any, and interest on the Book-Entry Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the Registration Books, shall receive an authenticated Book-Entry Bond. Upon delivery by the Depository to the Owners, the Authority, the City and the Trustee of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Indenture shall refer to such nominee of the Depository. (f) In order to qualify the Book-Entry Bonds for the Depository’s book-entry system, the Authority shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the Authority, the City or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Bonds other than the Owners, as shown on the Registration Books. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to the Depository. In addition to the execution and delivery of a Letter of Representations by the Authority, the Authority, the City and the Trustee shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify Book-Entry Bonds for the Depository’s book-entry program. (g) In the event the Authority determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Bonds and that such Bonds should therefore be made available, and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Bonds. In such event, the Trustee shall transfer and exchange certificated Bonds as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Bonds, or (ii) the Depository shall no longer so act and gives notice to the Trustee of such determination, then the Authority shall discontinue the Book-Entry system with the Depository. If the Authority determines to replace the Depository with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate, fully-registered Bond of the appropriate Series for each maturity date of such Book-Entry Bonds, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Authority fails to identify another qualified securities depository to replace the Depository, then the Book-Entry Bonds shall no longer be restricted to being 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 such Bonds shall designate, in accordance with the provisions of Sections 2.06, 2.08 and 2.09. Whenever the Depository requests the Authority to do so, the Authority shall cooperate with the Depository in taking appropriate action after reasonable notice (i) to make available one or more separate certificates evidencing the Book- Entry Bonds to any Participant having Book-Entry Bonds credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Book- Entry Bonds. (h) Notwithstanding any other provision of this Indenture to the contrary, if the Depository is the sole Owner of the Bonds of a Series, so long as any Book-Entry Bond is registered in the name of the Nominee, all payments of principal of, and premium, if any, and interest on such Book-Entry Bond of such Series and all notices with respect to such Book-Entry Bond shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. Page 343 of 501 14 4132-8330-4518.9 (i) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Authority, the City or the Trustee, with respect to any consent or other action to be taken by Owners of Book-Entry Bonds, the Trustee shall establish a record date for such consent or other action and give the Depository notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. (j) Prior to any transfer of Book-Entry Bonds outside the Depository’s book-entry system, the Authority shall provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including any cost basis reporting obligations under Section 6045 of the Code. Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate principal amount in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses that may be incurred by the Authority and the Trustee. Any Bond of such Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.09. Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such Authorized Denominations as may be determined by the Authority, shall be in fully-registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds of a Series it shall execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver, in exchange for such temporary Bonds of such Series, an equal aggregate principal amount of definitive Bonds of such Series and maturities in Authorized Denominations. Until so exchanged, the temporary Bonds of a Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. DELIVERY OF BONDS; APPLICATION OF AMOUNTS Section 3.01. Issuance of the Bonds. The Authority may, at any time, execute the Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Bonds and deliver the Bonds to the Page 344 of 501 15 4132-8330-4518.9 Original Purchaser upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor. Section 3.02. Issuance of the Bonds; Application of Proceeds. On the Closing Date, the proceeds of the sale of the Bonds received by the Trustee, $[_________] shall be deposited by the Trustee as follows: (a) The Trustee shall deposit the amount of $[________] in the Costs of Issuance Fund; (b) the Trustee shall deposit the amount of $[__________] in the Project Fund; and (c) the Trustee shall transfer the amount of $[__________] to U.S. Bank Trust Company, National Association as escrow agent under the Escrow Agreement for the defeasance and refunding of the 2012 Bonds. Section 3.03. Costs of Issuance Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Costs of Issuance Fund.” On the Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b) The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made and instructions for such payment, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Costs of Issuance Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On the last Business Day that is no later than six months after the Closing Date, the Trustee shall transfer any amount remaining in the Costs of Issuance Fund to the Project Fund and, upon making such transfer, the Costs of Issuance Fund shall be closed. Section 3.04. Project Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Project Fund.” Within the Project Fund, the Trustee may establish and maintain a separate account designated for the respective Series of Bonds. On the Closing Date, the Trustee shall deposit in the Project Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b) The moneys in the Project Fund shall be used and withdrawn by the Trustee from time to time to pay the Project Costs upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made and instructions for such payment, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Project Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Project Fund, in each case together with a statement or invoice for each amount requested thereunder. (c) Upon the filing of a Written Certificate of the City stating (i) that the Project has been completed and that all costs of the Project have been paid, or (ii) that the Project has been substantially completed and that all remaining costs of the Project to be paid from the Project Fund have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaining in the Project Fund (less any such retention) is equal to or greater than $25,000, transfer the portion of such amount equal to the largest integral multiple of $5,000 that is not greater than such amount to the Redemption Fund, to be applied to the redemption of Bonds, and (B) after making the transfer, if any, required to be made pursuant to the preceding clause (A), transfer all of the amount remaining in the Project Fund (less any such retention) to the Interest Account, to be applied to the Page 345 of 501 16 4132-8330-4518.9 payment of interest on the Bonds; provided, however, that, if, prior to such transfers, the Trustee receives (I) a Written Request of the City directing the Trustee make an alternate disposition of all or a portion of such amount remaining in the Project Fund (less any such retention), and (II) an Opinion of Bond Counsel to the effect that such disposition would not, in and of itself, adversely affect the exclusion of interest on the Tax-Exempt Bonds from gross income for federal income tax purposes, the Trustee shall make such alternate disposition of such remaining amount or portion thereof in accordance with such Written Request of the City. REDEMPTION OF BONDS Section 4.01. Extraordinary Redemption. The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions hereof, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. Section 4.02. Optional Redemption. The Bonds maturing on or after December 1, 20__ shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 20__, from and to the extent of prepaid Base Rental Payments paid pursuant to subsection (a) of Section 3.08 of the Lease Agreement, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Section 4.03. Mandatory Sinking Fund Redemption. The Bonds maturing December 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__, are optionally redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. Page 346 of 501 17 4132-8330-4518.9 The Bonds maturing December 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. Section 4.04. Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of Section 10.02 hereof, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on Page 347 of 501 18 4132-8330-4518.9 which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Section 4.05. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption pursuant to Section 4.01 hereof, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable and (b) with respect to any optional redemption of Bonds of a Series pursuant to Section 4.02 hereof, as directed in a Written Certificate of the City. The Trustee shall promptly notify the Authority and the City in writing of the numbers of the Bonds so selected for redemption on such date. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds that may be separately redeemed. Section 4.06. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in Authorized Denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.07. Effect of Notice of Redemption. (a) Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. (b) If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. (c) All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS Section 5.01. Pledge and Assignment. (a) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Indenture and the Act, the Authority hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, this Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. Page 348 of 501 19 4132-8330-4518.9 (b) The Authority hereby assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of this Indenture. (c) The Trustee shall be entitled to and shall receive all of the Base Rental Payments, and any Base Rental Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. Section 5.02. Payment Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Payment Fund.” Within the Payment Fund, the Trustee shall establish and maintain a separate account designated the “Interest Account” and a separate account designated the “Principal Account.” (b) All Lease Revenues received by the Trustee shall be deposited by the Trustee in the Payment Fund; provided, however, that Net Proceeds, other than those constituting proceeds of rental interruption insurance received with respect to the Property, shall not be deposited in the Payment Fund but, rather, shall be applied as provided in Section 6.01 or Section 6.02 hereof, as applicable. (c) The Trustee, on each Interest Payment Date, shall transfer from the Payment Fund to each Interest Account an amount equal to the interest on the related Series of Bonds coming due on such Interest Payment Date. Moneys in each Interest Account shall be withdrawn and used by the Trustee for the purpose of paying interest on the related Series of Bonds as and when due and payable. In the event that, on such Interest Payment Date, amounts in any Interest Account are insufficient to pay the interest on the Bonds due and payable on such Interest Payment Date, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. (d) The Trustee, on each Principal Payment Date, shall transfer from the Payment Fund to each Principal Account an amount equal to the principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, coming due on such date. Moneys in each Principal Account shall be withdrawn and used by the Trustee for the purpose of paying principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, as and when due and payable. In the event that, on such Principal Payment Date, amounts in any Principal Account are insufficient to pay the principal due and payable on such Principal Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. Section 5.03. Redemption Fund. The Trustee shall establish and maintain a special fund designated the “Redemption Fund.” The Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Section 6.01 or Section 6.02 hereof. Amounts in the Redemption Fund shall be disbursed therefrom by the Trustee for the payment of the Redemption Price of, and accrued interest on, Bonds redeemed pursuant to Section 4.01 hereof or Section 4.02 hereof. Section 5.04. [Reserved]. Page 349 of 501 20 4132-8330-4518.9 Section 5.05. Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the “Rebate Fund.” There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Authority or a Written Request of the City. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority or the City, and shall have no liability or responsibility to enforce compliance by the Authority or the City with the terms of the Tax Certificate. The Trustee may conclusively rely upon the determinations, calculations and certifications of the Authority or the City required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the calculations of the Authority or the City. (b) Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon receipt by the Trustee of a Written Request of the City, be withdrawn by the Trustee and remitted to the City. Section 5.06. Reserved. Section 5.07. Investments. (a) Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City received by the Trustee no later than two Business Days prior to the making of such investment. Moneys in all such funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to this Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (6) of the definition thereof; 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 City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. (b) Any interest or profits received with respect to investments held in any of the funds or accounts established under this Indenture shall be retained therein; provided, however, that any interest or profits received with respect to investments held in the Project Fund shall be credited to the Interest Account of the Payment Fund. (c) Permitted Investments acquired as an investment of moneys in any fund or account established under this Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund or account shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each June 15 and December 15. In determining the market value of Permitted Investments, the Trustee may use and rely upon any generally recognized pricing information service (including brokers and dealers in securities) available to it. (d) [Reserved]. Page 350 of 501 21 4132-8330-4518.9 (e) Investments (except investment agreements) in any fund or account established hereunder shall be valued, exclusive of accrued interest not less often than annually nor more often than monthly. All investments of amounts deposited in any fund or account established hereunder shall be valued at the market value thereof. (f) Any interest or profits received with respect to investments held in any of the funds or accounts established under this Indenture shall be retained therein. (g) The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments are credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. (h) Each of the Authority and the City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority or the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, each of the Authority and the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish the Authority and the City periodic cash transaction statements, which shall include details for all investment transactions made by the Trustee hereunder. NET PROCEEDS AND TITLE INSURANCE; COVENANTS Section 6.01. Application of Net Proceeds. (a) If the Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Property or the affected portion thereof in accordance with the provisions hereof. (b) The Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may, pursuant to a Written Request of the City, be invested by the Trustee in Permitted Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement. (c) Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Property or the portions of the Property that were damaged or destroyed. If the City does intend to replace or repair the Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account referred to above. (d) If such damage, destruction or loss was such that there resulted a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Page 351 of 501 22 4132-8330-4518.9 Rental Payments results from such damage or destruction pursuant to Section 3.07 of the Lease Agreement, then the City shall be required either to (i) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Property or the portions thereof that have been damaged to the condition that existed prior to such damage or destruction, or (ii) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, pursuant to Section 4.01 hereof (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in the remaining, non-abated Base Rental Payments being sufficient to pay, as and when due, the principal of and interest on the Bonds that will remain Outstanding after such redemption. If the City is required to apply funds from the insurance proceeds and other legally available funds to the redemption of Bonds in accordance with clause (ii) above, the City shall direct the Trustee, in a Written Request of the City, to transfer the funds to be applied to such redemption to the Redemption Fund and the Trustee shall transfer such funds to the Redemption Fund. Any proceeds of any insurance, including the proceeds of any self-insurance remaining after the portion of the Property that was damaged or destroyed is restored to and made available to the City in substantially the same condition and annual fair rental value as that that existed prior to the damage or destruction as required by clause (i) above, or the redemption of Bonds as required by clause (ii) above, in each case as evidenced by a Written Certificate of the City to such effect, shall be paid to the City to be used for any lawful purpose, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Property after such damage or destruction is at least equal to the sum of the then unpaid principal components of Base Rental Payments, be paid to the City to be used for any lawful purpose. (e) The proceeds of any award in eminent domain shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to Section 4.01 hereof. Section 6.02. Title Insurance. Net Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows: (a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Property and will result in an abatement in whole or in part of Rental Payments payable by the City under the Lease Agreement, then the City shall, in a Written Request of the City, direct the Trustee to, and the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in Section 4.01 hereof. Section 6.03. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of, and premium, if any, and interest on 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 Lease Revenues and other assets pledged for such payment as provided in this Indenture and received by the Authority or the Trustee. Page 352 of 501 23 4132-8330-4518.9 Section 6.04. Compliance with Indenture. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in this Indenture required to be complied with, kept, observed and performed by it. Section 6.05. Compliance with Ground Lease and Lease Agreement. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by it and, together with the Trustee, shall enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms. Section 6.06. Observance of Laws and Regulations. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States of America or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by it, including its right to exist and carry on its businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.07. Other Liens. (a) The City shall keep the Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. (b) So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. (c) Neither the Authority nor the Trustee shall encumber the Property other than in accordance with the Ground Lease, the Lease Agreement and this Indenture. Section 6.08. Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee, take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Property or any part thereof, whether now existing or hereafter developing, shall prosecute all actions, suits or other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee and every Owner harmless from all cost, damage, expense or loss, including attorneys’ fees, which they or any of them may incur by reason of any such cloud, defect, action, suit or other proceeding. Section 6.09. Recordation. The City shall record, or cause to be recorded, with the Riverside County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 hereof. Page 353 of 501 24 4132-8330-4518.9 Section 6.10. Tax Covenants. (a) Neither the Authority nor the City shall take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, each of the Authority and the City shall comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Bonds. (b) In the event that at any time the Authority or the City is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Authority or the City shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the Authority or the City shall provide to the Trustee an Opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.11. Continuing Disclosure. The City shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default hereunder; provided, however, that the Trustee may (and, at the written direction of the Participating Underwriters or the Owners of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon receipt of indemnification reasonably satisfactory to the Trustee, shall) or any Owner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.12. Notifications Required by the Act. If at any time the Trustee fails to pay principal or interest due on any scheduled payment date for the Bonds, the Trustee shall notify the Authority in writing of such failure or withdrawal, as applicable, and, in accordance with Section 6599.1(c) of the Act, the Authority shall notify the California Debt and Investment Advisory Commission of such failure or withdrawal, as applicable, within 10 days of the failure or withdrawal, as applicable. Section 6.13. Further Assurances. Each of the Authority and the Trustee shall make, execute and deliver any and all such further agreements, 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 rights and benefits provided in this Indenture, the Ground Lease and the Lease Agreement. EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. The following events shall be Events of Default: (a) Except as provided in Section 2.01(c), failure to pay any installment of principal of any Bond as and when the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; Page 354 of 501 25 4132-8330-4518.9 (b) failure to pay any installment of interest on any Bond as and when the same shall become due and payable; (c) the occurrence and continuation of a Lease Default Event; (d) failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee, the City or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that 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 corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; (e) failure by the City to observe and perform any of the covenants, agreements or conditions on its part in this Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the City, 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 corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; or (f) the commencement by the Authority or the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Action on Default. In each and every case during the continuance of an Event of Default, the Trustee may or, at the written direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, shall exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.03 hereof. Section 7.03. Other Remedies. If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein or in the Bonds; (b) by suit in equity to enjoin any acts or things that are unlawful or violate the rights of the Trustee or the Owners; or Page 355 of 501 26 4132-8330-4518.9 (c) by suit, action or proceeding in any court of competent jurisdiction, to require the Authority or the City, or both, to account as if it or they were the trustee or trustees of an express trust. Section 7.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.05. Application of Amounts After Default. If an Event of Default shall occur and be continuing, all Lease Revenues and any other funds thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee as follows and in the following order: (a) to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; (b) to the payment of all amounts then due for interest on the Bonds, ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable, with interest on the overdue interest at the rate borne by the respective Bonds; and (c) to the payment of all amounts then due for principal of the Bonds, ratably without preference or priority of any kind, according to the amounts of principal of the Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. Section 7.06. Power of Trustee to Enforce. 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 the Owners of such Bonds, subject to the provisions of this Indenture. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.07. Owners’ Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder; provided, however, that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and, provided, further, that the Trustee shall have the right to decline to follow any such direction that in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Section 7.08. Limitation on Owners’ Right to Sue. No Owner of any Bond shall have 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 Act or any other applicable law with respect to such Bond, Page 356 of 501 27 4132-8330-4518.9 unless (a) such Owner shall have 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 shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners, or to enforce any right under the Bonds, this Indenture, the Act 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, subject to the provisions of this Indenture. Section 7.09. Termination of Proceedings. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then, subject to any such adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owner, then in every such case the Trustee, such Owner, the Authority and the City, 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 Trustee, the Owners, the Authority and the City shall continue as though no such proceedings had been taken. Section 7.10. No Waiver of Default. No delay or omission of the Trustee or of any Owner 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 may be exercised from time to time and as often as may be deemed expedient. THE TRUSTEE Section 8.01. Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default that has not been cured or waived, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Section 8.02. Qualifications; Removal and Resignation; Successors. (a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United Page 357 of 501 28 4132-8330-4518.9 States or any state thereof, which is (or if such trust company, national banking association or bank is a member of a bank holding company system, its parent bank holding company is) (i) a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, national banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) The Authority and the City may, by an instrument in writing, upon at least 30 days’ notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with subsection (a) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. (c) The Trustee may at any time resign by giving written notice of such resignation by first- class mail, postage prepaid, to the Authority and the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of subsection (a) of this Section, the Trustee shall resign immediately in the manner and with the effect specified in this Section. (d) Upon removal or resignation of the Trustee, the Authority and the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in subsection (a) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other Owners) 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 shall signify its acceptance of such appointment by executing and delivering to the Authority and the City and to its predecessor Trustee a written acceptance thereof, 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 Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any 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 any property held by it 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 acceptance of appointment by a successor Trustee as provided in this subsection, the successor Trustee shall, within 15 days after such acceptance, mail, by first-class mail postage prepaid, a notice of the Page 358 of 501 29 4132-8330-4518.9 succession of such Trustee to the trusts hereunder to the Owners at the addresses shown on the Registration Books. (e) Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, national banking association or bank shall be eligible under subsection (a) of this Section, 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 8.03. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority or the City, as applicable, and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations 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. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Authority, the City or others in accordance with this Indenture. (c) The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. (d) No provision of this Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. (e) The Trustee may execute any of its powers or duties hereunder through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. (f) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (g) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. (h) Before taking action under Article VII, under this Article or upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. (i) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of Page 359 of 501 30 4132-8330-4518.9 conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (j) 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 Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (k) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (l) The Trustee shall not be liable for the failure to take any action required to be taken by it hereunder if and to the extent that the Trustee’s taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. (m) The Trustee shall not be deemed to have knowledge of an Event of Default hereunder unless it has actual knowledge thereof. (n) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. (o) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions hereof. Section 8.04. Right to Rely on Documents and Opinions. (a) The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The Trustee shall have the right to accept and act upon a Written Request of the City delivered using Electronic Means. If the City elects to deliver a Written Request of the City to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The City understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the City that purport to have been sent by an Authorized Representative of the City have been sent by such Authorized Representative. The City shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the City to the Trustee and that the City is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the City. 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 Written Requests of the City delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent Written Request of the City. The City agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the City to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the City, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the City to the Trustee and that there may be more secure methods of Page 360 of 501 31 4132-8330-4518.9 transmitting Written Requests of the City than the method selected by the City, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the City provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the City that purports to have been sent by an Authorized Representative of the City delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (c) The Trustee shall have the right to accept and act upon a Written Request of the Authority delivered using Electronic Means. If the Authority elects to deliver a Written Request of the Authority to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the Authority that purport to have been sent by an Authorized Representative of the Authority have been sent by such Authorized Representative. The Authority shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the Authority to the Trustee and that the Authority is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the Authority. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the Authority delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent Written Request of the Authority. The Authority agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the Authority to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the Authority, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the Authority to the Trustee and that there may be more secure methods of transmitting Written Requests of the Authority than the method selected by the Authority, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the Authority provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the Authority that purports to have been sent by an Authorized Representative of the Authority delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (d) Whenever in the administration of the duties imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the Authority or Written Certificate of the City, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Page 361 of 501 32 4132-8330-4518.9 (e) The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, including with respect to compliance herewith of amendments hereto or to the Lease Agreement or the Ground Lease, 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. Section 8.05. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with prudent corporate trust industry standards, in which accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Lease Revenues received by it and all funds and accounts established by it pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the City during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the Authority and the City a monthly accounting of the funds and accounts it holds under this Indenture; provided, however, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (a) has a balance of zero, and (b) has not had any activity since the last reporting date. 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 possession and shall be subject during business hours and upon reasonable notice to the inspection of the Authority, the City, the Owners and their agents and representatives duly authorized in writing. Section 8.07. Compensation and Indemnification of the Trustee. The City shall pay to the Trustee from time to time all reasonable compensation pursuant to a pre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre-approved fee letter and other disbursements pursuant to a pre-approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors and employees harmless against any costs, suits, judgments, damages, liabilities, claims, expenses, including legal fees and expenses, and liabilities that it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and that are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the resignation or removal of the Trustee and the discharge and satisfaction of this Indenture. SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures. (a) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 11.07 hereof. No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under this Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, this Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, this Indenture, except as expressly Page 362 of 501 33 4132-8330-4518.9 provided in this Indenture, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) modify or amend this Section without the prior written consents of the Owners of all Bonds then Outstanding. (b) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture or in regard to questions arising hereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Tax-Exempt Bonds; and (iv) [Reserved]; (v) in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder. (c) Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority or the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and the Owners 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 effective date of any Supplemental Indenture pursuant to this Article may and, if the Authority or the City so determines, shall bear a notation by endorsement or otherwise in form approved by the Authority and the City as to any modification or amendment provided for in such Supplemental Indenture and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, a suitable notation shall be made Page 363 of 501 34 4132-8330-4518.9 on such Bond. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the City, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, such a new Bond in equal principal amount of the same Series, interest rate and maturity shall be exchanged for such Owner’s Bond so surrendered. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Owner from accepting any amendment or modification as to any particular Bond owned by it, provided that due notation thereof is made on such Bond. DEFEASANCE Section 10.01. Discharge of Indenture. (a) If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority hereunder shall thereupon cease, terminate and become void and this Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto that are not required for the payment of the principal of and interest and premium, if any, on the Bonds. (b) Subject to the provisions of subsection (a) of this Section, when any Bond shall have been paid and if, at the time of such payment, each of the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority and the City hereunder shall cease, terminate, become void and be completely discharged and satisfied as to such Bond. (c) Notwithstanding the discharge and satisfaction of this Indenture or the discharge and satisfaction of this Indenture in respect of any Bond, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of this Indenture, the obligation of the City to indemnify the Trustee pursuant to Section 8.07 shall remain in effect and be binding upon the City. Section 10.02. Bonds Deemed to Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning Page 364 of 501 35 4132-8330-4518.9 and with the effect provided in Section 10.01 hereof. Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.03 hereof, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with Section 4.03 hereof, (ii) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, together with the money, if any, deposited therewith, will provide moneys that shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owner of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to this subsection in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds. (b) No Bond shall be deemed to have been paid pursuant to clause (ii) of subsection (a) of this Section unless the Authority or the City shall have caused to be delivered to the Authority, the City and the Trustee (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of subsection (a) of this Section resulting in such deemed payment, which escrow agreement shall be in form and in substance acceptable to the Authority, the City and the Trustee, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (iii) a copy of an Opinion of Bond Counsel, dated the date of such deemed payment and addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in this Indenture, this Indenture has been discharged in respect of such Bond and all agreements, covenants and other obligations of the Authority and the City hereunder as to such Bond have ceased, terminated, become void and been completely discharged and satisfied. (c) The Trustee may seek and is entitled to rely upon (i) an Opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to clause (ii) of subsection (a) of this Section have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in subsection (b) of this Section. Section 10.03. Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the principal of, or premium or interest on, any Bond that remain unclaimed for two years after the date when such principal, premium or interest has become payable, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the date when such principal, premium or interest become payable, shall, at the Written Request of the Authority, be repaid by the Trustee to the Authority as its absolute property free Page 365 of 501 36 4132-8330-4518.9 from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owner of such Bond shall look only to the Authority for the payment of such principal, premium or interest. The Trustee shall hold any such moneys uninvested. MISCELLANEOUS Section 11.01. Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.02. Limitation of Rights. 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 Trustee, the Authority, the City and the Owners, 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 Trustee, the Authority, the City and the Owners. Section 11.03. 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, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.04. 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, subsection, 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, subsections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.05. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the Authority: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk Page 366 of 501 37 4132-8330-4518.9 If to the City: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Trustee: U.S. Bank Trust Company, National Association 633 W 5th Street, 24th Floor Los Angeles, California 90071 Attention: Global Corporate Trust Services Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 11.06. Evidence of Rights of Owners. (a) Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 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 Authority, the City and the Trustee if made in the manner provided in this Section. (b) 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 or her the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. (c) The ownership of Bonds shall be proved by the Registration Books. (d) 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 Authority, the City or the Trustee in accordance therewith or reliance thereon. Section 11.07. 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 that are actually known by the Trustee to be owned or held by or for the account of the Authority or the City or 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, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided, however, that if 100% of the Bonds are so owned or held, such Bonds shall be Page 367 of 501 38 4132-8330-4518.9 deemed to be Outstanding. Bonds so owned that 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, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority shall specify in a Written Certificate of the Authority delivered to the Trustee that Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the Authority. Upon request of the Trustee, the City shall specify in a Written Certificate of the City delivered to the Trustee that Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the City. Section 11.08. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon. Section 11.09. 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 prudent corporate trust industry standards to the extent practicable, and with due regard for the requirements hereof and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish any such additional funds or accounts as it deems necessary to perform its obligations hereunder. Section 11.10. Business Days. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the nominal date provided in this Indenture and, unless otherwise specifically provided in this Indenture, no interest shall accrue for the period from and after such nominal date Section 11.11. Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the Authority or the City from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby. Section 11.12. Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.13. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in Page 368 of 501 39 4132-8330-4518.9 no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution, authentication, issuance and delivery of the Bonds pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any Person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.14. Governing Laws. This Indenture and the Bonds shall be construed and governed in accordance with the laws of the State. Section 11.15. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Indenture may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Indenture using an electronic signature, it is signing, adopting, and accepting this Indenture and that signing this Indenture using an electronic signature is the legal equivalent of having placed its handwritten signature on this Indenture on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Indenture in a usable format. Section 11.16. Execution in 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 shall together constitute but one and the same instrument. Page 369 of 501 40 4132-8330-4518.9 IN WITNESS WHEREOF, the Authority has caused this Indenture to be signed in its name by its representative thereunto duly authorized, the City has caused this Indenture to be signed in its name by its representative thereunto duly authorized and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Treasurer U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer Page 370 of 501 A-1 4132-8330-4518.9 EXHIBIT A PERMITTED INVESTMENTS “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any investment direction from the City as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State and constitute Permitted Investments), but only to the extent that the same are acquired at Fair Market Value: (a) Defeasance Securities; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farm Credit System Financial Assistance Corporation, Rural Economic Community Development Administration (formerly Farmers Home Administration), General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, Federal Housing Administration and Federal Financing Bank; (c) direct obligations for any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated “Aaa” by Moody’s and “AAA” by S&P issued by Fannie Mae or Federal Home Loan Mortgage Corporation (FHLMC); obligations of the Resolution Funding Corporation (REFCORP); and senior debt obligations of the Federal Home Loan Bank System; (d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody’s, or which deposit accounts are collateralized by Federal Securities for amounts above FDIC insurance limits and maturing no more than 360 days after the date of purchase, including those of the Trustee or its affiliates; (e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody’s and which matures not more than 270 days after the date of purchase; (f) investments in a money market fund rated AAAm or AAAm-G or better by S&P, excluding such funds with a floating net asset value but including funds for which the Trustee or its affiliates provide investment advisory or other management services; (g) investments in the Local Agency Investment Fund (established under Section 16429.1 of the California Government Code), provided that such investment is held in the name and to the credit of the Trustee, and provided further that the Trustee may restrict such investment if required to keep moneys available for the purposes of the Indenture; (h) shares in a State of California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53601 of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended; Page 371 of 501 A-2 4132-8330-4518.9 (i) U.S. dollar denominated deposit accounts, federal funds, certificates of deposit (including those placed by a third party pursuant to a separate agreement between the District and the Trustee), trust funds, trust accounts, other deposit products, overnight bank deposits, interest bearing deposits, interest bearing money market accounts and banker’s acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-l+” by S&P and maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank or (ii) which are fully insured by the Federal Deposit Insurance Corporation; and (j) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody’s or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant and with the prior approval of S&P, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. Page 372 of 501 B-1 4132-8330-4518.9 EXHIBIT B FORM OF BOND No. R- ***$*** SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 Interest Rate Maturity Date Dated Date CUSIP % [Maturity Date] [Closing Date] REGISTERED OWNER: PRINCIPAL AMOUNT: The San Luis Obispo Public Financing Authority (the “Authority”) hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the “Registered Owner”), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on June 1 and December 1 in each year, commencing December 1, 2023 (the “Interest Payment Dates”), until payment of such Principal Amount in full. This Bond is one of a series of a duly authorized issue of bonds designated “San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023” (the “Bonds”) in the aggregate principal amount of $[Par Amount]. The Bonds are issued pursuant to the Indenture, dated as of [September 1, 2023] (the “Indenture”), by and among the Authority (the “Authority”), the City of San Luis Obispo (the “City”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. The Indenture is entered into, and this Bond is issued under, the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code (the “Act”) and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) 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 interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid 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. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided Page 373 of 501 B-2 4132-8330-4518.9 for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee 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 to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Pursuant to and as more particularly provided in the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge constitutes a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are subject to redemption on the dates, at the Redemption Prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Bond or any portion thereof shall be given as provided in the Indenture. The Bonds are issuable as fully-registered Bonds without coupons in Authorized Denominations ($5,000 and integral multiples thereof). Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be so surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any Authorized Denomination. 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. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Indenture and the rights and obligations of the Authority, the City the Trustee and the Owners may be modified or amended in the manner, to the extent, and upon the terms provided in the Indenture. Page 374 of 501 B-3 4132-8330-4518.9 The Indenture contains provisions permitting the Authority to make provision for the payment of the principal of and the interest and premium, if any, on any of the Bonds so that such Bonds shall no longer be deemed to be Outstanding under the terms of the Indenture. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its representative thereunto duly authorized, attested by the manual or facsimile signature of the Secretary of the Authority, all as of the Dated Date identified above. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Chairperson ATTEST: Secretary Page 375 of 501 B-4 4132-8330-4518.9 CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Signatory Page 376 of 501 B-5 4132-8330-4518.9 ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto __________________________________ whose address and social security or other tax identifying number is ____________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ______________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. 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. Page 377 of 501 Page 378 of 501 OH&S Edits 8/3 to Stradling Yocca Carlson & Rauth Draft of 7/6/23 $__________ San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 ________, 2023 BOND PURCHASE CONTRACT San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, CA 93401 Attention: Treasurer City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Attention: City Manager Ladies and Gentlemen: Raymond James & Associates, Inc. (the “Underwriter”) offers to enter into this Bond Purchase Contract (this “Purchase Contract”) with the City of San Luis Obispo (the “City”) and the San Luis Obispo Public Financing Authority (the “Authority”) with regard to the Bonds (as defined below), which Purchase Contract, upon the acceptance hereof by the City and the Authority, will be binding upon the Authority, the City, and the Underwriter. This offer is made subject to the written acceptance of this Purchase Contract by the Authority and the City and the delivery of such acceptance to the Underwriter at or prior to 11:59 p.m., Pacific time, on the date hereof, and, if it is not so accepted, such offer may be withdrawn by the Underwriter upon written notice to the City and the Authority by the Underwriter at any time before its acceptance. Each of the Authority and the City acknowledges and agrees that (i) the purchase and sale of the Bonds (as defined below) pursuant to this Purchase Contract is an arm’s-length commercial transaction between the Authority and the City, collectively, and the Underwriter, (ii) in connection therewith and with the discussions, undertakings, and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as the agent or fiduciary of the Authority or the City, (iii) the Underwriter has not assumed an advisory or a fiduciary responsibility in favor of the Authority or the City with respect to the offering contemplated hereby or the discussions, undertakings, and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the Authority or the City on other matters) and the Underwriter has no obligation to the Authority or the City with respect to the offering contemplated hereby except the obligations expressly set forth in this Purchase Contract, and (iv) the Authority and the City have consulted their own legal, financial, and other advisors to the extent they have deemed appropriate. Page 379 of 501 2 1. Upon the terms and conditions and upon the basis of the representations, warranties, and agreements hereinafter set forth, the Underwriter hereby agrees to purchase from the Authority for reoffering to the public, and the Authority hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the $__________ aggregate principal amount of the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The purchase price of the Bonds shall be $___________ (representing the par amount of the Bonds, less an Underwriter’s discount of $___________ and [plus/less] a [net] original issue [premium/discount]). The Preliminary Official Statement with respect to the Bonds, dated [________, 2023] (the “Preliminary Official Statement”), as amended to conform to the terms of this Purchase Contract, and dated the date hereof, and with such changes and amendments as are mutually agreed to by the Authority, the City, and the Underwriter, including the cover page, the appendices, and all information incorporated therein by reference, is herein collectively referred to as the “Official Statement.” The Authority represents that it has deemed the Preliminary Official Statement to be final as of its date, except for revision or addition of the offering price(s), yield(s) to maturity, selling compensation, aggregate denominational amount and maturity value, denominational amount and maturity value per maturity, delivery date, rating(s), and other terms of the Bonds that depend upon the foregoing as provided in and pursuant to Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Rule”), by delivering a certificate to the Underwriter substantially in the form of Exhibit B attached hereto. 2. The Bonds shall mature on the dates and in the amounts, and will bear interest at the rates, set forth in Exhibit A hereto and as further described in the Official Statement. The Bonds shall be issued under and pursuant to the Indenture, dated as of [September 1, 2023] (the “Indenture”), by and between the Authority and ____________________ (the “Trustee”). The proceeds of the Bonds will be used to (i) finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District [and certain other public capital improvements], (ii) redeem and defease the outstanding City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Bonds. Capitalized terms used herein without definition shall have the meanings given to such terms in the Indenture. 3. (a) The Underwriter shall make a bona fide public offering of all the Bonds at not in excess of the respective initial public offering prices to be set forth on the inside cover page of the Official Statement. The Underwriter reserves the right to change such initial offering prices as the Underwriter deems necessary in connection with the marketing of the Bonds and to offer and sell the Bonds to certain dealers (including dealers depositing such bonds into investment trusts) and others at prices lower than the initial offering prices set forth on the cover page of the Official Statement. The Underwriter also reserves the right to (i) overallot or effect transactions that stabilize or maintain the market prices of the Bonds at levels above those which might otherwise prevail in the open market and (ii) discontinue such stabilizing, if commenced, at any time. “Public offering” shall include an offering to a representative number of institutional investors or registered investment companies, regardless of the number of such investors to which the Bonds are sold. (b) The Underwriter agrees to assist the City and the Authority in establishing the issue price of the Bonds and shall execute and deliver to the City and the Authority at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit C, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and the Authority and Bond Counsel (as defined below), to accurately reflect, as applicable, the sales price or prices or the initial Page 380 of 501 3 offering price or prices to the public of the Bonds. All actions to be taken by the City and the Authority under this section to establish the issue price of the Bonds may be taken on behalf of the City and the Authority by the City and the Authority’s municipal advisor, PFM California Advisors LLC (the “Municipal Advisor”) and any notice or report to be provided to the Authority may be provided to the Authority’s Municipal Advisor. (c) Except as otherwise set forth in Exhibit A attached hereto, the City and the Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”), identified under the column “10% Test Used” in Exhibit A, is sold to the public as the issue price of that maturity. At or promptly after the execution of this Purchase Contract, the Underwriter shall report to the City and the Authority the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the City and the Authority the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date (as defined below) has occurred, until either (i) the Underwriter has sold all Bonds of that maturity or (ii) the 10% test has been satisfied as to the Bonds of that maturity, provided that, the Underwriter’s reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the City and the Authority or Bond Counsel. For purposes of this section, if Bonds mature on the same date but have different interest rates, each separate CUSIP number within that maturity will be treated as a separate maturity of the Bonds. (d) The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Contract at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A attached hereto, except as otherwise set forth therein. Exhibit A also sets forth, identified under the column “Hold the Offering Price Used,” as of the date of this Purchase Contract, the maturities, if any, of the Bonds for which the 10% test has not been satisfied and for which the City, the Authority and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City and the Authority to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (A) the close of the fifth (5th) business day after the sale date; or (B) the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Underwriter will advise the City and the Authority promptly after the close of the fifth (5th) business day after the sale date whether it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. (e) The Underwriter confirms that: (A) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker- dealer that is a party to such third-party distribution agreement, as applicable: Page 381 of 501 4 (1) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter, and (ii) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter; (2) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below); and (3) to acknowledge that, unless otherwise advised by the dealer or broker-dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public. (B) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires. (f) The City and the Authority acknowledge that, in making the representations set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires. The City and the Authority further acknowledge that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a third-party distribution agreement, to comply with its corresponding agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering- price rule, if applicable to the Bonds. (g) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: Page 382 of 501 5 (A) “public” means any person other than an underwriter or a related party; (B) “underwriter” means (i) any person that agrees pursuant to a written contract with the City and the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third- party distribution agreement participating in the initial sale of the Bonds to the public); and (C) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (D) “sale date” means the date of execution of this Purchase Contract by the City, the Authority, and the Underwriter. 4. The Authority and the City, respectively, hereby authorize the use by the Underwriter of (i) the Indenture, (ii) the Lease Agreement, dated as of [September 1, 2023] (the “Lease Agreement”), by and between the Authority, as lessor, and the City, as lessee, (iii) the Ground Lease, dated as of [September 1, 2023] (the “Ground Lease”), by and between the City, as lessor, and the Authority, as lessee, (iv) the Continuing Disclosure Certificate, dated as of the Closing Date (the “Continuing Disclosure Certificate”), to be executed by the City in connection with the Bonds, (v) the Memorandum of Lease Agreement and Assignment, dated as of [September 1, 2023] (the “Memorandum of Lease Agreement and Assignment”), by and among the City, the Authority, and the Trustee, and (vi) the Official Statement, and any supplements or amendments thereto, and the information contained in each of such documents, in connection with the public offering and sale of the Bonds. The Authority and the City consent to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds. The Authority will deliver to the Underwriter, within seven (7) business days after the date of this Purchase Contract and in sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, copies of the Official Statement in final form (including all documents incorporated by reference therein) and any amendment or supplement thereto in such quantities as the Underwriter may reasonably request in order to comply with the obligations of the Underwriter pursuant to the Rule and the rules of the Municipal Securities Rulemaking Board. As soon as practicable following receipt thereof from the Authority, the Underwriter shall deliver the Official Statement to the Municipal Securities Rulemaking Board. 5. At 8:00 a.m., California time, on September __, 2023, or at such other time or on such other business day as shall have been mutually agreed upon by the Authority and the Underwriter (the “Closing Date”), the Authority will cause the Trustee to authenticate and deliver to the Underwriter through the facilities of The Depository Trust Company (“DTC”) in New York, New York, or at such other place as the Authority and the Underwriter may mutually agree upon, the Bonds in fully- Page 383 of 501 6 registered book-entry form, duly executed and registered in the name of Cede & Co., as nominee of DTC, and, subject to the terms and conditions hereof, the Underwriter will accept such delivery and pay the purchase price of the Bonds by wire transfer payable in immediately available funds to or upon the order of the Authority. Such delivery of and payment for the Bonds is referred to herein as the “Closing.” The Bonds shall be made available for inspection by the Underwriter at least one business day before the Closing. 6. The Authority represents, warrants, and covenants to the Underwriter that: (a) The Authority is a joint powers authority under Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code duly organized and validly existing under and by virtue of the Constitution and the laws of the State of California (the “State”). (b) The Authority has the legal right and power to issue and deliver the Bonds and to execute and deliver, and to perform its obligations under, the Indenture, the Ground Lease, the Lease Agreement, the Memorandum of Lease Agreement and Assignment and this Purchase Contract (collectively, the “Authority Documents”). The Authority has duly authorized the issuance and delivery of the Bonds and the execution and delivery of, and performance of its obligations under, the Authority Documents and, as of the date hereof, such authorizations are in full force and effect and have not been amended, modified, or rescinded. When executed and delivered by the respective parties thereto, the Authority Documents will constitute legal, valid, and binding obligations of the Authority in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, debt adjustment, receivership, fraudulent conveyance or transfer, moratorium, reorganization, arrangements or other laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State or other laws or equitable principles affecting the enforcement of creditors’ rights generally. The Authority has complied, and will at the Closing be in compliance in all material respects, with its obligations under the Authority Documents. (c) The Bonds will be paid from Revenues consisting primarily of Base Rental Payments, as defined in and pursuant to the Indenture, which payments have been duly and validly authorized pursuant to applicable law. (d) The Bonds will be issued in accordance with the Indenture and will conform in all material respects to the descriptions thereof contained in the Official Statement. The Indenture creates a valid pledge of, first lien upon, and security interest in, the pledged Revenues. (e) The information in the Official Statement (excluding any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter) is true and correct in all material respects, and the information in the Official Statement does not contain any misstatement of any material fact and does not omit any statement necessary to make the statements, in the light of the circumstances in which such statements were made, not misleading. (f) The Authority covenants with the Underwriter that for twenty-five days after the Closing Date (the “Delivery Period”), if any event occurs that might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Authority shall notify the Underwriter thereof, and Page 384 of 501 7 if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Authority will cooperate with the Underwriter and the City in the preparation of an amendment or supplement to the Official Statement, at the expense of the Authority and the City, in a form and in a manner approved by the Underwriter (provided, that this requirement for approval shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). (g) During the Delivery Period, the Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter (provided, that this consent requirement shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale, or distribution of the Bonds. (h) If the Official Statement is supplemented or amended, the Official Statement, as so supplemented or amended, as of the date of such supplement or amendment, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except no representation is made with respect to any information regarding DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter). (i) The Authority is not, in any manner which would materially adversely affect the transactions contemplated by the Authority Documents, in breach of or in default under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which the Authority is a party, and no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any of the foregoing. (j) The authorization, execution, and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, do not and will not conflict with or constitute a breach of or default by the Authority under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which it is bound or by which its properties may be affected. (k) No authorization, consent, or approval of, or filing or registration with, any Governmental Authority (as defined below) or court is, or under existing requirements of law will be, necessary for the valid execution and delivery of, or performance by the Authority of its obligations under, the Authority Documents, other than any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds. All authorizations, consents, or approvals of, or filings or registrations with, any Governmental Authority or court necessary for the valid issuance of, and performance by the Page 385 of 501 8 Authority of its obligations under, the Bonds will have been duly obtained or made prior to the issuance of the Bonds (except no representation is made regarding any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds). As used herein, the term “Governmental Authority” refers to any legislative body or governmental official, department, commission, board, bureau, agency, instrumentality, body, or public benefit corporation. (l) The Authority shall furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and shall use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the Authority shall not be required to execute a general or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction, and the Underwriter shall be responsible for all costs relating to such qualification or determination under Blue Sky or other securities laws. (m) There is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of the Authority, threatened (i) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices; (ii) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the Authority’s execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to pledge the Revenues pursuant to the Indenture; (iii) that may result in any material adverse change relating to the Authority that will materially adversely affect the Authority’s ability to apply Revenues pursuant to the Indenture to pay the Bonds when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (n) Other than in the ordinary course of its business or as contemplated by the Official Statement, between the date of this Purchase Contract and the Closing Date the Authority will not, without the prior written consent of the Underwriter, offer or issue any certificates, bonds, notes, or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by a pledge of the Revenues. (o) The Authority will refrain from taking any action, or permitting any action to be taken, with regard to which the Authority may exercise control, that results in the loss of the tax- exempt status of the interest on the Bonds. Page 386 of 501 9 (p) Any certificate signed by any official or other representative of the Authority and delivered to the Underwriter pursuant to this Purchase Contract shall be deemed a representation and warranty by the Authority to the Underwriter as to the truth of the statements therein made. 7. The City represents, warrants, and covenants to the Underwriter that: (a) The City is a municipal corporation of the State duly organized and validly existing under and by virtue of the Constitution and laws of the State and has the legal right and power to execute, deliver, and perform its obligations under the Indenture, the Ground Lease, the Lease Agreement, the Continuing Disclosure Certificate, the Memorandum of Lease Agreement and Assignment, and this Purchase Contract (collectively, the “City Documents”). (b) The City has the legal right and power to execute and deliver, and to perform its obligations under, the City Documents. The City has duly authorized the execution and delivery of, and the performance of its obligations under, the City Documents and as of the date hereof such authorizations are in full force and effect and have not been amended, modified, or rescinded. When executed and delivered by the respective parties thereto, the City Documents will constitute legal, valid, and binding obligations of the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, debt adjustment, receivership, fraudulent conveyance or transfer, moratorium, reorganization, arrangements or other laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State or other laws or equitable principles affecting the enforcement of creditors’ rights generally. The City has complied, and will at the Closing be in compliance in all respects, with its obligations under the City Documents. (c) The information in the Official Statement (excluding any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter) is true and correct in all material respects, and the information in the Official Statement does not contain any misstatement of any material fact and does not omit any statement necessary to make the statements, in the light of the circumstances in which such statements were made, not misleading. (d) To assist the Underwriter in complying with the Rule, the City will undertake, pursuant to the Continuing Disclosure Certificate, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement. The Official Statement describes the incidences during the last five years in which the City and its related entities have failed to comply with previous undertakings to provide annual continuing disclosure reports and notices of material events. (e) The City covenants with the Underwriter that, during the Delivery Period, if any event occurs that might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City shall notify the Underwriter thereof, and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will cooperate with the Underwriter and the Authority in the preparation of an amendment or supplement to the Official Statement, at the expense of the Authority and the City, in a form and in a manner approved by the Underwriter (provided, that this requirement for approval shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority Page 387 of 501 10 determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). (f) During the Delivery Period, the City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter (provided, that this consent requirement shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale, or distribution of the Bonds. (g) If the Official Statement is supplemented or amended, the Official Statement as so supplemented or amended, as of the date of such supplement or amendment, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except no representation is made with respect to any information regarding DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter). (h) The City is not, in any manner which would materially adversely affect the transactions contemplated by the City Documents, in breach of or in default under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which the City is a party, and no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any of the foregoing. (i) The authorization, execution, and delivery by the City of the City Documents, and compliance by the City with the provisions thereof, do not and will not conflict with or constitute a breach of or default by the City under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which it is bound or by which its properties may be affected. (j) No authorization, consent, or approval of, or filing or registration with, any Governmental Authority or court is, or under existing requirements of law will be, necessary for the valid execution and delivery of, or performance by the City of its obligations under, the City Documents, other than any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds (except no representation is made regarding any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds). (k) The City will furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to Page 388 of 501 11 determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the City shall not be required to execute a general consent or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction, and the Underwriter shall be responsible for all costs relating to such qualification or determination under Blue Sky or other securities laws. (l) There is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body and notice of which has been receive by the City, pending or, to the best knowledge of the City, threatened (i) in any way questioning the existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting, or seeking to prohibit, restrain, or enjoin the Authority’s issuance of the Bonds or the execution or delivery of any of the City Documents, or the payment or collection by the Authority of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds pursuant to the Indenture, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby or any proceeding of the City taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation; (iii) that may result in any material adverse change relating to the City that will materially adversely affect the City’s ability to pay Base Rental Payments when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (m) Other than in the ordinary course of its business or as contemplated by the Official Statement, between the date of this Purchase Contract and the Closing Date the City will not, without the prior written consent of the Underwriter, offer or issue any certificates, bonds, notes, or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by the City’s General Fund. (n) The financial statements of, and other financial information regarding, the City contained in the Official Statement fairly present the financial position and results of the operations of the City as of the dates and for the periods therein set forth, and, to the best of the City’s knowledge, the audited financial statements have been prepared in accordance with generally accepted accounting principles consistently applied. (o) The City will refrain from taking any action, or permitting any action to be taken, with regard to which the City may exercise control, that results in the loss of the tax-exempt status of the interest on the Bonds. (p) Any certificate signed by any official or other representative of the City and delivered to the Underwriter pursuant to this Purchase Contract shall be deemed a representation and warranty by the City to the Underwriter as to the truth of the statements therein made. 8. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties, and covenants of the Authority and the City contained herein and in the Authority Documents and City Documents to which each of the Authority or the City, as applicable, is a party, and the performance by the Authority and the City of their respective obligations hereunder, Page 389 of 501 12 both as of the date hereof and as of the Closing Date. The Underwriter’s obligations under this Purchase Contract are and shall be subject to the following further conditions: (a) The representations and warranties of the Authority and the City contained herein shall be true, complete, and correct in all material respects on the date hereof and at and as of the Closing, as if made at and as of the Closing, and the statements made in all certificates and other documents delivered to the Underwriter at the Closing pursuant hereto shall be true, complete, and correct in all material respects at the Closing; the Authority and the City shall be in compliance in all material respects with each of the agreements made by it in this Purchase Contract (unless such agreements are waived by the Underwriter); there shall not have occurred an adverse change in the financial position, results of operations, or financial condition of the City that materially adversely affects the ability of the City to pay Base Rental Payments when due or otherwise perform any of its obligations under the City Documents; and there shall not have occurred an adverse change in the financial position of the Authority that materially adversely affects the ability of the Authority to make payments of principal of and interest on the Bonds when due or otherwise perform any of its obligations under the Authority Documents. (b) At the time of the Closing, the Authority Documents and the City Documents shall be in full force and effect, and shall not have been amended, modified, or supplemented (except as may be agreed to in writing by the Underwriter); all actions that, in the opinion of Orrick, Herrington & Sutcliffe LLP, Sacramento, California, Bond Counsel (“Bond Counsel”), shall be necessary in connection with the transactions contemplated hereby shall have been duly taken and shall be in full force and effect; and the City shall perform or shall have performed its obligations required under or specified in the City Documents to be performed at or prior to the Closing and the Authority shall perform or shall have performed its obligations required under or specified in the Authority Documents to be performed at or prior to the Closing. (c) At the time of the Closing, the Official Statement (as amended and supplemented) shall be true and correct in all material respects, and shall not omit any statement or information necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) Except as disclosed in the Official Statement or in a schedule delivered to the Underwriter at the Closing, no decision, ruling, or finding shall have been entered by any court or Governmental Authority since the date of this Purchase Contract (and not reversed on appeal or otherwise set aside) that has any of the effects described in Section 8(f) hereof. (e) (i) No default by the City or the Authority shall have occurred and be continuing in the payment of the principal of or premium, if any, or interest on any bond, note, or other evidence of indebtedness issued by the City or the Authority, respectively, and (ii) no bankruptcy, insolvency, or other similar proceeding in respect of the City or the Authority shall be pending or, to the knowledge of the City or the Authority, contemplated. (f) The Underwriter may terminate this Purchase Contract by written notification to the Authority and the City if at any time after the date hereof and prior to the Closing: (i) legislation shall have been enacted by the United States or the State or shall have been reported out of committee or be pending in committee, or a decision shall have been rendered by a court of the United States or the Tax Court of the United States, or a ruling shall have Page 390 of 501 13 been made or a regulation, proposed regulation, or a temporary regulation shall have been published in the Federal Register or any other release or announcement shall have been made by the Treasury Department of the United States or the Internal Revenue Service, with respect to Federal or State taxation upon revenues or other income or payments of the general character to be derived by the City or upon interest received on obligations of the general character of the Bonds, which, in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City), materially adversely affects the market for the Bonds; or (ii) in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City or its municipal advisor), any of the following events materially adversely affects the market for the Bonds: (a) the United States shall have become engaged in hostilities that have resulted in a declaration of war or a national emergency or the President of the United States of America shall have committed the armed forces of the United States of America to combat so as to adversely affect the financial markets in the United States of America, (b) any other calamity or crisis in the financial markets of the United States or elsewhere which did not exist on, or has escalated since, the dated date of this Purchase Contract, (c) the sovereign debt rating of the United States is downgraded by any major credit rating agency or a payment default occurs on United States Treasury obligations, or (d) a default with respect to the debt obligations of, or the institution of proceedings under any federal bankruptcy laws by or against, any state of the United States or any city, county, or other political subdivision located in the United States having a population of over 500,000; or (iii) there shall have occurred a general suspension of trading on the New York Stock Exchange or other major exchange, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the Securities and Exchange Commission or any other Governmental Authority having jurisdiction, or a general banking moratorium shall have been declared by Federal, California, or New York authorities having jurisdiction and being in force; or (iv) there shall have occurred an adverse change in the financial position, results of operations, or financial condition of the City that, in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City), materially adversely affects the market for the Bonds; or (v) any legislation, ordinance, rule, or regulation shall be introduced in, or be enacted by, any governmental body, department, or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered that, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (vi) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation, or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering, or sale of obligations of the general character of the Bonds, or the issuance, offering, or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, Page 391 of 501 14 including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (vii) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange, which restrictions materially adversely affect the ability of underwriters to trade obligations of the general character of the Bonds; or (viii) there shall have occurred, or any notice shall have been given of any intended review, downgrading, suspension, withdrawal, or negative change in credit watch status by any national rating service to any of the Authority’s or the City’s obligations secured in a like manner, which, in the Underwriter’s reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (ix) the commencement of any action, suit, or proceeding described in Section 6(n) or 7(m) that, in the judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (x) any event occurring, or information becoming known that, in the reasonable judgment of the Underwriter, makes any statement or information contained in the Official Statement, as of its date, untrue in any material adverse respect, or has the effect that the Official Statement, as of its date, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) At or prior to the Closing, the Underwriter shall receive the following documents: (1) the opinion of Bond Counsel, dated the Closing Date, in substantially the form included in the Official Statement as Appendix D, addressed to the Authority (and accompanied by reliance letters to the Underwriter, the City, and the Trustee); (2) a supplemental opinion of Bond Counsel, in form and substance satisfactory to the Underwriter, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) the statements in the Official Statement under the captions “THE BONDS” (excluding therefrom all information pertaining to DTC and its book-entry only system, as to which no opinion is expressed), “SOURCES OF PAYMENT FOR THE BONDS,” and “TAX MATTERS,” and in Appendix C—“ SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS,” excluding any material that may be treated as included under such captions and appendices by any cross-reference, insofar as such statements expressly summarize provisions of the Bonds, the Indenture, the Ground Lease, the Lease Agreement and Bond Counsel’s final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the Closing Date, provided that Bond Counsel need not express any opinion with respect to any financial or statistical data contained therein or with respect to the book-entry system in which the Bonds are initially delivered; Page 392 of 501 15 (ii) the Purchase Contract and the Continuing Disclosure Certificate have been duly executed and delivered by the City and the Authority, as applicable, and are the valid and binding agreements of the City and the Authority, as applicable, enforceable in accordance with their respective terms, except that the rights and obligations under the Purchase Contract and the Continuing Disclosure Certificate are subject to bankruptcy, insolvency, reorganization, receivership, arrangement, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against governmental entities such as the Authority and the City, and provided that no opinion is expressed with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in such documents, nor is any opinion required with respect to the state or quality of title to or interest in any real or personal property described in the Ground Lease, the Lease Agreement or as subject to the lien of the Indenture, or the accuracy or sufficiency of the descriptions contained therein of, or the remedies available to enforce liens on, any such property; and provided further that no opinion, conclusion or view is required to be expressed regarding the adequacy of the Continuing Disclosure Certificate for purposes of Securities and Exchange Commission Rule 15c2-12; and (iii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; (3) an opinion dated the Closing Date and addressed to the Underwriter and the Trustee, of the City Attorney, as counsel to the City, to the effect that: (i) the City is a municipal corporation and chartered city duly organized and validly existing under and by virtue of the laws of the State; (ii) the resolution of the City approving and authorizing the execution and delivery of the City Documents (the “City Resolution”) was duly adopted at a meeting of the City Council of the City that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the City Resolution is in full force and effect and has not been modified, amended, or rescinded as of the Closing Date; (iii) the City Documents have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the City enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting enforcement or creditors’ rights or by the application of equitable principles if equitable remedies are sought; (iv) the execution and delivery by the City of the City Documents, and compliance by the City with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the City is subject to or by which it is bound; Page 393 of 501 16 (v) the Official Statement (excluding therefrom financial statements and other statistical data included in the Official Statement, and any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter, as to which no view need be expressed) does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the City, or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the City or the titles of the officers of the City to their respective offices; (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the Authority’s issuance of the Bonds or the execution or delivery of any of the City Documents, or the payment to or collection by the Authority of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby or any proceeding of the City taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation; (c) that may result in any material adverse change relating to the City that will materially adversely affect the City’s ability to perform its obligations under the City Documents; or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vii) no authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the City is required for the valid authorization, execution, and delivery by the City of the City Documents; (4) an opinion of the City Attorney of the City, serving as General Counsel to the Authority, in form and substance satisfactory to the Underwriter, dated the Closing Date, addressed to the City and the Underwriter, to the effect that: (i) the Authority is a joint powers authority under Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code duly organized and validly existing under and by virtue of the Constitution and the laws of the State; (ii) the resolution of the Authority approving and authorizing the execution and delivery of the Authority Documents and approving the Official Statement (the “Authority Resolution”) was duly adopted at a meeting of the governing board of the Authority that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Authority Resolution is in full force and effect and has not been modified, amended, or rescinded as of the Closing Date; (iii) the Bonds and the Authority Documents have been duly authorized, executed and delivered by the Authority and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the Authority enforceable against the Authority in accordance with the respective terms, except as enforcement may Page 394 of 501 17 be limited by bankruptcy, insolvency, reorganization, moratorium or tother laws affecting enforcement of creditors’ rights or by the application of equitable principles if equitable remedies are sought; (iv) the execution and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the Authority is subject to or by which it is bound; (v) except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices, (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to make the pledges set forth in the Indenture, (c) that may result in any material adverse change relating to the Authority that will materially adversely affect the Authority’s ability to perform its obligations under the Authority Documents, or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vi) no authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the Authority is required for the valid authorization, execution, and delivery by the Authority of the Authority Documents; (5) a letter (which may be combined with referenced in (2) above) from Orrick, Herrington & Sutcliffe LLP, Sacramento, California, disclosure counsel to the City and the Authority (“Disclosure Counsel”), dated the Closing Date, addressed to the Underwriter, to the effect that, in such capacity, based upon its participation in the preparation of the Official Statement as counsel to the City and the Authority and without having undertaken to determine independently the fairness, accuracy, or completeness of the statements contained in the Preliminary Official Statement or the Official Statement, such counsel has no reason to believe that the Preliminary Official Statement as of its date or the Official Statement as of its date and as of the Closing Date (excluding therefrom the reports, CUSIP numbers, financial, accounting, statistical, economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, any determinations regarding valuation, real estate, and environmental matters, litigation, any statements about compliance with prior continuing disclosure undertakings, relationships among the parties, or any information about book-entry, DTC, Cede & Co.,the Underwriter or underwriting; and the information included in the Appendices thereto, as to which no view need be expressed) contained or contains any untrue statement of a material fact or omitted or omits to state any material fact Page 395 of 501 18 necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (6) A certificate, dated the Closing Date, signed by a duly authorized officer of the Authority, satisfactory in form and substance to the Underwriter, to the effect that: (i) the Authority Resolution was duly adopted at a regular meeting of the Authority, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter; (ii) the representations, warranties and covenants of the Authority contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the Authority, and the Authority has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the Authority at or prior to the Closing Date; (iii) no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the information and statements contained in the Official Statement under the caption “THE AUTHORITY” did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (v) the Authority is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (7) A certificate, dated the Closing Date, signed by a duly authorized officer of the City, satisfactory in form and substance to the Underwriter, to the effect that: (i) the City Resolution was duly adopted at a regular meeting of the City Council of the City, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter; (ii) the representations, warranties and covenants of the City contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the City, and the City has complied with, Page 396 of 501 19 in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the City at or prior to the Closing Date; (iii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the information and statements contained in the Official Statement (other than information in the Official Statement under the caption “UNDERWRITING” and information regarding DTC and its book-entry only system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (v) the City is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (8) a certificate, dated the date of the Preliminary Official Statement, from the Authority and the City, in the form attached hereto as Exhibit B; (9) an opinion of counsel to the Trustee, dated the Closing Date, addressed to the Underwriter, the Authority, and the City, to the effect that: (i) the Trustee is a national banking association and is validly existing, duly qualified to do business and in good standing under the laws of each jurisdiction in which the performance of its duties under the Indenture and the Memorandum of Lease Agreement and Assignment (collectively, the “Trustee Documents”) would require such qualification and has the requisite power and authority to execute, deliver and perform its obligations under the Trustee Documents; (ii) the Trustee is duly eligible and qualified to act as Trustee under the Indenture; (iii) the Trustee has all requisite power, authority and legal right to execute and deliver the Trustee Documents and to perform its obligations under the Trustee Documents, and has taken all necessary corporate action to authorize the execution and delivery of and the performance of its obligations under the Trustee Documents; (iv) the Trustee has duly executed and delivered the Trustee Documents. Assuming the due authorization, execution and delivery thereof by the other parties thereto, the Trustee Documents are the legal, valid, and binding agreements of the Trustee enforceable against the Trustee in accordance with their terms, except to the extent enforceability thereof may be Page 397 of 501 20 subject to (A) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights and remedies heretofore or hereafter enacted, and (B) the application of equitable principles and the exercise of judicial discretion in appropriate cases; (v) the Bonds have been duly authenticated by the Trustee; (vi) the execution, delivery and performance of the Trustee Documents by the Trustee and the consummation of the transactions contemplated thereby do not and will not (a) to the knowledge of such counsel, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument to which the Trustee is a party or by which the Trustee is bound or to which any of the property or assets of the Trustee or any of its subsidiaries is subject, (b) result in any violation of the provisions of the charter, articles of association, by-laws, or applicable resolutions of the Trustee, or (c) to the knowledge of such counsel, result in any violation of any statute or any order, rule, or regulation of any court or government agency or body having jurisdiction over the Trustee or any of its properties or assets; and (vii) to the knowledge of such counsel, there are no actions, proceedings or investigations pending or threatened against the Trustee before any court, administrative agency or tribunal (a) asserting the invalidity of the Trustee Documents, (b) seeking to prevent the consummation of any of the transactions contemplated thereby, or (c) that might materially and adversely affect the performance by the Trustee of its obligations under, or the validity or enforceability of the Trustee Documents; (10) a certificate, dated the Closing Date, signed by a duly authorized officer of the Trustee, to the effect that; (i) the Trustee is a national banking association organized and existing under and by virtue of the laws of the United States of America, having the necessary power to enter into, accept, and administer the trusts created under the Indenture and to authenticate the Bonds; (ii) the Trustee Documents have been duly authorized, executed, and delivered by a duly authorized officer of the Trustee, and the execution, delivery, and performance of the Trustee Documents has been duly authorized by all necessary action of the Trustee; (iii) the Trustee Documents constitute the legal, valid, and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (iv) the Bonds have been duly authenticated by a duly authorized officer of the Trustee; (v) no consent, approval, authorization, or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Trustee Documents or the performance by the Trustee of its duties and obligations under the Trustee Documents; Page 398 of 501 21 (vi) the execution and delivery by the Trustee of the Trustee Documents and compliance with the terms thereof will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution, or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order, or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties (except that no representation, warranty, or agreement need be made with respect to any federal or State securities or blue sky laws or regulations); (vii) the Trustee’s action in executing and delivering the Trustee Documents will not contravene the articles or bylaws of the Trustee and is in full compliance with, and does not conflict with, any applicable law or governmental regulation currently in effect, and such action does not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and (viii) there is no action, suit, proceeding, or investigation, at law or in equity, before or by any court or governmental agency, public board, or body that has been served on the Trustee, or to the best knowledge of the Trustee, threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Trustee Documents or contesting the powers of the Trustee or its authority to enter into and perform its obligations thereunder; (11) a letter from Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, counsel to the Underwriter (“Underwriter’s Counsel”), dated the Closing Date, addressed to the Underwriter, in form and substance acceptable to the Underwriter; (12) certified copies of the City Resolution, the Authority Resolution, and an incumbency resolution of the Trustee; (13) copies each of the Authority Documents, the City Documents, and the Official Statement, duly executed and delivered by the respective parties thereto; (14) evidence that the rating on the Bonds of “__” from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, is in full force and effect on the Closing Date; (15) copies of the statements with respect to the sale of the Bonds required to be delivered to the California Debt and Investment Advisory Commission; (16) evidence that a debt management policy which complies Section 8855 of the California Government Code has been adopted by both the City and the Authority; (17) a copy of the Blanket Letter of Representations to DTC relating to the Bonds signed by the Authority; (18) a copy of an ALTA or CLTA title insurance policy in an amount equal to the principal amount of the Bonds, insuring the City’s leasehold interest in the Property, subject only to permitted encumbrances or such other encumbrances approved in writing by the Underwriter; Page 399 of 501 22 (19) A certificate regarding compliance with certain tax matters with respect to the maintenance of the tax-exempt status of the Bonds, duly executed by the City, together with Form 8038-G, duly executed by the City. (20) Specimen Bonds, duly executed by the Trustee. (21) such additional legal opinions, certificates, proceedings, instruments, and other documents as the Underwriter, Underwriter’s Counsel, or Bond Counsel may reasonably request to evidence compliance by the City and the Authority with legal requirements, the accuracy, as of the time of Closing, of the Authority and the City’s representations herein contained, and the due performance or satisfaction by the City and the Authority at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City and the Authority. If the City or the Authority shall be unable to satisfy the conditions to the Underwriter’s obligations contained in this Purchase Contract or if the Underwriter’s obligations shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and none of the City, the Authority, or the Underwriter shall have any further obligation hereunder. 9. The performance by each of the Authority and the City of its obligations is conditioned upon (i) the performance by the Underwriter of its obligations hereunder and (ii) receipt by the Authority, the City, and the Underwriter of opinions and certificates being delivered at the Closing by persons and entities other than the Authority and the City. 10. No expenses and costs of the City or the Authority incident to the performance of the Authority’s or the City’s obligations in connection with the authorization, issuance, and sale of the Bonds to the Underwriter, such as the costs of preparation (including word processing, printing, and reproduction), distribution and delivery of the Preliminary Official Statement, the Official Statement, and this Purchase Contract, in reasonable quantities, fees of rating agencies, fees and expenses of any municipal advisor to the City, and fees and expenses of Bond Counsel or Disclosure Counsel for the City shall be paid by the Underwriter. Except as indicated above, all out-of-pocket expenses of the Underwriter, including the California Debt and Investment Advisory Commission fee, traveling, advertising expenses, any costs and expenses incurred in connection with the preparation and distribution of any blue sky surveys or any legal investment memoranda, fees and expenses of Underwriter’s Counsel and other expenses and the fees and expenses of the Underwriter, shall be paid by the Underwriter. 11. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing to the City of San Luis Obispo, 990 Palm Street, San Luis Obispo, California 93401, Attention: City Manager, or to such other person as the City Manager may designate in writing. Any notice or other communication to be given to the Authority under this Purchase Contract may be given by delivering the same in writing to the San Luis Obispo Public Financing Authority, 990 Palm Street, San Luis Obispo, California 93401, Attention: Treasurer, or to such other person as the Treasurer may designate in writing. Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Raymond James & Associates, Inc., One Embarcadero Center, Suite 650, San Francisco, California 94111, Attention: Emily Giles, Managing Director. The approval of the Underwriter when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to the Authority. Page 400 of 501 23 12. For all purposes of this Purchase Contract, a default shall not be deemed to be continuing if it has been cured, waived, or otherwise remedied. This Purchase Contract shall be governed by and construed in accordance with the laws of the State applicable to contracts made and performed within the State. 13. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 14. This Purchase Contract when accepted by the Authority and the City in writing shall constitute the entire agreement among the City, the Authority, and the Underwriter and is made solely for the benefit of the City, the Authority, and the Underwriter (including the successors or assigns of the Underwriter approved by the City and the Authority). No other person shall acquire or have any right hereunder or by virtue hereof. All of the representations, warranties, and agreements of the City and the Authority contained in this Purchase Contract shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Underwriter (but, if the Underwriter does discover by its investigation that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Underwriter shall so notify the City and the Authority); (b) the delivery of and payment for the Bonds; and (c) any termination of this Purchase Contract. Page 401 of 501 S-1 15. This Purchase Contract shall not be modified or amended without the prior written consent of the Underwriter, the City, and the Authority. Very truly yours, RAYMOND JAMES & ASSOCIATES, INC. By: Managing Director Accepted at ______ [AM/PM] as of the date hereof: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Treasurer CITY OF SAN LUIS OBISPO By: City Manager Page 402 of 501 A-1 EXHIBIT A $__________ San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Maturity Date ([December 1]) Principal Amount Interest Rate Yield Price 10% Test Used Hold the Offering Price Used $ % % [C Priced to the first optional redemption date of December 1, 20__ at par.] [T Term Bond.] Redemption Extraordinary Redemption. The Bonds will be subject to redemption, in whole or in part, on any date, in denominations of $5,000 and integral multiples thereof (“Authorized Denominations”), from and to the extent of any Net Proceeds received with respect to all or a portion of the Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. Optional Redemption. The Bonds maturing on or after [December 1, 20__] will be subject to optional redemption, in whole or in part, in Authorized Denominations, on any date on or after [December 1, 20__] from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing [December 1, 20__] will be subject to mandatory sinking fund redemption, in part, on [December 1] in each year, commencing [December 1, 20__], at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts and on the respective dates set forth in the following table: Page 403 of 501 A-2 Sinking Fund Redemption Date [(December 1)] Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on [December 1, 20__] are redeemed as provided under the caption “Extraordinary Redemption,” the principal amount of Bonds maturing on [December 1, 20__] to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on [December 1, 20__] so redeemed from Net Proceeds, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in denominations of $5,000 and integral multiples thereof, as determined by the Trustee, notice of which determination will be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on [December 1, 20__] are redeemed as provided under the caption “Optional Redemption,” the principal amount of Bonds maturing on [December 1, 20__] to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on [December 1, 20__] so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. Page 404 of 501 B-1 EXHIBIT B CERTIFICATE AS TO FINALITY OF PRELIMINARY OFFICIAL STATEMENT SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 The San Luis Obispo Public Financing Authority (the “Authority”) and the City of San Luis Obispo (the “City”), acting through the undersigned authorized officer of the Authority and the City, hereby certify and represent as follows: (1) The undersigned is a duly appointed and acting representative of the Authority and the City, and as such is duly authorized to execute and deliver this Certificate on behalf of the Authority and the City. (2) This Certificate is delivered in connection with the offering and sale of the above- captioned bonds (the “Bonds”) to enable Raymond James & Associates, Inc., as the underwriter for the Bonds, to assist the Authority and the City in connection with this financing, in order to comply with Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “Rule”). (3) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, dated _________, 2023 (including the front cover, the inside front cover, the introduction and all appendices thereto, the “Preliminary Official Statement”), setting forth information concerning the Bonds, the Authority and the City. (4) The Preliminary Official Statement is, except for Permitted Omissions (defined below), deemed final within the meaning of the Rule. As used herein, “Permitted Omissions” shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates and other terms of the Bonds depending on such matters all with respect to the Bonds. Dated: _________, 2023 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By Treasurer CITY OF SAN LUIS OBISPO By City Manager Page 405 of 501 B-2 EXHIBIT C CERTIFICATE OF THE UNDERWRITER with reference to $__________ San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Dated: _______, 2023 The undersigned, on behalf of Raymond James & Associates, Inc. (“Raymond James”) hereby certifies as set forth below with respect to the sale and delivery of the above-captioned obligations (the “Bonds”). 1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A. 2. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Raymond James offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B. (b) As set forth in the Bond Purchase Contract, dated June __, 2023, by and among Raymond James, as the Underwriter (as defined below), the City of San Luis Obispo and the Issuer (as defined below), Raymond James has agreed in writing that: (i) for each Maturity of the Hold-the- Offering-Price Maturities, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering-price rule”); and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any third-party distribution agreement shall contain the agreement of each broker-dealer who is a party to the third- party distribution agreement, to comply with the hold-the-offering-price rule. Pursuant to such agreement, no Underwriter has offered or sold any Maturity of the Hold-the-Offering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period. 3. Defined Terms. (a) General Rule Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “10% Test Used.” (b) Hold-the-Offering-Price Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “Hold the Offering Price Used.” Page 406 of 501 B-3 (c) Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date (which Sale Date is June __, 2023), or (ii) the date on which Raymond James has sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-the-Offering-Price Maturity. (d) Issuer means the San Luis Obispo Public Financing Authority. (e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities. (f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is ______, 2023. (h) Underwriter means: (i) any person that agrees pursuant to a written contract with the Issuer and the City of San Luis Obispo (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public; and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Raymond James’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer and the City of San Luis Obispo with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Orrick, Herrington & Sutcliffe LLP, in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer or the City of San Luis Obispo from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. RAYMOND JAMES & ASSOCIATES, INC. By: Name: Dated: ______, 2023 Page 407 of 501 B-4 SCHEDULE A SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES (Attached) Page 408 of 501 C-1 SCHEDULE B PRICING WIRE OR EQUIVALENT COMMUNICATION (Attached) Page 409 of 501 Page 410 of 501 OH&S Draft 08/03/2023 4125-9942-2535.12 This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED [________], 2023 NEW ISSUE - FULL BOOK-ENTRY RATING: S&P: [AA] (See “RATING” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes . In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual alter native minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum ta x. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein. $[PAR]* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 Dated: Date of Delivery Due: December 1, as shown on the inside cover The San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”) are being issued by the San Luis Obispo Public Financing Authority (the “Authority”) to provide funds to (i) finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, (ii) redeem and defease the 2012 Bonds (as defined herein) and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Bonds. See “THE PLAN OF FINANCE” herein. Interest on the Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2023. The Bonds will be issued as fully-registered bonds without coupons and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form through DTC participants and no physical delivery of the Bonds will be made to purchasers, except as otherwise described herein. Payment of principal, premium, if any, and interest will be made by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), to DTC which is obligated to remit such payments to its participants for subsequent disbursement to the Beneficial Owners of the Bonds. See Appendix F—“DTC DESCRIPTION” hereto. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are being issued pursuant to an Indenture dated as of [September 1, 2023] (the “Indenture”) between the Authority and the Trustee. The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City of San Luis Obispo (the “City”) or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Bonds. Lease Revenues consist primarily of Base Rental Payments to be received by the Authority from the City pursuant to a Lease Agreement between the Authority, as lessor, and the City, as lessee. Such Base Rental Payments are calculated to be sufficient to pay the principal of and interest on the Bonds when due. Base Rental Payments are payable from any source of legally available funds in each year that the City has use and possession of the Leased Property. No debt service reserve fund will be established for the Bonds. The Bonds are subject to optional redemption and extraordinary redemption prior to maturity as more fully described herein. See “THE BONDS—Redemption” herein. The Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Lease Revenues . Neither the full faith and credit of the Authority, the City nor any member of the Authority is pledged for the payment of the principal of or interest on the Bonds or for the payment of Base Rental Payments. Neither the payment of the principal of or interest on the Bonds nor the obligation to make Base Rental Payments constitutes a debt, liability or obligation of the Authority, the City or any member of the Authority for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation. The Authority has no taxing power. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision on the Bonds. The Bonds are offered when, as and if issued, subject to the approval of validity of the Bonds and certain other legal matters by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and subject to certain other conditions. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Certain legal matters will be passed upon for the Authority and * Preliminary; subject to change. Page 411 of 501 4125-9942-2535.12 for the City by the City Attorney. Certain legal matters will be passed upon for the Raymond James & Associates, Inc. (the “Underwriter”) by its counsel, Stradling Yocca Carlson & Rauth, A Professional Corporation. It is expected that the Bonds will be available for delivery through the DTC book-entry only system in New York, New York on or about [September _, 2023]. [RAYMOND JAMES LOGO] Date of Official Statement: _____________. Page 412 of 501 4125-9942-2535.12 $[PAR]* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 MATURITY SCHEDULE Maturity Date (December 1) Principal Amount Interest Rate Yield Price CUSIP Number† $___________ ____% Term Bond due December 1, 20__; Yield ____%; CUSIP† Suffix ___ $___________ ____% Term Bond due December 1, 20__; Yield ____%; CUSIP† Suffix ___ * Preliminary; subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2023 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does no t serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. Page 413 of 501 4125-9942-2535.12 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. 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 to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, change. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and a s part of its responsibilities to investors under, the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations 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 any of the foregoing. This Official Statement is not to be construed as a contract with the purchasers of the Bonds . Statements contained in this Official Statement which involve estimates, forecasts or matters of opi nion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information set forth herein has been furnished by the Authority and the City and other sources as noted that the Authority and the City believe reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this 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 Authority and the City since the date hereof. This Official Statement, including any supplement or amendment thereto, is intended to be deposited with one or more nationally recognized municipal securities information repositories. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF ANY OF THE BONDS, BY ANY PERSON IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. In making an investment decision, potential investors must rely on their own examination of the Authority and the City and the terms of the offering, including the merits and risks involved. The Bonds have not been registered or qualified under the securities laws of any state. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Official Statement. Any representation to the contrary is a criminal offense. The summaries and references to the Indenture, the Continuing Disclosure Certificate and statutes and other documents do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such document and statute. The Bonds have not been registered under the Securities Page 414 of 501 4125-9942-2535.12 Act of 1933, as amended, in reliance upon exemptions from the registration requirements contained in such Acts. The City maintains a website. Unless specifically indicated otherwise, the information presented in the website is not incorporated by reference as part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. Page 415 of 501 4125-9942-2535.12 CITY OF SAN LUIS OBISPO, CALIFORNIA City Council and San Luis Obispo Public Financing Authority Governing Board Erica A. Stewart, Mayor/Chair Jan Marx, Vice Mayor/Vice Chair Emily Francis, Council Member/Director Andy Pease, Council Member/Director Michelle Shoresman, Council Member/Director City and Authority Staff Derek Johnson, City Manager/Executive Director Emily Jackson, Finance Director/Chief Financial Officer J. Christine Dietrick, Esq., City Attorney/General Counsel Trustee U.S. Bank Trust Company, National Association Municipal Advisor PFM Financial Advisors LLC San Francisco, California Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Page 416 of 501 TABLE OF CONTENTS Page Page -i- 4125-9942-2535.12 INTRODUCTION ............................................. 1 Purpose ........................................................ 1 Sources of Payment for the Bonds .............. 1 The Authority .............................................. 2 The City ....................................................... 2 Summaries Not Definitive; Definitions ............................................ 2 Continuing Disclosure ................................. 3 Other General Fund Obligations ................. 3 THE LEASED PROPERTY .............................. 3 General ........................................................ 3 Description of Leased Property ................... 3 Additions to the Leased Property, Substitution or Release of Property ................................................. 4 THE PLAN OF FINANCE ................................ 4 Cultural Arts District Parking Structure ................................................ 4 Refunding .................................................... 7 ESTIMATED SOURCES AND USES OF PROCEEDS................................................. 8 THE BONDS ..................................................... 8 General ........................................................ 8 Redemption ................................................. 9 Notice of Redemption ............................... 11 Effect of Redemption ................................ 11 SOURCES OF PAYMENT FOR THE BONDS ..................................................... 11 General ...................................................... 11 Base Rental Payments ............................... 12 Additional Rental Payments ...................... 12 No Debt Service Reserve Fund ................. 13 Insurance ................................................... 13 Damage or Destruction of the Leased Property .................................. 14 Remedies Upon Default ............................ 15 RISK FACTORS ............................................. 15 No Pledge of Revenues or Lien on Assets of the City ................................ 15 Additional Obligations of the City ............ 16 Abatement ................................................. 16 Risk of Uninsured Loss ............................. 17 Limited Recourse on Default..................... 17 No Acceleration Upon Default .................. 17 Bankruptcy ................................................ 18 Risk of Tax Audit; Loss of Tax Exemption ........................................... 19 Limited Secondary Market ........................ 19 Hazardous Substances ............................... 19 Cyber Security ........................................... 20 Natural Disasters and Other Events .......... 20 Environmental Focus and Climate Change ................................................ 21 Pandemic and Infectious Disease .............. 22 Dependence on State for Certain Revenues ............................................. 22 Changes in Law ......................................... 23 City Pension Benefit Liability ................... 23 No Liability of Authority to the Owners ................................................ 23 CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS ....................... 23 Article XIIIA of the State Constitution ........................................ 23 Article XIIIB of the State Constitution ........................................ 24 Articles XIIIC and XIIID of the State Constitution ............................... 25 Proposition 22 ........................................... 26 Proposition 26 ........................................... 26 Proposition 62 ........................................... 27 Unitary Property ........................................ 27 Future Initiatives ....................................... 28 THE AUTHORITY ......................................... 28 THE CITY ....................................................... 28 CITY FINANCIAL INFORMATION ............ 29 Budgetary Process ..................................... 29 Financial Statements ................................. 33 General Fund Balance Sheet ..................... 33 General Fund Revenues, Expenditures and Changes in Fund Balances..................................... 35 Recent Developments................................ 37 Taxes and Other Revenues ........................ 38 Sales and Use Taxes .................................. 39 Property Taxes .......................................... 41 Transient Occupancy Tax ......................... 44 Other Taxes and Revenues ........................ 44 Page 417 of 501 TABLE OF CONTENTS (continued) Page -ii- 4125-9942-2535.12 Parking Rates (Specific to Parking Enterprise) ........................................... 45 Outstanding General Fund Debt and Other Obligations ................................ 45 Direct and Overlapping Bonded Debt ..................................................... 47 Employee Relations ................................... 49 Insurance ................................................... 49 Employee Retirement System ................... 50 City Investment Policy and Portfolio ........ 55 TAX MATTERS .............................................. 56 CERTAIN LEGAL MATTERS....................... 58 MUNICIPAL ADVISOR ................................. 58 VERIFICATION.............................................. 59 LITIGATION ................................................... 59 CONTINUING DISCLOSURE ....................... 59 RATING .......................................................... 59 UNDERWRITING .......................................... 59 MISCELLANEOUS ........................................ 60 APPENDIX A – AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 APPENDIX B – CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D – PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F – DTC DESCRIPTION Page 418 of 501 -1- 4125-9942-2535.12 OFFICIAL STATEMENT $[PAR]* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INTRODUCTION This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined herein shall have the respective meanings assigned to them elsewhere in this Official Statement. Purpose The purpose of this Official Statement, including the appendices hereto, is to furnish information regarding the issuance and sale by the San Luis Obispo Public Financing Authority (the “Authority”) of $[PAR]* aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to the provisions of a resolution of the Authority adopted on [August 15, 2023] (the “Resolution”) and an Indenture dated as of [September 1, 2023] (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee thereunder (the “Trustee”). The Bonds will be issued in full conformity with the Constitution and laws of the State of California (the “State”), including the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the California Government Code, as amended from time to time. The primary purpose of issuing the Bonds is to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District (the “Series 2023 Project”) and to redeem and defease the outstanding principal amount of the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”). See “THE PLAN OF FINANCE” herein. Proceeds of the Bonds will also be used to pay costs incurred in connection with the issuance, sale and delivery of the Bonds. Pursuant to a Ground Lease (the “Ground Lease”), between the City of San Luis Obispo (the “City”), as lessor and the Authority, as lessee, the City will lease to the Authority the real property and the improvements thereon (the “Leased Property”). Concurrently, the Authority will lease the Leased Property to the City pursuant to a Lease Agreement (the “Lease Agreement”), between the Authority, as lessor and the City, as lessee. See “THE LEASED PROPERTY” herein. Sources of Payment for the Bonds The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues (hereafter defined) and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Authority will assign to the Trustee all of the Lease Revenues and all of the rights of the Authority in the Lease Agreement, except for certain rights to indemnification set forth therein. Page 419 of 501 -2- 4125-9942-2535.12 The Base Rental Payments (as further defined herein) are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Rental Payments (as further defined herein) due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. However, during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. See “RISK FACTORS—Abatement” herein. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. The City has assumed responsibility under the Lease Agreement for the operati on, maintenance and repair of the Leased Property, and is required to maintain or cause to be maintained insurance on the Leased Property, including title insurance, fire and extended coverage, comprehensive public liability and property damage insurance, and rental income interruption insurance with respect to property damage risks in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any rental period. See “SOURCES OF PAYMENT FOR THE BONDS” herein. No debt service reserve fund will be established for the Bonds. The Authority The Authority is a joint exercise of powers authority established pursuant to an agreement between the City and the City of San Luis Obispo Parking Authority (the “Parking Authority”). See “THE AUTHORITY” herein. The City For certain information concerning the City, including the City’s current financial situation, see “CITY FINANCIAL INFORMATION” herein and Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Summaries Not Definitive; Definitions Brief descriptions of the Bonds, the Authority, the City, the Series 2023 Project and the Leased Property are included in this Official Statement, together with summaries of the Indenture, the Lease Agreement and the Ground Lease. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds, the Indenture, the Lease Agreement and the Ground Lease are qualified in their entirety by reference to the actual documents or with respect to the Bonds, the form of which is included in the Indenture. Copies of all such documents are available for inspection at the corporate trust office of the Trustee in Los Angeles, California. Definitions of certain capitalized terms used in this Official Statement and not otherwise defined herein or in Appendix C hereto shall have the meanings set forth in the Indenture and the Lease Agreement. The summaries of and references contained herein to the Indenture, the Bonds, the Lease Agreement, Page 420 of 501 -3- 4125-9942-2535.12 Ground Lease, statutes and other documents do not purport to be comprehensive or definitive and are qualified by reference to each such document, instrument or statute. Continuing Disclosure The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data and to provide notices of the occurrence of certain enumerated events in order to assist the Raymond James & Associates, Inc. (the “Underwriter”) in complying with Securities Exchange Commission Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” herein. Other General Fund Obligations The City has other obligations payable from its general fund and may enter into additional obligations payable from its general fund in the future. For additional detail, see Note 6 (“Long-Term Debt”) in Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. THE LEASED PROPERTY General The City will lease all of the Leased Property summarized below to the Authority pursuant to the Ground Lease, and the Authority will lease back all of the Leased Property to the City pursuant to the Lease Agreement. The Leased Property consists of a number of essential City properties and the sites thereof. The Leased Property includes site development, landscaping, utilities, equipment, furnishings, improvements and appurtenant, and related facilities located on the real property, including any future improvements made to such Leased Property. The City covenants that so long as the Leased Property is available for use and occupancy, the City will take such actions as may be necessary to include all Base Rental Payments and Additional Rental Payments with respect to each Leased Property asset in its annual budgets and to make the necessary annual appropriations therefor. The value of each facility of the Leased Property is based upon projected construction cost, historical costs, estimates of replacement cost or insured value. The actual market value may differ materially from the estimated value listed below. The Authority has only a leasehold interest in the Leased Property and is not authorized to sell any such asset. The City represents and agrees in the Lease Agreement that the annual Base Rental Payments represent the fair rental value of the respective Leased Assets. Description of Leased Property Pursuant to the Lease Agreement, the City will sublease from the Authority the Leased Prop erty, which consists of the facilities described below. Marsh Street Parking Structure. The City is leasing its parking structure located at 871 Marsh Street, an approximately 215,838 square foot, [4 floor] concrete building with 520 parking spaces and 19 electric vehicle (EV) charging stations, [as well as 4,000 square feet of retail space and 15,000 square feet of office space.] The structure was built in 1991. The approximate value of land and improvements is estimated at $75,305,490 based on a commercial broker price opinion the City received from McCarty Davis Commercial Real Estate on June 30, 2023. Page 421 of 501 -4- 4125-9942-2535.12 No other property of the City or the Authority will initially be subject to the Lease Agreement . Under the Lease Agreement and the Indenture, the City may change or substitute other capital facilities for the Leased Property subject to the provisions described therein. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Lease of Leased Property; Term; Substitution—Substitution and Release of Property” hereto. Additions to the Leased Property, Substitution or Release of Property The City may amend the Lease Agreement to add additional real property to the Leased Property, substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon completion of the conditions set forth in the Lease Agreement. In order to effect such release and substitution, the City is required to provide the Authority and the Trustee, among other things, (a) an ALTA policy of title insurance insuring the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances in an amount which, together with the amount of title insurance applicable to the unreleased portion of the Leased Property, equals at least the aggregate principal amount of Bonds then outstanding, and (b) an opinion of bond counsel stating that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. A substitution or release of Leased Property under the Lease Agreement will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. THE PLAN OF FINANCE Cultural Arts District Parking Structure A portion of the proceeds of the Bonds will be used to finance the costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of the City’s Cultural Arts District Parking Structure, an approximately 163,000 square foot, 5-story building, with approximately 397 parking spaces. The Cultural Arts District Parking Structure will be located at 609 Palm Street, with access on Palm Street and Nipomo Street, adjacent to a new San Luis Obispo Repertory Theatre site with two performance spaces expected to open in early 2027. There is a potential that up to 12 housing units could be developed on the property, adjacent to the structure, by an as of yet undetermined party. The diagrams on the following pages represent the location of the Cultural Arts District Parking Structure and other nearby parking structures. Contractors and Schedule. Construction of the Cultural Arts District Parking Structure is being completed in two phases. The first phase, consisting of demolition of tree protection, demolition of vacant residential buildings, and demolition of an existing surface-level parking structure, is underway. The City expects to award the construction contract for the second phase, consisting of vertical construction of the Cultural Arts District Parking Structure, to the contractor(s) submitting the lowest responsive responsible bid based upon a guaranteed maximum price procurement approach. Construction is expected to commence in December 2023 and be completed in late 2025. Environmental and Land Use Approvals. Projects undertaken by the City, including the Cultural Arts District Parking Structure, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) (“CEQA”). Under CEQA, a public agency is required, following preparation of an initial study, to determine whether an environmental impact report (an “EIR”), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared. The City prepared an EIR for the Cultural Arts District Parking Structure that was certified on July 17, 2018. In addition, the City prepared an addendum in July 2019 due to certain changes to the zoning and Page 422 of 501 -5- 4125-9942-2535.12 land use designations. All other land use approvals necessary to proceed with the Cultural Arts District Parking Structure have been obtained or are expected to be obtained in due course. Page 423 of 501 -6- 4125-9942-2535.12 Page 424 of 501 -7- 4125-9942-2535.12 Refunding A portion of the proceeds of the Bonds, together with other available moneys, will be applied to redeem and defease the 2012 Bonds. The 2012 Bonds will be redeemed and defeased on or about [2012 Bonds Redemption Date] (the “Redemption Date”) pursuant to the legal documents under which the 2012 Bonds were issued. The City issued the 2012 Bonds in the aggregate principal amount of $5,050,000 for the purpose of refunding three series of lease revenue bonds originally issued in 2001. The 2012 Bonds are currently outstanding in the aggregate principal amount of $2,415,000, which will be redeemed in full, on a current basis on the Redemption Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest coming due and payable on the redemption date. In order to accomplish the refinancing plan, the a portion of the net proceeds of the Bonds, together with certain other funds on hand with respect to the 2012 Bonds, will be transferred to U.S. Bank Trust Company, N.A., acting as the current trustee for the 2012 Bonds (the “Escrow Agent”), for deposit in an escrow fund to be established under the Escrow Agreement dated as of [September 1, 2023], given by the Authority and the City to the Escrow Agent. Prior to the Closing Date, the City will deposit with the trustee for the [2012 Bonds the amount equal to the debt service on the 2012 Bonds coming due on [December 1, 2023.]] [Moneys deposited to defease the bonds will be held by the Escrow Agent either as cash or as 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 Capital Improvement Board of the City and the Trustee, provide money sufficient to pay the principal of and interest on the Bonds to be paid on the Redemption Date.] The 2012 Bonds to be redeemed and defeased in whole upon issuance of the Bonds are set forth in the following table. Maturity Date (December 1) Principal Amount Interest Rate CUSIP 798641 2023 $305,000 4.00% LC4 2024 315,000 4.00 LD2 2025 325,000 4.00 LE0 2026 345,000 4.00 LF7 2027 360,000 4.00 LG5 2028 375,000 4.00 LH3 2029 390,000 4.00 LJ9 Page 425 of 501 -8- 4125-9942-2535.12 ESTIMATED SOURCES AND USES OF PROCEEDS The proceeds of the sale of the Bonds are estimated to be applied as shown below: Sources of Funds: Principal Amount of Bonds $ [PAR].00 [Plus/Less] [Net] Original Issue [Premium/Discount] Other Funds on Hand Total Sources $ Uses of Funds: Refunding of 2012 Bonds Underwriter’s Discount Deposit to Costs of Issuance Fund(1) Total Uses $ _______________ (1) Costs of Issuance includes rating fees, legal fees, advisory fees, printing costs and other miscellaneous expenses. THE BONDS General The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $[Par Amount], shall mature on [Maturity Month] 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts set forth on the inside cover page hereof. The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsi mile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall, Page 426 of 501 -9- 4125-9942-2535.12 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 provided in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next pre ceding the date of authentication thereof unless (i) 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 interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid 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, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee 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 to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. Redemption The Bonds are subject to optional redemption and extraordinary redemption as described below. Optional Redemption The Bonds maturing on or after December 1, 20__, shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 20__, from and to the extent of prepaid Base Rental Payments, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Extraordinary Redemption The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Leased Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. See “SOURCES OF PAYMENT FOR THE BONDS— Insurance” herein. See also Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Prepayment” hereto. Mandatory Sinking Fund Redemption The Bonds maturing December 1, 20__, shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Page 427 of 501 -10- 4125-9942-2535.12 Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__, are optionally redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. The Bonds maturing December 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. Page 428 of 501 -11- 4125-9942-2535.12 Notice of Redemption The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption . With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the man ner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Effect of Redemption Notice having been mailed, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture shall be canceled upon surrender thereof and destroyed. SOURCES OF PAYMENT FOR THE BONDS General The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The term “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Page 429 of 501 -12- 4125-9942-2535.12 Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Under the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, th e Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Base Rental Payments Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. Additional Rental Payments In addition to the Base Rental Payments, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the following: (i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; Page 430 of 501 -13- 4125-9942-2535.12 (ii) insurance premiums for all insurance required pursuant to Article V hereof; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable . The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. No Debt Service Reserve Fund No debt service reserve fund will be established for the Bonds. Insurance General Liability Insurance. The Lease Agreement requires the City to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insura nce coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations to provide general liability insurance may be satisfied by self-insurance in accordance with the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Insurance” hereto. Casualty Insurance. The Lease Agreement requires the City to maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The City’s obligations under this subsection may be satisfied by self-insurance in accordance with the Lease Agreement. Rental Interruption Insurance. The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Leased Property as a result of any of the hazards required to be covered by the casualty insurance policy in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Leased Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City’s right to the use or occupancy Page 431 of 501 -14- 4125-9942-2535.12 of the Leased Property. The City’s obligations to provide rental interruption insurance may not be satisfied by self-insurance. The insurance required under the Lease Agreement other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City. Title Insurance. The Lease Agreement requires the City to provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property (b) the Authority’s ground leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. Damage or Destruction of the Leased Property If the Leased Property or any portion thereof is damaged or destroyed, the City will, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement. If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii ) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to the Lease Agreement, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the extraordinary redemption (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Page 432 of 501 -15- 4125-9942-2535.12 Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. See [Appendix C— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Abatement,” “—Additions to the Property; Substitution or Release of the Property” and “—Damage or Destruction.”] Remedies Upon Default If the City defaults under the Lease Agreement, the Authority may enforce its remedies thereunder. In general, remedies under the Lease Agreement include the right (i) to maintain such Lease Agreement in full force and effect and receive all rent from the City as it becomes due or re-enter and re-let the Leased Property, or (ii) to terminate such Lease Agreement and the City’s right of possession and recover damages recoverable at law. The Indenture provides that any Holder of the Bonds may by legal action compel the Authority to carry out its duties under the Lease Agreement, including maintaining and enforcing its rights under the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE” hereto. An abatement of rental in accordance with the terms of the Lease Agreement due to damage, destruction or eminent domain is not an event of default under the Lease Agreement and none of the foregoing remedies is available. See “RISK FACTORS— Abatement” herein. The Bonds are not subject to acceleration under any circumstances or for any reason, including without limitation upon the occurrence and continuance of an Event of Defaul t under the Indenture. See “RISK FACTORS—No Acceleration Upon Default” herein. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. No Pledge of Revenues or Lien on Assets of the City The Base Rental Payments are not secured by any pledge of or lien on taxes or other revenue of the City, but are payable from all funds lawfully available to the City. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other obligations before making Base Rental Payments. The same result could occur if, because of State constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. The obligation of the City to pay the Base Rental Payments 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 Base Rental Payments and additional payments does not constitute a debt of the City, the State or any of its political subdivisions, and does not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Page 433 of 501 -16- 4125-9942-2535.12 Although the Lease Agreement does not create a pledge, lien or encumbranc e upon the funds of the City, the City is obligated under the Lease Agreement to make Base Rental Payments from any source of legally available funds (subject to certain exceptions and conditions), and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments in its annual budgets and annually to appropriate amounts necessary to make such Base Rental Payments . The City is also liable for other obligations payable from any source of legally available funds. See “—Additional Obligations of the City” below, “CITY FINANCIAL INFORMATION” herein and Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Additional Obligations of the City The City has a significant amount of obligations payable from its general fund, including but not limited to debt obligations, pension obligations, lease obligations and other obligations related to post employment retirement benefits as well as certain other liabilities (the “General Fund”). See Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. The Lease Agreement does not prohibit the City from incurring additional lease and other obligations payable from the City’s General Fund. In that regard, the City may, from time to time, incur various General Fund obligations to finance public improvements, which may also include lease obligations payable from its General Fund. To the extent such additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. Abatement The Base Rental Payments due under the Lease Agreement shall be abated proportionately during any period in which by reason of any damage or destruction (other than by eminent domain) there is substantial interference with the use and occupancy by the City of the Leased Property by the City, in the proportion in which the initial cost of that portion of the Leased Property rendered unusable bears to the initial cost of the whole of the Leased Property. Such abatement shall commence with such damage or destruction and end when use and occupancy or possession is restored. The Base Rental Payments due under the Lease Agreement shall also be abated during any period in which by reason of eminent domain there is substantial interference with the use and occupancy by the City of the Leased Property by the City. It is not possible to predict the circumstances under which such an abatement of rental may occur . In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, at the time of such abatement, the value of the Leased Property may be substantially higher or lower than its value at the time of issuance of the Bonds. Such a circumstance could have an effect on the amount of rental abated under the Lease Agreement and could have a material adverse effect on the security for and payment of the Bonds. If damage, destruction or eminent domain proceedings with respect to the Leased Propert y results in abatement of the Base Rental Payments related to such Leased Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), eminent domain proceeds, if any, and moneys available in the Payment Fund are insufficient to make all payments of principal of and interest on the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Holders of the Bonds for nonpayment under such circumstances. Page 434 of 501 -17- 4125-9942-2535.12 Risk of Uninsured Loss The City covenants under the Lease Agreement to maintain certain insurance policies on the Leased Property. See “SOURCES OF PAYMENT FOR THE BONDS” herein. These insurance policies do not cover all types of risk. For example, the City is not required to maintain earthquake insurance. The Leased Property could be damaged or destroyed due to an earthquake or other casualty for which the Leased Property is uninsured. Additionally, a portion of the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances, an abatement of Base Rental Payments could occur and could continue indefinitely. Moreover, there can be no assurance that the providers of the City’s liability and rental interruption insurance, among others, will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. There can also be no assurances that amounts received as proceeds from insurance of the Leased Property will be sufficient to redeem the Bonds. Under the Lease Agreement, the City may obtain certain types of casualty insurance which provide for such a deductible as the City deems adequate and prudent. Should the City be unable to meet such deductible expenses, the availability of General Fund revenues to make Base Rental Payments will be correspondingly affected. Limited Recourse on Default If the City defaults on its obligations to make Base Rental Payments with respect to the Leased Property, the Trustee, as assignee of the Authority, may (subject to the restrictions described in the Lease Agreement) retain the Lease Agreement and hold the City liable for all Base Rental Payments on an annual basis and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Alternatively, the Trustee may terminate the Lease Agreement with respect to the Leased Property and proceed against the City to recover damages pursuant to the Lease Agreement. However, the Trustee may not sell or foreclose the Leased Property to obtain money for payment of the principal of or interest on the Bonds in the event of a default. See also “—No Acceleration Upon Default” below. Due to the specialized nature of the Leased Property, no assurance can be given that the Trustee will be able to re-let any portion of the Leased Property so as to provide rental income sufficient to make principal and interest payments with respect to the Bonds in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Bonds. In addition, due to the governmental function 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. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. No Acceleration Upon Default If the City defaults on its obligations to make Base Rental Payments, the Trustee may have limited ability to re-let the Leased Property so as to preserve the tax exempt nature of the interest on the Bonds. In the event of default, there is no remedy of acceleration of any Base Rental Payments which have not come due and payable in accordance with the Lease Agreement. The City will continue to be liable for lease payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee is required to seek a separate judgment each year for that year’s defaulted Base Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest. Page 435 of 501 -18- 4125-9942-2535.12 Bankruptcy The City and the Authority are considered “municipalities” and therefore are not subject to the involuntary procedures of the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the Bankruptcy Code, the City or the Authority may seek voluntary protection from its creditors for purposes of adjusting its debts. A City or Authority bankruptcy petition could have a material adverse effect on the payment of the Bonds. The following paragraphs present a discussion of certain potential consequences surrounding a potential City or Authority bankruptcy. It is not intended to be an exhaustive discussion of all potential adverse consequences or potential outcomes. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Among the adverse effects of such a bankruptcy might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of r ecovering or collecting a claim against the City; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or the Holders of the Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the Plan is fair and equitable. In addition, if the Lease Agreement were considered a true lease under the Bankruptcy Code, the City could either reject the Lease Agreement or assume the Lease Agreement despite any provision of the Lease Agreement which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease Agreement, the Trustee, on behalf of the Holders of the Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or the Holders of the Bonds. Moreover, such rejection would terminate the Lease Agreement and the City’s obligation to make payments thereunder. If the Lease Agreement were instead considered a secured financing transaction under the Bankruptcy Code, it is possible that the Holders would have a secured claim for the value of the leasehold interest (as determined by the bankruptcy court) and an unsecured claim for any balance. The legal status of the Lease Agreement under the Bankruptcy Code is uncertain as there is currently no binding legal authority on the proper treatment of lease-leaseback transactions such as the one securing the Bonds. The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have priority of payment superior to that of the Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the Authority’s debt without the consent of the Trustee or all of the Holders of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Holders i f the bankruptcy court finds that the plan is fair and equitable. Page 436 of 501 -19- 4125-9942-2535.12 Bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit have brought scrutiny to municipal securities. Specifically, in the City of San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the City of San Bernardino, the City of Stockton and the City of Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal and interest. Risk of Tax Audit; Loss of Tax Exemption The Internal Revenue Service (the “IRS”) has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes. It is possible that the Bonds or other tax-exempt obligations of the City may be selected for examination under such program. There is no assurance that an IRS examination of the Bonds or other tax-exempt obligations of the City will not adversely affect the market value of the Bonds. See “TAX MATTERS” herein. As discussed under the caption “TAX MATTERS,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the City has covenanted in the Lease Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986 (the “Code”). Interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the Authority in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until prepaid under the optional redemption provisions of the Indenture. Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds could be sold for any particular price. Hazardous Substances The existence or discovery of hazardous materials may limit the beneficial use of the Leased Property. In general, the owners and lessees of the Leased Property may be required by law to remedy conditions of such parcel relating to the release or threatened releases of hazardous substances . The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well -known and widely applicable of these laws, but State laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition on the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. Further, it is possible that the beneficial use of the Leased Property may be limited in the future resulting from the current existence on the Leased Property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the Page 437 of 501 -20- 4125-9942-2535.12 future resulting from the current existence on the Leased Property of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Leased Property. The City is unaware of the existence of hazardous substances on the Leased Property site which would materially interfere with the beneficial use thereof. Cyber Security The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including, without limitation, hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City. For a description of the City’s cybersecurity policies and practices, see Appendix B – “CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO – Cyber Security.” Natural Disasters and Other Events If a severe natural disaster occurred in or around the City, there could be substantial damage to and interference with the City’s right to use and occupy all or a portion of the Leased Property, which could result in abatement of Base Rental Payments. See “RISK FACTORS—Abatement” herein. The City has implemented the City’s General Plan Climate Adaptation and Safety Element updated in 2023 provides policies and programs to help reduce the risk associated with natural disasters and other events. However, the City is not required to maintain earthquake or flood insurance on the Leased Property. In addition, a severe natural disaster could require additional emergency response by the City and the City can give no assurances regarding the impact of such emergency response on the City’s operations and finances. The following describes certain potential natural disasters that may occur within the City. Earthquake. The City, like all southern California communities, may be subject to unpredictable seismic activity. The Los Osos Fault identified under the California Alquist -Priolo Fault Hazards Act, is adjacent to the City, with the main strand under the intersection of Los Osos Valley Road and Foothill Boulevard. Other known faults nearby the City have the capability to produce strong ground motion in the City. Seismic activity could lead to a reduction of assessed values in the City. In addition, an occurrence of severe seismic activity in the area of the Leased Property may result in substantial damage to and/or interference with the City’s right to use and occupy all or a portion of the Leased Property, leading to the abatement of Base Rental Payments. There is no requirement under the Lease Agreement that the City maintain earthquake insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain earthquake insurance with respect to the Leased Property. The City relies on a combination of insurance and general reserves as well as the expectation that some disaster relief funds to address any resulting damage from seismic activity. There is no assurance that, in the event of a significant seismic event disaster relief funds and other sources would be available or sufficient for the repair or replacement of the Leased Property. Page 438 of 501 -21- 4125-9942-2535.12 Wildfire. In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. The City of San Luis Obispo has experienced significant wildfires in the past including the 1985 “Las Pilitas Fire” which originated East of the City and burned into city limits. In more recent history, the most significant wildfire the city has encountered was the approximately 90-acre “Bridge Fire” in 2020 that occurred in the South Hills Open Space which geographically sits in the center of the city. Fortunately, no structures were damaged, or injuries sustained due to this fire. Flooding. Portions of the City are within 100-year flood plains, according to Federal Emergency Management Agency maps. Parts of the City are considered to be susceptible to flood events from either a major storm or a dam failure resulting from a significant earthquake or other event. Though the City does not believe that damage to nearby dams could directly cause damage to the Leased Property, the City cannot predict if any such damage to the dams would adversely affect the City’s financial condition, the value of the Leased Property, or the ability of the City to make the Base Rental Payments. For information about the City’s financial obligation with respect to certain nearby dams, see “CITY FINANCIAL INFORMATION – Recent Events.” Recent storm events in January and March 2023 caused widespread flooding and other storm- related damage within the City. For information regarding the effects of the recent storms, see “CITY FINANCIAL INFORMATION – Recent Events.” There is no requirement under the Lease Agreement that the City maintain flood insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain flood insurance with respect to the Leased Property. Events of Force Majeure. Operation of the Leased Property may also be at risk from other events of force majeure, such as damaging storms, extreme drought, explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional information regarding the required insurance coverages under the Lease Agreement, See Appendix C – “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.” Environmental Focus and Climate Change Atmospheric greenhouse gas concentrations have reached a level that guarantees substantial and unavoidable impacts for the foreseeable future. These impacts are expected to include, among other things, an increase in the frequency and severity of extreme weather events and may contribute to an increased incidence of wildfires in the City and elsewhere in the State. As the effects of climate change continue, it is expected that extreme weather events such as drought, wildfires, floods and heat waves will impact the City. Although the City is actively implementing a climate action plan as described in more detail in Appendix B, the City cannot predict the timing, extent, or severity of climate change and its impact on the City’s operations and finances. However, over time, the costs could be significant and could have a material effect on the City’s finances by requiring greater expenditures to respond to the effects of climate change . Also, additional actions to address climate change may be necessary and the City can give no assurances regarding the impact of such actions on the City’s operations and finances. Page 439 of 501 -22- 4125-9942-2535.12 Pandemic and Infectious Disease In March 2020, the World Health Organization and the President of the United States separately declared the outbreak of a respiratory disease caused by a novel coronavirus (“COVID-19”) to be a public health emergency. On March 13, 2020, the Governor of California (the “Governor”) declared a state of emergency for the State of California because of the effects of COVID-19. Subsequently, in response to a rise in COVID-19 infections in the State, the Governor issued a number of executive orders intended to help limit the spread of COVID-19 and mitigate injury and the loss of life, including limitations imposed on business operations, social gatherings, travel, and other activities. As of February 28, 2023, the Governor terminated the state of emergency relating to COVID-19 and there are currently no COVID-19 related operating limits imposed by executive order of the Governor for any business or other establishment in the State. Like other public agencies, the COVID-19 pandemic had a significant impact on the City’s operations and budget. To address the economic uncertainty brought on by the pandemic, the City immediately implemented its Fiscal Health Contingency Plan (FHCP), triggering a number of measures to control expenditures. Similar to other agencies, the City modified its operations by transitioning to remote work where possible, and modified delivery of services to the public. Modified service delivery included but was not limited to: enhanced cleaning of facilities, increased wastewater testing to assist the County in determining the prevalence of COVID in certain areas, moratoriums on water shutoffs due to non-payment, deferral of parking rate increases, and provision of fare-free rides on the City’s fixed route transit service. For information concerning the financial effect of COVID-19 on the City, see “CITY FINANCIAL INFORMATION – Recent Developments.” A continued spread of COVID-19 or future outbreak of COVID-19 or variants thereof or another infectious disease, or the fear of any such outbreak, and measures taken to prevent or reduce it, could adversely impact State, national and global economic activities and, accordingly, adversely impact the financial condition and operations of the City, and the extent of impact could be material. The City cannot predict the duration of any pandemic, any reinstatement or expansion of stay-at-home orders and travel or other restrictions and warnings, or what impact those orders would have on the City’s revenues. Additionally, the City cannot predict what further impact any pandemic may have on the City’s general financial condition or operations, or the assessed values of property within the City. Dependence on State for Certain Revenues Nearly half of the City’s revenues are collected and disbursed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). As a result, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California 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 neither the Authority nor the City takes responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Page 440 of 501 -23- 4125-9942-2535.12 Changes in Law There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State resulting in a reduction of the General Fund revenues of the City and, consequently, having an adverse effect on the security for the Bonds. City Pension Benefit Liability Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rate of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods and differences between actual and anticipated investment experience of the California Public Employees’ Retirement System (“CalPERS”). Any of these factors could give rise to additional liability of the City to CalPERS as a result of which the City would be obligated to make additional payments to CalPERS over the amortization schedule for full funding of the City’s obligations to CalPERS. In 2017, CalPERS made some significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies and in 2018, the City Council adopted Fiscal Health Response Plan (FHRP) to provide a framework for responding to the long-term fiscal impacts of the CalPERS policy changes. The FHRP has enabled the City to make $16.6 million in additional discretionary payments to expedite paydown of its unfunded pension liability. The City expects its pension benefit liability to increase in future years as a result of general market conditions which have significantly impacted CalPERS investments, resulting in a -7.5% return in FY 2021-22. See also “CITY FINANCIAL INFORMATION— Employee Retirement System” herein. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority shall not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS While the Lease Agreement does not obligate the City to impose any new taxes or increase any existing taxes to pay Base Rental Payments, limitations on the City’s ability to impose taxes or appropriate funds could adversely affect the City’s ability to raise and spend revenues. In such event, City funds which would otherwise be available absent such limitation might not be available to make Base Rental Payments. The following is a description of certain legal limitations related to the City’s ability to impose taxes or appropriate funds. 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 July 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. Section 2 Page 441 of 501 -24- 4125-9942-2535.12 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, do 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 residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new residence. In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of “new construction” 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. County assessors may “recapture” the reduced assessed valuation of such property up to its pre- decline value, depending on the county assessor’s measurement of the value subsequently restored to such property. Article XIIIB of the State Constitution Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations 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, and the limit is adjusted annually to reflect changes in population, consumer prices and certain increases or decreases in the cost of services provided by the applicable public agency. 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 and the proceeds of State subventions, 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, most State subventions 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 reasonably borne by such entity) 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 years. Page 442 of 501 -25- 4125-9942-2535.12 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. Furthermore, in 1990, Article XIIIB was amended 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 (including the Base Rental Payments) 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 adds 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. 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 which 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 held within two years after November 5, 1996. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. 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 which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must 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 party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Article XIIID conditions the imposition or increase of any “fee” or “charge” upon there being no written majority protest after a required public hearing and, for fees and charges other than for sewer, water or refuse collection services, voter approval. Article XIIID defines “fee” or “charge” to mean levies (other than ad valorem or special taxes or assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a “property-related service.” One of the requirements of Article XIIID is that before a property related fee or charge may be imposed or increased, a public hearing upon the proposed fee or charge must be held and mailed notice sent to the record owner of each identified parcel of land upon which the fee or charge is proposed for imposition. In the public hearing, if written protests of the proposed fee or charge are presented by a majority of the owners of affected identified parcel(s), an agency may not impose the fee or charge. 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 Page 443 of 501 -26- 4125-9942-2535.12 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. The City believes its fees, charges, assessments and taxes are in compliance with Articles XIIIC and XIIID. Proposition 22 In November 2010, the voters of the State adopted Proposition 22 (“Proposition 22”), which prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash–flow or budget balancing purposes to the State general fund or any other State fund. It further prevents the State from temporarily shifting property taxes from cities, counties and special districts to schools and community college districts through the Education Revenue Augmentation Fund, a shift that resulted in diversion of City property taxes periodically since Fiscal Year 1992-93 until the passage of Proposition 22. Proposition 26 On November 2, 2010, the voters of the State approved Proposition 26 (“Proposition 26”), which revises certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re- categorizes many State and local fees as taxes, requires local governments to obtain two–thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two–thirds of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010, with a majority vote which would have required a two-thirds vote if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote. Proposition 26 amends Article XIIIC of the State Constitution to state that a “tax” means a levy, charge or exaction of any kind imposed by a local government, except: (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 which 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 dire ctly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (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, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Article XIIID. Fees, charges and payments that are made pursuant to a voluntary contract that are not “imposed by a local government” are not considered taxes and are not covered by Proposition 26. Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. Page 444 of 501 -27- 4125-9942-2535.12 If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two–thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a 50% voter requirement. Proposed local government fees that are not subject to Proposition 26 are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of property owners. Proposition 62 A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 General Election which (1) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax imposed by a local governmental entity on or after March 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 governmental or district to impose any general tax. The Santa Clara decision did not address the question of whether or not it should be applied retroactively. In response to the Santa Clara decision, the California Legislature adopted Assembly Bill 1362, which provided that the Santa Clara decision 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 Santa Clara decision on a retroactive basis remains unclear. Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative, but 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 and supersedes many of the provisions of Proposition 62. The City does not believe that it imposes any tax or fee which is subject to the provisions of Proposition 62. Unitary Property AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the fiscal year ended June 30, 1989, will be based on a uniform rate within each county and allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year State assessed revenue; and (b) if county wide revenues Page 445 of 501 -28- 4125-9942-2535.12 generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 22, 26, and 62 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process . From time to time other initiative measures could be adopted, further affecting the City’s revenues or the City’s ability to expend revenues. THE AUTHORITY The San Luis Obispo Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated September 8, 2014, by and between the City and the Parking Authority in accordance with provisions of the California Joint Exercise of Powers Act. The Authority was created for the purpose of providing financing for public capital improvements of the City and the Parking Authority. The Authority has no independent staff and consequently will be dependent upon the City’s officers and employees to administer the Bonds on its behalf. The Governing Board of the Authority is comprised of the members of the City Council of the City. THE CITY The City is a charter city, incorporated on February 19, 1856 and chartered on May 1, 1876 under the laws of the State of California. The City is located on the central coast of California, about 200 miles northwest of Los Angeles and 235 miles southeast of San Francisco. The City is the county seat of the County, and had a population estimated at 47,788 as of January 1, 2023. The City is the largest city in the County. The City operates under a council-mayor-city manager form of government. City Council members are elected at large for staggered four-year terms; the Mayor serves a two-year term. The City Manager, the City Attorney, and all advisory boards, committees and commissions are appointed by the City Council. The City Manager serves as the administrative head of the City, and is responsible for the day-to-day operations of the City staff, implementing the policies of the City Council. Current City Council members are: Member Term Expires Erica A. Stewart (Mayor) 12/2024 Jan Marx (Vice Mayor) 12/2024 Emily Francis 12/2026 Andy Pease 12/2024 Michelle Shoresman 12/2026 The City is a “full-service” city, providing public safety, public utilities, transportation, leisure, cultural, social and community development services to its residents. Page 446 of 501 -29- 4125-9942-2535.12 For additional demographic information regarding the City and the County, see Appendix B hereto. CITY FINANCIAL INFORMATION Budgetary Process The City of San Luis Obispo uses a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. The City’s two-year Financial Plan includes the integration of Council goal-setting into the budgetary process and the use of formal policies and measurable objectives. The Financial Plan includes operating budgets for two years and a Capital Improvement Plan (the “CIP”) covering five years. Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Management Policies. The overall goal of the City’s Financial Plan is to establish and maintain effective management of the City’s financial resources. Key budget policies include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; matching all current expenditures with current revenues; finding solutions to the City’s financial challenges which maintain and promote a quality community; maintaining the City’s traditional commitment to a strong General Fund; and complying with provisions of the State Constitution, City Charter, municipal code and sound fiscal policy. Key revenue policies include: maintaining a diversified and stable revenue base; setting enterprise fund rates at levels that fully recover the total cost of providing services; charging fees for General Fund programs in accordance with adopted user fee cost recovery goals; and ensuring that new development pays its fair share of the cost of constructing necessary community facilities. Financial Plan Policies. The Financial Plan includes formal policies that cover areas such as fund balance and reserves, investments (see “—City Investment Policy and Portfolio” herein), capital improvement management, debt management, capital financing, human resource management, and productivity. These policies, summarized below, are incorporated in full in the City’s Financial Plan. Fund Balance and Reserves. The City’s policy on fund balance and reserves requires the City to maintain a minimum fund balance of at least 20% of operating expenditures in the General Fund in order to adequately provide for economic uncertainties, contingencies for unseen needs and cash flow requirements. The City’s fund balance as a percent of General Fund operating expenditures was 23.27% and 23.5% as of June 30, 2021 and June 30, 2022 respectively. The budgeted percentage of fund balance for the current year is 23.0% as of June 30, 2023. Revenue Stabilization Reserve – General Fund. In addition to the requirement to maintain a minimum fund balance of 20% of operating expenditures in the General Fund, with adoption of the 2023-25 Financial Plan, the City Council established a Revenue Stabilization Reserve which can be used to counteract any adverse revenue forecast during a period of economic uncertainty related to the City’s largest tax revenue sources. For 2023-25, the reserve has been set at $2 million. CalPERS and Unfunded Liabilities. With adoption of the 2023-25 Financial Plan, the City Council established a policy outlining the City’s long-term commitment to payment of its unfunded pension liability, additional discretionary payments (ADPs), and the needed prioritization to hold the shortened timeline. This policy provides guidance relative to the prioritized use of unassigned Page 447 of 501 -30- 4125-9942-2535.12 General Fund balance as follows: 1. Additional discretionary payments to CalPERS, 2. Infrastructure investments, and 3. Emerging Health and Safety needs of the community. The policy further notes the City’s commitment to ADPs to CalPERS and adding an annual inflator equal to increases in payroll whenever CalPERS reaches its discount rate or larger rates of return based on what is presented in the latest five-year forecast; and indicates that whenever CalPERS does not reach its adopted discount rate, the City commits to first use any unassigned fund balance to counteract the investment loss CalPERS experienced. Capital Improvement Management. The City’s policy on capital improvement management requires the City to prepare a CIP that balances existing facility maintenance with new projects that expand the City’s fixed assets. The CIP Review Committee, headed by the Assistant City Manager, provides governance of the CIP by evaluating and prioritizing capital projects based upon an established set of criteria to ensure alignment with Major City Goals, the General Plan, strategic growth objectives and needs for services provided within the City. The committee is responsible for assessing the City’s fiscal and staff capacity to deliver projects; recommending to the City Manager the projects and associated budgets that should be included in the biennial financial plan; considering requests for new projects that may be requested outside of financial plan development to address emergent needs; and evaluating the re-prioritization of projects as needs and conditions change in order to ensure consistency with project evaluation criteria, ability to deliver projects, and City priorities. The City’s Planning Commission also reviews the draft CIP for consistency with the City’s General Plan and provides its findings to the City Council before the CIP is adopted. With each two-year Financial Plan, the City prepares five- year CIP program recommendations for Council and Approval. The budget set forth in the 2023- 25 Financial Plan includes a two-year CIP investment of $183 million, and a planned CIP investment of $465 million over the five-year plan to maintain or replace existing assets and build new assets to address the needs of the community. Debt Management. The City’s policy on debt management requires the City to prepare an internal feasibility analysis for each long-term financing to review the impact on current and future budgets for debt service and operations, as well as the reliability of revenues to support debt service. Under this policy, the City is required to monitor its compliance with bond covenants and federal arbitrage regulations, will seek an investment grade rating on any direct debt and will seek credit enhancement where necessary for marketing purposes and cost-effectiveness. Capital Financing. The City’s policy on capital financing requires the City to consider debt financing only for one-time capital improvement projects and only when the project’s useful life will exceed the term of the financing and project revenues or specific resources will be sufficient to service the long-term debt. This policy provides further guidelines to evaluate the appropriateness of using pay-as-you-go financing versus long-term financing to fund capital improvements. Human Resource Management. The City’s policy on human resource management requires the City to fully appropriate the resources needed for authorized regular staffing and provides guidelines for the limited use of supplemental staff. The policy also provides criteria for the use of independent contractors and overtime management. Productivity. The City’s policy on productivity provides a process to review operations with the goal of delivering services in the most cost-effective manner possible. Productivity issues reviewed in the process include evaluating new technology and capital investments, developing skills and abilities of City employees and evaluating the ability of the private sector to perform the same level of service at a lower cost. Page 448 of 501 -31- 4125-9942-2535.12 Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City’s two-year budgetary process: First Year. The Financial Plan process begins with a Council goal-setting session to determine major objectives to be accomplished over the next two years. These are incorporated into the budget instructions issued to the operating departments, who are responsible for submitting initial budget proposals. After these proposals are reviewed and a financial forecast is prepared, the City Manager issues the Preliminary Financial Plan for public comment. A series of study sessions and public hearings are then held leading to Council adoption of the budget by June 30. Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, makes adjustments as necessary, and approves appropriations for the second Fiscal Year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent operating program appropriations lapse at the end of the second year. Fiscal Year 2021- 22, was the first year of the two-year cycle. Mid-Year Reviews. The Council formally reviews the City’s financial condition and amends appropriations, if necessary, each February. Status Reports. On-line access to “up-to-date” financial information is provided to City staff. Comprehensive financial reports are prepared monthly to monitor the City’s fiscal condition. Additionally, more focused reports are issued monthly on transient occupancy tax and quarterly reports are prepared on the performance of investments and the portfolio’s overall compliance with the City’s investment policy. The status of major program objectives and goals, including CIP projects, is formally reported to the Council on an ongoing basis. Accounting. Budgets are prepared for each fund in accordance with its respective basis of accounting. All governmental funds have legally adopted budgets, including capital project funds. While budgets are prepared for the City’s capital project funds, the CIP projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements for capital projects. Administration. As provided under the City Charter, the City Council may amend or supplement the budget at any time after its adoption by majority vote of the Council. The City Manager has the authority to make or approve administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect the budgeted year-end fund balances. The level for which expenditures are not to exceed appropriations is at the fund level. Comparison of General Fund Budgets; Forecast. The table below sets forth a comparison of the City’s General Fund budgets for the current and prior fiscal years as well as a forecast through 2027-28. Page 449 of 501 -32- 4125-9942-2535.12 TABLE 1 CITY OF SAN LUIS OBISPO GENERAL FUND FIVE-YEAR FORECAST FOR FISCAL YEARS 2021-22 THROUGH 2027-28 2023-25 Financial Plan General Fund Five‐Year Forecast (In Thousands) (A) Actual 2021-22 (B) Budget 2022-23(1) (C) Budget 2023‐24 (D) Forecast 2024‐25 (E) Projected 2025-26 (F) Projected 2026-27 (G) Projected 2027-28 Tax & Franchise Revenue Sales & Use Tax 51,665 52,163 53,340 54,573 55,988 57,465 59,127 Sales Tax General 22,247 21,524 22,579 23,166 23,768 24,410 25,118 Public Safety (Prop 172) 529 497 499 509 519 530 540 Measure G20 28,889 30,142 30,262 30,898 31,701 32,525 33,468 Property Tax 20,711 21,473 22,000 22,652 23,332 24,032 24,752 Transient Occupancy Tax 10,651 10,704 10,704 10,918 11,136 11,359 11,586 Utility Users Tax 5,420 5,544 5,710 5,882 6,058 6,240 6,365 Franchise Fees 1,978 1,800 1,854 1,910 1,967 2,026 2,067 Business Tax Certificates 2,823 3,158 3,252 3,317 3,417 3,519 3,590 Cannabis Tax 999 1,100 1,100 1,450 1,650 1,700 1,733 Total Tax & Franchise Revenue $ 94,247 $ 95,942 $ 97,960 $ 100,702 $ 103,549 $ 106,340 $ 109,220 Fees for Service & Other Revenue Police Services 555 688 612 612 624 637 649 Fire Services 1,502 1,458 1,578 1,578 1,609 1,642 1,674 Development Review 6,117 6,335 6,276 6,585 6,783 6,986 7,126 Parks & Recreation 1,718 1,969 2,022 2,069 2,110 2,152 2,174 Business Licenses 498 446 459 468 477 487 497 Cannabis Licenses 127 210 208 233 237 242 247 Other Revenues 466 711 2,188 2,269 2,376 2,473 2,574 Subventions & Grants 2,068 777 665 682 440 441 442 Storm Reimbursement ‐ ESTIMATE(2) 4,208 4,208 Total Fees & Other Revenue $ 13,052 $ 12,593 $ 18,214 $ 18,703 $ 14,657 $ 15,059 $ 15,383 Total Revenue $ 107,299 $ 108,535 $ 116,174 $ 119,405 $ 118,206 $ 121,400 $ 124,604 Use of Funds Staffing 67,639 65,401 67,427 70,620 71,968 73,672 75,279 Contract Services 7,836 9,575 9,380 9,249 8,822 8,998 9,178 Other Operating Expenditures 9,555 9,976 9,858 9,943 9,537 9,728 9,922 Cost Allocation (4,717) (4,462) (5,419) (5,582) (5,694) (5,808) (5,924) Encumbrances from prior year 2,542 Storm Expenditures ‐ ESTIMATE(2) 4,500 4,500 Total Operating Expenditure $ 80,313 $ 87,533 $ 85,746 $ 84,229 $ 84,633 $ 86,591 $ 88,456 Debt Service 1,997 1,992 1,854 1,769 1,761 1,550 1,549 Capital 30,575 22,484 29,728 27,269 27,868 28,488 29,123 Transfers Out/(In)(3) 923 296 1,490 1,487 1,896 2,263 2,678 Total Expenditure $ 113,808 $ 112,305 $ 118,817 $ 114,754 $ 116,157 $ 118,890 $ 121,806 CalPERS Additional Discretionary Payment (using prior year fund balance) 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Beginning Fund Balance (After CalPERS ADP) $ 45,118 $ 36,609 $ 30,840 $ 26,196 $ 28,847 $ 28,896 $ 29,406 Revenue Over/(Under) Expenses $ (6,509) $ (3,770) $ (2,643) $ 4,651 $ 2,049 $ 2,509 $ 2,797 Ending Fund Balance $ 38,609 $ 32,840 $ 28,196 $ 30,847 $ 30,896 $ 31,406 $ 32,203 General Fund Reserve (see line 45) 12,014 13,727 11,596 14,526 14,651 15,077 15,516 Revenue Stabilization Reserve 2,000 2,000 2,000 2,000 2,000 2,000 2,000 115 Pension Trust Fund 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Restricted based on Audit 19,232 13,468 12,600 12,200 12,200 12,200 12,200 Undesignated Fund Balance $ 3,364 $ 1,644 $ 0 $ 121 $ 45 $ 129 $ 487 _________________ Source: City of San Luis Obispo 2023-25 Financial Plan. (1) FY 2022-23 budget includes approved carryover and budget amendments made throughout the year. (2) The 2022-23 Adopted Budget did not include expenses paid from the operating reserve in response to storm events in January and March of 2023. Unplanned storm response expenditures will be paid for out of the General Fund reserve. See “RISK FACTORS– Natural Disasters” herein. (3) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022. Page 450 of 501 -33- 4125-9942-2535.12 Financial Statements Accounting Policies. The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. The operation of each fund is accounted for with a separate set of self-balancing accounts. The various funds are grouped into broad categories, as follows: Governmental Funds (General, Local Revenue Measure Sub-Fund, Special Revenue, Capital Projects and Debt Service), Proprietary Funds (Enterprise Funds, including the Water, Sewer, Parking, and Transit funds) and Fiduciary Funds (Custodial). Basis of Accounting. All Governmental Funds and Fiduciary Funds use the modified accrual basis of accounting. The Proprietary Funds use the accrual basis of accounting. Audited Financial Statements. The City’s most recent audited financial statements for the Fiscal Year ending June 30, 2022, are attached as Appendix A to this Official Statement, which were prepared by the City and audited by Badawi & Associates, Certified Public Accountants, Berkeley, California (the “Auditor”). The financial statements should be read in their entirety. 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 or the General Fund. In addition, the Auditor has not reviewed this Official Statement. General Fund Balance Sheet Set forth on the following page are the City’s General Fund balance sheets for the Fiscal Years 2019-20 through 2021-22. Page 451 of 501 -34- 4125-9942-2535.12 TABLE 2 CITY OF SAN LUIS OBISPO GENERAL FUND BALANCE SHEET AS OF JUNE 30 FOR FISCAL YEARS 2019-20 THROUGH 2022-23 Assets: 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Cash and investments $ 33,437,815 $ 39,956,449 $ 34,540,875 $ 33,570,000 Receivables: Taxes 5,936,633 12,110,685 11,473,880 11,500,000 Accounts 1,042,550 1,410,544 1,004,373 685,000 Accrued interest 122,010 87,395 210,686 200,000 Other 87,333 76,791 63,568 75,000 Due from other funds 148,712 45,813 -- -- Prepaid items -- 41,155 90,797 101,500 Loans receivable -- -- 240,637 240,600 Leases receivable -- -- 1,251,050 1,121,000 Total Assets $ 40,775,053 $ 53,728,832 $ 48,875,866 $ 47,493,100 Liabilities, Deferred Inflows of Resources and Fund Balances: Liabilities Accounts payable $ 2,964,457 $ 1,665,320 $ 2,325,910 $ 2,000,000 Accrued liabilities 2,909,403 2,702,968 1,593,058 1,600,000 Due to other funds 49,694 -- -- -- Other liabilities 91,803 220,688 212,617 200,000 Unearned revenue 1,108,400 2,021,785 2,471,916 1,800,000 Total Liabilities $ 7,123,757 $ 6,610,761 $ 6,603,501 $ 5,600,000 Deferred Inflows of Resources Lease related -- -- $ 1,225,534 $ 1,121,000 Unavailable revenue -- -- 301,325 -- Total deferred inflows of resources -- -- $ 1,526,859 $ 1,121,000 Fund Equity and other Credits Fund balances: Nonspendable $ -- $ 41,155 $ 90,797 $ -- Committed to general governmental programs 10,384,119 9,299,971 5,696,864 8,000,000 Committed to risk management 1,498,078 1,955,966 1,845,935 500,000 Committed to contingency fund 10,251,000 11,830,380 12,014,000 13,700,000 Assigned to subsequent years expenditures 4,395,492 18,678,807 12,741,186 10,000,000 Unassigned 7,122,607 5,311,792 8,356,724 8,572,100 Total Fund Balances $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 40,772,100 _______________ Source: City of San Luis Obispo Audited Financial Statements. Page 452 of 501 -35- 4125-9942-2535.12 General Fund Revenues, Expenditures and Changes in Fund Balances The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. In Fiscal Year 2022-23, the major General Fund revenues are estimated as follows: Taxes and Franchise Fees 87% Charges for Services 9% Subventions and Grants 1% In Fiscal Year 2022-23, the major General Fund expenditures are estimated as follows: Public Safety 42% General Government 22% Community Development 16% Leisure, Cultural and Social Services 11% Set forth below is a statement of revenues, expenditures and changes in fund balances for the City’s General Fund for the last three fiscal years. Page 453 of 501 -36- 4125-9942-2535.12 TABLE 3 CITY OF SAN LUIS OBISPO STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Revenues Taxes and franchise fees(1) $ 59,366,052 $ 70,470,941 $ 93,919,985 $ 98,200,000 Fines, forfeitures and penalties 239,048 223,882 173,915 100,000 Use of money and property(2) 1,161,703 (12,521) (1,455,527) 1,300,000 Subventions and grants(3) 1,460,410 3,626,087 2,596,930 1,400,000 Charges for services 11,319,551 11,742,215 10,682,921 10,400,000 Other revenues 1,231,038 697,104 481,313 1,300,000 Total revenues $ 74,777,802 $ 86,747,708 $ 106,399,537 $ 112,700,000 Expenditures General Government $ 14,503,410 $ 13,041,242 $ 17,190,472 $ 19,300,000 Public Safety 30,174,346 31,643,320 39,656,509 37,100,000 Transportation 3,440,849 3,866,286 4,818,976 6,800,000 Leisure, Cultural and Social Services 8,416,687 9,091,647 10,156,139 9,800,000 Community Development 8,821,689 9,854,482 12,726,420 13,900,000 Capital Outlay – Direct LRM(4) 4,711,633 4,727,261 1,996,731 640,000 Total expenditures $ 70,068,614 $ 72,224,238 $ 86,545,247 $ 87,540,000 Excess of revenues over (under) expenditures $ 4,709,188 $ 14,523,470 $ 19,854,290 $ 25,160,000 Other financing sources (uses): Transfers in $ 3,347,367 $ 7,128,857 $ 3,942,248 $ 4,587,325 Transfers out(4) (6,108,418) (8,332,098) (30,416,749) (27,954,000) Total other financing sources (uses) $ (2,761,051) $ (1,203,241) $ (26,474,501) $ (23,366,675) Net Change in Fund Balance $ 1,948,137 $ 13,320,229 $ (6,620,211) $ 1,793,325 Fund balance - July 1, as restated $ 31,703,159 $ 33,797,840 $ 47,365,717 $ 40,745,506 Fund balance - June 30 $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 42,538,831 _______________ (1) For a breakdown of each component of taxes and franchise fees, see the following table. (2) This includes adjustments for the Fair Market Value of City investments, which were negative adjustments in FY 2020-21 and 2021-22. (3) The increases in FY 2020-21 and FY 2021-22 reflect receipt of Coronavirus Aid, Relief, and Economic Security Act (CARES) funding, as well as mutual aid reimbursements to offset overtime expenditures in the Fire Department, resulting from mutual aid provided to other agencies in support of multiple fires throughout the state. (4) Capital Outlay expenditures represent direct project expenditures from the Local Revenue Measure sub -fund. Beginning in FY 2021-22, the entire Capital Budget was transferred out of the General Fund and into the Capital Outlay Funds and this included in the “Transfers Out” line. There are some historical project balances remaining in the Local Revenue Measure sub- fund, explaining expenditures in FY 2021-22 through FY 2023-24. (5) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” Source: City of San Luis Obispo Audited Financial Statements. Page 454 of 501 -37- 4125-9942-2535.12 Recent Developments Storm Response. Storm events in January and March 2023 caused widespread flooding and other storm-related damage. The City activated its Emergency Operations Center (“EOC”) and Department Operations Center (“DOC”) for both storm events, to coordinate response to the storms and protect public health and safety. The City expended approximately $4 million on initial storm response efforts including debris removal from the public right-of-way and waterways; emergency protective measures including repair to roads degraded by the storms, traffic control to restrict access to certain areas of the city, costs to support EOC and DOC operations; and staff time. The City is still assessing the costs associated with the recent storm events, but it is estimated that the costs could be significant. To fund storm response efforts, the City has forecasted use of $9 million from its operating reserve over the course of FY 2022-23 and FY 2023-24, and has programmed an additional $2.75 million into its Capital Improvement Plan for FY 2023- 24 to make permanent repairs to damaged areas. The City is contracting with E&Y (formerly Ernst & Young) to provide disaster recovery technical assistance in order to maximize reimbursement for storm related costs from FEMA and the California Office of Emergency Services and is working closely with both agencies to review damages and develop projects for consideration of reimbursement. With the effects of climate change, it is likely that these storm events will increase in severity and frequency. The City has implemented an emergency services plan to respond to and mitigate the effects of storms and flooding. See “RISK FACTORS – Natural Disasters” herein. Dam Repairs. The Nacimiento Dam and Reservoir (“Nacimiento”), located in the northern part of San Luis Obispo County (the “County”), was evaluated by the State Division of Safety of Dams, which classified Nacimiento as having an extremely high downstream hazard and mandated certain emergency repairs to be made to Nacimiento. The Monterey County Flood Control and Water Conservation District, the owner and operator of Nacimiento, has completed required repairs at no cost to the City of San Luis Obispo. Completed repairs permit the full operation of Nacimiento and water storage and delivery to the City. As part of the 1959 Nacimiento agreement, the County of San Luis Obispo holds a financial responsibility to share in costs associated with the costs to operate and maintain the San Antonio dam and spillway, despite not receiving water from this reservoir. The San Antonio dam and spillway were recently analyzed, and major repairs are necessary at this facility. As a recipient of Nacimiento water, the City may have a responsibility to share in the costs to repair the San Antonio Spillway. It is currently estimated that the City’s portion of the repair costs will be $6 million-$7 million. Dams at Whale Rock Reservoir (“Whale Rock”) and the Salinas Reservoir (“Salinas”) have undergone inspection to evaluate dam safety. Whale Rock Reservoir requires minor repairs to the underdrains of the spillway, with repairs estimated to cost approximately $350,000. The City is responsible for 55.05% of this cost and all other operating and capital costs at Whale Rock, with the State of California being responsible for the remaining 44.95%. Project construction is anticipated to be complete in October of 2023, prior to the beginning of the rainy season. Salinas Dam, which is currently owned by the United States Army Corps of Engineers, had a semi-quantitative risk assessment performed in 2019. This assessment resulted in a provisional Dam Safety Action Classification rating of Level IV (Low Urgency) and requires no immediate repairs under federal standards. If the dam was required to be transferred to a local entity, which is preferred by the Army Corps of Engineers, it would fall under the jurisdiction of the California Division of Safety of Dams and would require a retrofit to meet State seismic safety standards. If transferred to local ownership, it is envisioned that repair funding to bring the dam into compli ance with California state standards would be provided by the State or Federal entities. Covid-19 Response. Despite being economically affected by the COVID-19 pandemic, the City ended FY 2019-20, FY 2020-21 and FY 2021-22 in a solid financial position, with most major revenue sources performing well or above initial downward adjusted assumptions. Page 455 of 501 -38- 4125-9942-2535.12 In FY 2020-21, the City invested $4,748,515 into COVID-19 relief efforts. These efforts were funded through a combination of local sales tax revenue, CARES Act funding and General Fund balance. Despite the unbudgeted costs related to COVID-19, the City ended FY 2020-21 with operating savings due to its strict adherence to cost saving measures identified in the FHCP. With adoption of the 2021-23 Financial Plan, the City Council established a Major City Goal of ‘Economic Recovery, Resiliency and Fiscal Sustainability’ which specifically called out efforts to support economic recovery from the pandemic. Fitch Ratings’ analysts have previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city’s capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.” Throughout the COVID-19 pandemic, the federal government enacted certain relief acts, stimulus bills and funding measures to assist local governments impacted by COVID-19. To date, the City has received $17,218,963 in funding passed through various agencies, including US Treasury and the State. This amount does not include transit ARPA funding that has been allocated to the City but not drawn down. Taxes and Other Revenues Taxes and other sources of revenue received by the City are listed in the table below. Certai n general taxes currently imposed by the City are affected by Proposition 218. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIC And Article XIIID of the State Constitution” herein. The following table presents the tax revenues and franchise revenues of the City’s General Fund for the last three fiscal years. Page 456 of 501 -39- 4125-9942-2535.12 TABLE 4 CITY OF SAN LUIS OBISPO GENERAL FUND TAX AND FRANCHISE REVENUES BY SOURCE 2019-20 2020-21 2021-22 2022-23 Estimate 2022-23 % of Total Sales and use tax-general $ 16,571,064 $ 19,642,604 $ 21,718,004 $ 22,000,000 22.4 Sales and use tax-Local Revenue Measure(1) 7,554,375 12,779,713 29,172,258 30,700,000 31.2 Sales tax- Prop 172 416,459 425,136 529,299 500,000 0.5 Property tax 12,913,661 13,727,986 14,166,259 15,200,000 15.4 Transient occupancy tax (“TOT”) 6,325,841 6,960,035 10,650,762(2) 10,700,000 10.9 Utility users tax 5,439,144 5,225,979 5,338,325 6,100,000 6.2 Property tax in lieu of VLF 5,290,215 5,660,661 5,994,592 6,300,000 6.4 Franchise fees 1,888,414 1,796,829 1,978,295 2,100,000 2.2 Business tax 2,995,263 3,782,115 2,823,163 3,200,000 3.3 Cannabis tax(3) 998,875 1,000,000 1.0 Real property transfer tax 388,075 469,883 550,153 400,000 0.4 Total Tax and Franchise Revenues $ 59,782,511 $ 70,470,941 $ 93,919,985 $ 98,200,000 100.0% _______________ Source: City of San Luis Obispo. Numbers may not add due to rounding. (1) The increase in Local Revenue Measure receipts in FY 2020-21 and FY 2021-22 is due to implementation of a new voter approved sales tax measure (Measure G-20, approved in November 2020) in April 2021. Measure G-20 increased the local sales tax from 0.5 percent to 1.5 percent. The increased tax rate will be in place until ended by voters. (2) The increase in TOT revenue in FY 2021-22 surpasses a recovery from earlier declines in TOT revenue caused by the Covid- 19 pandemic. See “CITY FINANCIAL INFORMATION—Transient Occupancy Tax” herein. (3) Prior to 2021-22, Cannabis tax was recorded in Sales and Use Tax – General. Sales and Use Taxes Sales and use taxes represent the largest source of tax revenue to the City. This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State . See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein for a description of certain limitations on the collection of taxes. State Sales and Use Tax Law. The City collects 1.0% of taxable sales in the City (minus certain administrative costs imposed by the CDTFA, as defined below) pursuant to the Bradley-Burns Uniform Local Sales and Use Tax (the “Sales and Use Tax Law”). Local Revenue Measure. In November 2020, the qualified voters of the City passed Measure G-20 with 58.23% voter approval. Effective April 1, 2021, this 1 1/2 percent sales tax increased the local sales tax by 1 percent and replaced the 2014 local sales tax measure. Measure G-20 will be in place until ended by voters and there is no specific designation for these tax revenues. Sales Tax Rates. Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City’s share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows. Page 457 of 501 -40- 4125-9942-2535.12 TABLE 5 CITY OF SAN LUIS OBISPO SALES TAX RATES AS OF JULY 1, 2023 State (General Fund) 3.6875% State (Fiscal Recovery Fund) 0.25 State (Local Revenue Fund) 1.5625 State (Local Public Safety Fund) 0.50 Local (City and County Operations) 1.00 Local (County transportation funds) 0.25 Local (Local Revenue Measure) 1.50 Total Sales Tax Rate 8.75% _______________ Source: California Department of Tax and Fee Administration Application of Sales Tax. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, as identified by the California Department of Tax and Fee Administration (“CDTFA” formerly the State Board of Equalization). Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA. According to the CDTFA, it distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year’s like quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the CDTFA to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. Page 458 of 501 -41- 4125-9942-2535.12 The CDTFA receives an administrative fee based on the cost of services provided by the CDTFA to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. History of Taxable Transactions. The following table presents a summary of historic taxable sales reported within the City for calendar year 2017 through calendar year 2022 and the first quarter of 2023. TABLE 6 CITY OF SAN LUIS OBISPO TAXABLE RETAIL SALES (DOLLARS IN THOUSANDS) 2017 2018 2019 2020 2021 2022 2023 (Q1) Motor Vehicle and Parts Dealers $ 301,326 $ 300,576 $ 296,732 $ 304,610 $ 383,092 $ 362,228 $ 77,698 Home Furnishings and Appliance Stores 72,375 74,243 66,208 59,781 74,116 71,736 15,555 Building Material and Garden Equipment and Supplies Dealers 125,990 129,582 127,607 137,471 145,463 149,993 35,226 Food and Beverage Stores 63,843 64,364 65,855 69,447 70,965 72,044 17,679 Gasoline Stations 83,481 94,570 95,193 66,485 98,307 121,521 22,768 Clothing and Clothing Accessories Stores 90,141 91,876 82,217 58,493 82,305 78,665 15,713 General Merchandise Stores 185,391 182,784 184,645 176,221 207,707 235,959 51,043 Food Services and Drinking Places 191,831 190,571 194,381 137,876 202,468 228,881 53,890 Other Retail Group 149,428 149,593 149,006 148,906 179,825 196,627 44,242 Total retail stores $ 1,263,806 $ 1,278,160 $ 1,261,845 $ 1,159,290 $ 1,444,247 $ 1,517,654 $ 333,813 All other outlets 232,639 235,809 267,630 213,575 362,059 341,915 81,606 Total $ 1,496,445 $ 1,513,969 $ 1,529,475 $ 1,372,865 $ 1,806,306 $ 1,859,569 $ 415,418 _______________ Source: California Department of Tax and Fee Administration The closure of retail businesses and the fitness, entertainment, and dining industry in response to the COVID-19 pandemic impacted taxable sales within the city in calendar year 2020. However, quick action by congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, protection from rent and utility payments lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The City invested heavily in supporting its business community by implementing parklets for outdoor dining, grants to small businesses, and various promotions to support local commerce. This resulted in taxable sales tracking slightly higher than projected at the end of the third quarter of FY 2020-21 and positioned the City well once vaccination rates increased and restrictions were lifted as seen with a significant increase in taxable sales in 2021. Property Taxes General. Property taxes represent the second largest source of tax revenue to the City. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. Property taxes have historically been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13 in 1978, property tax revenues were curtailed when Page 459 of 501 -42- 4125-9942-2535.12 they were reduced by two-thirds and thereafter limited to 2% annual increases or the CPI, whichever was less. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the 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 in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to th e State and may be sold at public auction. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Teeter Plan. San Luis Obispo County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), pursuant to Sections 4701 through 4717 of the State Revenue and Taxation Code, which applies to taxes levied for the City. Under the Teeter Plan, the County guarantees that the City will receive 100% of the taxes levied for it. Any delinquencies are borne by the County, which in return collects and retains all penalties and interest which accrue on the delinquent taxes. Consequently, the City’s tax receipts do not reflect any delinquencies. The Teeter Plan, once adopted by a county, remains in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes levied by that agency exceed 3%. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. Page 460 of 501 -43- 4125-9942-2535.12 Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. Assessed Valuation History. The summary below presents a 10-year history of the assessed value of property within the City. TABLE 7 CITY OF SAN LUIS OBISPO ASSESSED VALUATION FISCAL YEARS 2012-13 THROUGH 2022-23 Fiscal Year Secured Roll Gross Value Nonunitary Utilities Unsecured Roll TOTAL 2012-13 $ 5,964,248,670 $ 5,382,272 $ 279,327,968 $ 6,248,958,910 2013-14 6,153,784,758 5,300,173 295,750,397 6,454,835,328 2014-15 6,512,370,260 5,032,204 297,325,321 6,814,727,785 2015-16 6,965,233,454 4,883,115 305,427,553 7,275,544,122 2016-17 7,393,890,993 5,269,573 303,122,262 7,702,282,828 2017-18 7,844,131,236 4,369,188 331,183,030 8,179,683,454 2018-19 8,688,541,007 4,231,993 359,588,899 9,052,361,899 2019-20 9,156,811,458 3,990,145 360,372,662 9,521,174,265 2020-21 9,872,892,242 4,194,503 371,969,399 10,249,056,144 2021-22 10,449,275,830 4,154,621 369,153,263 10,822,583,714 2022-23 11,352,719,604 3,840,493 414,262,072 11,770,822,169 _______________ Source: HdL, Coren & Cone 2022/23 Roll Summary table Major Property Taxpayers. The following table shows the top 10 local secured property taxpayers for the current fiscal year. TABLE 8 CITY OF SAN LUIS OBISPO TOP TEN LOCAL SECURED TAXPAYERS FISCAL YEAR 2022-23 Property Owner Industry or Type Number of Parcels Secured Assessed Valuation % of Total 1. Jamestown Premier San Luis Obispo Retail Commercial 10 $ 116,755,505 1.06% 2. CAP VIII - Mustang Village LLC Residential 5 100,005,897 0.91% 3. Sierra Vista Hospital Inc. Institutional 8 83,107,362 0.76% 4. San Luis Obispo Promenade DE LLC Commercial 10 56,100,000 0.51% 5. Charles Pasquini Jr Trust Et Al Commercial 4 53,422,118 0.49% 6. Irish Hills Plaza East LLC Commercial 6 53,213,898 0.48% 7. Vintage at San Luis Obispo Alderwood Residential 2 51,000,000 0.46% 8. Hotel San Luis Obispo LLC Commercial 1 37,529,832 0.34% 9. Costco Wholesale Corporation Commercial 1 38,444,903 0.35% 10. Laurel Creek Industrial 4 35,195,481 0.32% 51 $ 624,774,996 5.69% _______________ Source: California Municipal Statistics, Inc. Page 461 of 501 -44- 4125-9942-2535.12 Transient Occupancy Tax Transient occupancy tax (“TOT”) receipts are estimated at $10,700,000 in Fiscal Year 2022-23 (9.5% of 2022-23 estimated General Fund revenues). The City’s transient occupancy tax is imposed on overnight visitors who occupy a room or rooms in a hotel, inn, motel, bed & breakfast, or other lodging facility within the City’s limits for stays of less than 30 consecutive days. The amount of the tax is 10% of the total rental amount and was increased from 9% to 10% on October 1, 1993. This increase was not approved by majority vote of the electorate, but is not governed by Proposition 62 because the City is a charter city. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 62” herein. The tax does not have a sunset provision. COVID-19 travel restrictions and the curtailment of classes at California Polytechnic University impacted the city’s hospitality industry and decreased transient occupancy tax receipts for the City. TOT revenue in FY 2019-20 decreased by $1.7 million compared to FY 2018-19 (the most significantly impacted revenue source in that year). Though TOT increased slightly in FY 2020-21, it remained 14% under FY 2018-19 levels. In FY 2021-22, tourism along the central coast made a strong comeback, as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs in FY 2021-22 ($1.6 million over projections for the year), driven largely by high room rates. Other Taxes and Revenues Utility Users Tax. The City levies a utility users tax which is estimated at $6,100,000 in Fiscal Year 2022-23 (5.4% of estimated General fund revenues). Adopted by the voters in 2012, the City levies a 5% tax on all residences and businesses using telephone, electricity, natural gas and water utilities, and a 4.8% rate for video and telecommunications. Although the tax is collected for the City by the utility com panies, it is a tax on the user, not the utility. The utility users tax does not have a sunset provision. Vehicle License Fee. The State imposes the vehicle license fee, which is the fee paid annually in lieu of personal property taxes on a vehicle, and distributed to cities and counties. The vehicle license fee is based on vehicle value (originally in the amount of 2% of the market value of the vehicle) and declines as the vehicle ages. Since 1998 the fee has been incrementally reduced from 2% of a vehicle’s current estimated value, but any such reductions were “backfilled” to local governments by the State from other sources. However, under the 2004-05 State Budget, the VLF was permanently reduced to 0.65% of the estimated value, and backfill by the State to local governments was eliminated, and instead will be met by an increased property tax apportionment to cities and counties. This amounts to approximately $6 million annually as a revenue neutral swap for the City. TABLE 9 CITY OF SAN LUIS OBISPO STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS FISCAL YEARS 2017-18 THROUGH 2022-23 Source 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Motor Vehicle In-Lieu $4,637,253 $4,961,080 $5,290,215 $5,660,661 $5,994,592 $6,283,397 _______________ Source: City of San Luis Obispo. Page 462 of 501 -45- 4125-9942-2535.12 Parking Rates (Specific to Parking Enterprise) The City has budgeted revenues of its Parking Fund for payment of debt service on the portion of the Bonds purposed toward the construction of the Cultural Arts District Parking Structure. The Parking Fund is not pledged for the payment of the Bonds. The City’s Parking Fund implements the Access and Parking Management Plan and directs the operations and maintenance of the City’s parking facilities. Parking Fund revenues include rates and fees charge for parking services, property lease income, and one-time incomes such as Parking In-Lieu fee payments. According to City Fiscal Policies, rates must be sufficient to cover operations, capital asset improvements and maintenance, debt obligations, and to maintain appropriate reserve levels to keep the fund healthy and prepared for unforeseen and long-term funding needs. Parking Fund revenues for FY 2021-22 are $5,164,226 and are projected to reach $10,203,324 for FY 2023-24. The City Council has approved two parking rate increases to hourly paid parking effective July 1, 2023 and July 1, 2025 as shown in the table below. Based on the City’s forecast for Fiscal Year 2024-25 and projections for later fiscal years, the City expects that the City’s Parking Fund revenues will be sufficient to offset the City’s obligation to make lease payments relating to the Bonds from the General Fund. Parking Hourly Rate Changes Parking Spots Subject to Rate Current Parking Rate Increase Effective July 1, 2023 Increase Effective July 1, 2025 Hourly Rate – Parking Meters Tier 1 (Super Core) 389 $2.00 $4.00 $5.00 Tier 2 (Core) 147 $2.00 $4.00 $5.00 Tier 3 (Outlaying Areas) 585 $1.50 $3.00 $3.00 Hourly Rate – Parking Structures Hourly 1,127 $1.50 $3.00 $3.00 _______________ Source: City of San Luis Obispo. PROJECTED PARKING REVENUES FISCAL YEARS 2021-22 THROUGH 2027-28 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Parking Meters $2,210,191 $2,268,500 $4,876,000 $4,876,000 $5,688,700 $5,688,700 $5,688,700 Parking Structures $999,138 $1,328,450 $3,242,100 $3,388,400 $3,655,700 $3,655,700 $3,667,300 Outstanding General Fund Debt and Other Obligations For additional information regarding the City’s outstanding General Fund debt and lease obligations, see Appendix A hereto. Lease-Purchase Financing. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533, through September 5, 2023. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. Page 463 of 501 -46- 4125-9942-2535.12 Energy Sources Conservation State Loan. In 2014, the City obtained a note in the amount of $850,775 for purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. Long-Term Obligations. The City is currently obligated to make lease payments supporting debt service on the following outstanding lease revenue bonds. The table below does not include the Bonds currently being issued, which are payable in whole or in part from lease payments secured by General Fund revenue sources. Bonds Purpose Date of Issuance Original Principal Amount Outstanding Principal Amount (as of 06/30/2023) Final Maturity Capital Improvement Board 2012 Refunding Lease Revenue Bonds(1) Refunding June 7, 2012 $5,050,000 $2,415,000 Dec. 1, 2029 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Los Osos Valley Road Interchange Project), Series 2014 Los Osos Valley Rd Interchange October 23, 2014 $7,580,000 $6,275,000 Nov. 1, 2044 San Luis Obispo Public Financing Authority Lease Revenue Refunding Bonds, Series 2018 Refunding May 8, 2018 $16,905,000 $12,350,000(1) June 1, 2039 _______________ Source: City of San Luis Obispo. (1) Expected to be refunded with the proceeds of the Bonds. (2) This amount represents the total outstanding principal amount for the 2018 Series Bonds. The City’s Water, Sewer, Parking, Transit and General Fund are budgeted towards these payments and after such budgeted offset, the General Fund’s share of this outstanding amount is $8,089,250. Page 464 of 501 -47- 4125-9942-2535.12 TABLE 10 GENERAL FUND DEBT Fiscal Year Series 2012(1) Series 2014 Series 2018 Series 2023* Total Debt Service* Less: Parking Fund Offset* Total Net Debt Service* 2024 $ 69,067 $ 420,531 $ 1,439,656 $ 1,508,810 $ 3,438,064 $ 1,947,905 $ 1,490,159 2025 369,000 422,731 1,438,256 2,735,813 4,965,800 3,174,481 1,791,319 2026 364,750 419,631 1,436,006 2,732,313 4,952,700 3,170,295 1,782,405 2027 369,750 421,231 1,101,506 2,732,188 4,624,675 3,068,147 1,556,528 2028 373,750 423,556 1,096,256 2,735,188 4,628,750 3,069,546 1,559,204 2029 371,875 421,731 1,099,506 2,736,188 4,629,300 3,071,537 1,557,763 2030 374,125 424,681 1,100,756 2,735,188 4,634,750 3,070,919 1,563,831 2031 422,253 1,100,006 2,732,188 4,254,447 3,067,690 1,186,757 2032 423,963 1,102,256 2,736,938 4,263,157 3,073,126 1,190,031 2033 419,950 1,097,256 2,734,313 4,251,519 3,068,976 1,182,543 2034 420,675 1,091,706 2,734,313 4,246,694 3,067,283 1,179,411 2035 421,050 1,090,344 2,736,688 4,248,082 3,069,243 1,178,839 2036 420,713 1,096,763 2,736,313 4,253,789 3,070,826 1,182,963 2037 419,650 281,831 2,733,188 3,434,669 2,819,147 615,522 2038 418,213 278,225 2,732,188 3,428,626 2,817,047 611,579 2039 420,900 279,450 2,733,063 3,433,413 2,818,295 615,118 2040 417,700 2,735,563 3,153,263 2,735,563 2041 419,000 2,734,563 3,153,563 2,734,563 2042 419,700 2,734,938 3,154,638 2,734,938 2043 419,800 2,736,438 3,156,238 2,736,438 2044 419,300 2,733,938 3,153,238 2,733,938 2045 418,200 2,732,313 3,150,513 2,732,313 2046 2,736,188 2,736,188 2,736,188 2047 2,735,313 2,735,313 2,735,313 2048 2,734,563 2,734,563 2,734,563 2049 2,733,688 2,733,688 2,733,688 2050 2,732,619 2,732,619 2,732,619 2051 2,732,022 2,732,022 2,732,022 2052 2,732,403 2,732,403 2,732,403 2053 2,733,556 2,733,556 2,733,556 2054 2,735,275 2,735,275 2,735,275 _______________ Source: City of San Luis Obispo. * Preliminary, subject to change. (1) Expected to be refunded with the proceeds of the Bonds. Direct and Overlapping Bonded Debt Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., effective August 19, 2022 for debt issued as of June 30, 2022. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Page 465 of 501 -48- 4125-9942-2535.12 The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within the City; and (3) the third column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in column 2. TABLE 11 CITY OF SAN LUIS OBISPO STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT 2021-22 Assessed Valuation: $10,485,899,151 Overlapping Tax and Assessment Debt Total Debt 6/30/22 % Applicable(1) City’s Share of Debt 6/30/22 San Luis Obispo Community College District $ 163,735,000 16.652% $ 27,265,152 San Luis Coastal Unified School District 148,855,000 51.836 77,160,478 City of San Luis Obispo Community Facilities District No. 2019-1 19,660,000 100.000 19,660,000 Total Overlapping Tax and Assessment Debt $ 124,085,630 Direct and Overlapping General Fund Debt San Luis Obispo County General Fund Obligations $ 22,396,208 16.720% $ 3,744,646 San Luis Obispo County Pension Obligation Bonds 29,843,112 16.720 4,989,768 City of San Luis Obispo Lease Revenue Bonds 24,251,532 100.000 24,251,532(2) Total Gross Direct and General Fund Overlapping Debt $ 32,985,946 Less: City of San Luis Obispo obligations supported by enterprise revenues (4,560,900) Total Net Direct And Overlapping General Fund Debt $ 28,425,046 Total Gross Direct Debt $ 24,251,532 Total Net Direct Debt $ 19,690,632 Total Overlapping Debt $ 132,820,044 Gross Combined Total Debt $ 157,071,576(3) Net Combined Total Debt $ 152,510,676 _______________ (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district’s assessed value that is within the boundaries of the city divided by the district’s total taxable assessed value. (2) Includes share of San Luis Obispo County Financing Authority lease revenue bonds ($1,871,532). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to 2021-22 Assessed Valuation: Overlapping Tax and Assessment Debt ................................................... 1.18% Total Gross Direct Debt ($24,251,532) ................................................. 0.23% Total Net Direct Debt ($19,690,632) ..................................................... 0.19% Gross Combined Total Debt .................................................................... 1.50% Net Combined Total Debt ....................................................................... 1.45% _______________ Source: California Municipal Statistics, Inc. Page 466 of 501 -49- 4125-9942-2535.12 Employee Relations The City has 462.75 authorized full-time equivalent staff positions for Fiscal Year 2022-23. City employees are represented by four labor organizations, the principal of which is the San Luis Obispo City Employees’ Association, which represents approximately 44% of all City employees in a variety of classifications. There have been no work stoppages by City employees. Approximately 75% of all regular City employees are covered under negotiated agreements, summarized and with the expiration dates set forth below: Bargaining Units Number of Employees Agreement Expiration Date San Luis Obispo City Employees’ Association 204.25 June 30, 2025 Police Officers’ Association 67 June 30, 2024 Police Staff Officers’ Association 17 June 30, 2027 Firefighters(1) 56.5 December 31, 2023 _______________ (1) Both the city and Fire negotiating teams are currently in active discussions and making preparations to begin official negotiations in early September 2023. Management and Confidential employees of the City are not represented and make up the remaining 25% of the regular City employees. The resolutions covering Management and Confidential employees expires June 30, 2025. Insurance A summary of insurance coverage for the City, effective as of June 30, 2022, is provided below. General Liability and Workers’ Compensation. The City is a member of the California Joint Powers Insurance Authority (“CJPIA”), which provides joint protection programs and group purchased insurance for public entities covering liability, errors and omission losses, auto liability, employment practices liability, crime, pollution, workers’ compensation injuries and coverage for city-owned property. The City has a retained limit of $500,000 per occurrence for liability and a retained limit of $500,000 per occurrence for workers’ compensation. Liabilities of the City are reported to CJPIA when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the actuarial process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of economic and social factors. The estimate of the claims liability (reserve amount set on each claim) also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether or not they are attributable to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. During the past three fiscal years, none of the protection programs experienced settlement s or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured coverage in 2021-22. CJPIA covers workers’ compensation claims up to a pooled limit of $2 million per occurrence and provides excess coverage to statutory limits with a group purchased commercial insurance policy. The City pays an annual contribution to CJPIA and may share in any member refunds in the event that pooled funding Page 467 of 501 -50- 4125-9942-2535.12 exceeds the cost of pooled claims and claim-related expenses, or the City may be required to pay additional contributions based upon CJPIA’s operating results. Financial statements of CJPIA may be obtained from its administrative office located at 8081 Moody Street, La Palma, California 90623, or by calling (562) 467- 8700. Additional claims and lawsuits have been filed against the City in the normal course of business. It is reasonably possible that the City may be liable for claims not to exceed $500,000. In the opinion of management, the resolution of these matters will not have a material adverse effect on the financial condition of the City. See Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 13: Risk Management” hereto. Employee Retirement System Retirement Plan. General. The City contributes to the California Public Employees’ Retirement System (“CalPERS”) under an agent-multiple employer public employee retirement plan (for miscellaneous members, the “Miscellaneous Plan”) and cost-sharing employer public employee retirement plans (for safety members, the “Safety Plans”) that acts as a common investment and administrative agent for participating entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. Copies of CalPERS’ annual financial report are available from their Executive Office, 400 P Street, Sacramento, California 95814. CalPERS is a separate and distinct legal entity from the City and serves as an independent fiduciary in managing the City’s retirement plan assets. Eligibility. All full-time and part-time benefited City employees are eligible to participate in the retirement program. Benefits vest after five years of service. In addition to basic retirement benefits, the retirement program also provides death and survivor’s benefits. These benefit provisions and all other requirements are established by State statute and City ordinance. About CalPERS. Along with over 3,000 other cities and local agencies, the City contracts with CalPERS for its “defined benefit” retirement plan, which covers all of its regular employees (except in rare circumstances, temporary employees are not covered by the CalPERS plan). Due to changes made by the City and through legislation, there are several CalPERS retirement benefit programs. The City enacted a 2nd Tier benefit plan program which provides a lower level of benefits than the original plan. This plan is available to eligible new employees who are hired after August 30, 2012 (for sworn fire personnel plan members) and after December 6, 2012 for miscellaneous and sworn police safety plan members. A 3rd Tier program was created following the enactment of the Public Employee Pension Reform Act (AB 340) in January 2013. Under this program, employees who are considered new to the CalPERS retirement program are enrolled as required by the new law. The 3rd Tier program provides the lowest level of benefit of the three plans that are now in effect. The following chart summarizes these benefits which reflect the benefit earned each year, as a percentage of the employees qualifying salary and the normal retirement age for the program: 1st Tier 2nd Tier 3rd Tier Miscellaneous 2.7% @ 55 2% @ 60 2% @ 62 Fire Sworn 3% @ 50 3% @ 55 2.7% @ 57 Police Sworn 3% @ 50 2% @ 50 2.7% @ 57 Contribution Rates. All employees contribute the full amount of the required member contribution. For safety employees, the required contribution is either 8%, 9% or 13.75% of annual covered salary Page 468 of 501 -51- 4125-9942-2535.12 depending on the plan they participate in. For safety employees, the required contribution is either 9% or 13.75% of annual covered salary depending on the plan they participate in. For miscellaneous plan members the required contribution is either 7% or 8% of annual covered salary depending upon which plan they participate in. The City’s required contribution to CalPERS is shown below for Fiscal Years 2020-21 and 2021-22. As of the Fiscal Year 2017-18 contribution, CalPERS no longer determines the employer contribution toward the Unfunded Liability as a percentage of payroll, but as a flat dollar contribution. The employer contribution toward the Normal Cost is still provided as a percentage of payroll: Fiscal Year 2020-21 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 10.623% $ 6,020,512 Safety Plan Tier 1 25.54 5,330,744 Police Safety Tier 2 19.825 13,198 Fire Safety Tier 2 22.397 26,207 Police Safety Tier 3 13.884 26,528 Fire Safety Tier 3 13.884 2,481 *CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2021-22 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.95% $ 6,819,439 Safety Plan Tier 1 25.59 6,029,105 Police Safety Tier 2 19.88 16,086 Fire Safety Tier 2 22.47 33,223 Police Safety Tier 3 13.98 31,825 Fire Safety Tier 3 13.98 3,197 *CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2022-23 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.65% $ 7,337,577 Safety Plan Tier 1 25.64 6,697,068 Police Safety Tier 2 19.87 16,915 Fire Safety Tier 2 22.48 35,296 Police Safety Tier 3 13.66 33,517 Fire Safety Tier 3 13.66 1,300 *CalPERS provides a blended rate for all 3 tiers. Annual Pension Cost and Required Contribution. For the Fiscal Year ended June 30, 2022, the City’s annual pension cost for the employer’s contribution to CalPERS was $7,709,918 for miscellaneous employees and $7,167,638, for safety employees. The required employer contribution was determined as part of the actuarial valuation dated June 30, 2019 using the entry age normal actuarial cost method. PERS reports that the lag time is necessary due to the amount of time needed for them to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year. The actuarial assumptions included: (i) 7.15% investment rate of return (net of investment and administrative expenses); (ii) projected salary increases that vary by duration of service ranging from 3.1% to 20% for both miscellaneous and safety members; (iii) an inflation factor of 2.5% compounded annually, Page 469 of 501 -52- 4125-9942-2535.12 and (iv) 2.5% annual cost-of-living adjustments for miscellaneous and safety members. The unfunded liability is amortized as a “level percent of pay.” Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the amortization period. In 2017, CalPERS made significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies. As a result, the City had to reduce ongoing expenditures by $8.9 million (across all funds) in order to address and increase its pension contributions in line with new CalPERS requirements. To provide a framework to respond to the long-term fiscal impacts of the significant increases in required pension contributions to the CalPERS retirement system, the City Council adopted a Fiscal Health Response Plan (FHRP), containing three key components, which began implementation with adoption of the FY 2018-19 Financial Plan Supplement and continued through FY 2020-21. The three components of the FHRP included: identification of new revenues, identification of operating reductions and new ways of doing business, and employee concessions. Over the three years of the FHRP, the City negotiated in good faith with its represented and unrepresented bargaining groups to achieve approximately $1.9M of ongoing employee concessions. The employee concessions aimed at a recipe of increasing the employee contribution to CalPERS (“retirement cost-sharing”) by three (3%) percent of pay and offsetting that employee burden by providing a 4% cost- of-living adjustment over a two-year period and continuing the annual City health insurance cost-sharing contribution. Ultimately, the City was able to successfully negotiate retirement cost-sharing with all groups except the San Luis Obispo City Employees Association. In addressing unfunded pension liability as it related to employee concessions, the Council adopted policies such as the Fiscal Sustainability Policy, Compensation Philosophy, and Labor Relations Objectives to provide guidance and address and implement the concept of “shared responsibility.” This concept acknowledges the responsibility of the City, and its employees, to share the burden of pension and health costs, including addressing unfunded liabilities, while recognizing that increasing the employee share of this cost may impact the City’s ability to attract and retain well-qualified employees that ultimately deliver programs and services to the community. With that in mind, employee concessions were proposed as a significant component of the FHRP. To date, implementation of the concessions has resulted in employees from all bargaining groups, except members of the San Luis Obispo City Employees’ Association, paying an additional three (3%) percent of retirement cost sharing ongoing. Implementation of the components noted above have contributed to the City’s ability to address increased CalPERS contributions and make a total of $16.6 million in additional discretionary payments in order to paydown its pension liability. The City’s commitment to paying down its pension debt by making additional discretionary payments (ADPs) has helped to make progress on improving the plan’s overall funded status. Unfortunately, the CalPERS 2022 investment loss of 7.5% has adversely impacted the City’s funded status (as well as that of other PERS agencies throughout California). The ADPs that the City has made have helped to make progress in paying down the unfunded pension liabilities. As of 2021, the funded status of the City’s pension had reached 70.1%, a significant improvement compared to 64.4% in 2015. Absent the ADPs, the funded status in 2021 would have been 68.5%. Unfortunately, the CalPERS -7.5% investment return in FY 2021-22 significantly impacted the City’s funded status (as well as that of other PERS agencies). The City’s current unfunded liability (UFL) is approximately $180 million. This UFL is addressed through ongoing regular payments to CalPERS and paydown is expedited by the City’s ability to make ADPs. Actuarial Analysis Feedback provided by the City’s independent Actuary is that the City is taking appropriate action to make progress in paying down Page 470 of 501 -53- 4125-9942-2535.12 the unfunded pension liabilities, but that market conditions impacting CalPERS investments hinder progress. Three-Year Trend Information. The following table provides three-year trend information on the City’s annual pension cost and the funded status of the Tier 1 plans. TABLE 12 CITY OF SAN LUIS OBISPO Three-Year Trend Information for CALPERS Actuarial Valuation Date Accrued Liability (AL) Market Value of Assets (MVA)(1) Unfunded Accrued Liabilities (UAL) Funded Ratio (MVA/AL) Annual Covered Payroll Safety Plan Tier 1 6/30/19 $ 205,097,380 $ 127,661,453 $ 77,435,927 62.2% 7,147,567 6/30/20 210,170,278 128,700,330 81,469,948 61.2 6,639,579 6/30/21 220,803,796 153,350,001 67,453,795 69.5 6,075,621 Police Safety Tier 2 6/30/19 773,047 674,344 98,703 87.2 591,136 6/30/20 1,009,449 871,774 137,675 86.4 718,135 6/30/21 1,402,421 1,413,979 (11,558) 100.8 765,882 Fire Safety Tier 2 6/30/19 1,812,170 1,699,660 112,510 93.8 1,236,389 6/30/20 2,425,936 2,231,886 194,050 92.0 1,433,450 6/30/21 3,242,867 3,416,497 (173,630) 105.4 1,395,894 Police Safety Tier 3 6/30/19 1,339,239 1,210,679 128,560 90.4 1,884,193 6/30/20 2,007,628 1,807,181 200,447 90.0 2,273,360 6/30/21 2,856,793 2,977,745 (120,952) 104.2 2,203,505 Fire Safety Tier 3 6/30/19 62,298 57,953 4,345 93.0 393,854 6/30/20 190,169 180,065 10,104 94.7 495,399 6/30/21 373,349 407,669 (34,320) 109.2 485,767 Miscellaneous Plan 6/30/19 234,600,386 144,624,229 89,976,157 61.6 21,212,049 6/30/20 240,866,177 147,848,333 93,017,844 61.4 23,168,222 6/30/21 255,715,513 177,819,133 77,896,380 69.5 23,905,476 _______________ Source: CalPERS actuarial valuation reports as of June 30, 2021 for the respective plans. The June 30, 2022 valuation reports are expected to be made available by CalPERS in August or September 2023. Net Pension Liability. The City recognizes a net pension liability for the Miscellaneous Plan, measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability was measured as of June 30, 2021, using an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The changes in net pension liability for the Miscellaneous Plan is provided below: Page 471 of 501 -54- 4125-9942-2535.12 TABLE 13 CITY OF SAN LUIS OBISPO Changes in Net Pension Liability – Miscellaneous Plan Fiscal Year 2020-21 & 2021-22 Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2020 $ 237,568,349 $ 148,289,275 $ 89,279,074 Changes during the year: Service Cost 3,939,785 3,939,785 Interest on total pension liability 16,589,680 16,589,680 Differences between expected and actual experience (755,414) (755,414) Contribution – employer 8,246,755 (8,246,755) Contribution – employee 2,056,274 (2,056,274) Net investment income 32,904,570 (32,904,570) Benefit payments, including refunds of employee contributions (13,518,666) (13,518,666) -- Administrative changes (148,132) 148,132 Net Changes 6,255,385 29,540,801 (23,285,416) Balance at June 30, 2021 $ 243,823,734 $ 177,830,076 $ 65,993,658 _______________ Source: City of San Luis Obispo Audited Financial Statements The City recognizes a net pension liability for each of the Safety Plans, measured as a proportionate share of the net pension liability of the CalPERS Safety Risk Pool. The net pension liability of each of the Safety Plans was measured as of June 30, 2021, and the total pension liability for each Safety Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the Safety Plans relative to the projected contributions of all participating employers in the CalPERS Safety Risk Pool, actuarially determined. The City’s proportionate share of the net pension liability for the Safety Plans as of June 30, 2022 was $58,571,330. The City’s percentage share of the net pension liability for the Safety Plans as of June 30, 2020 and June 30, 2021, based on the reports available from CalPERS, were as follows: TABLE 14 CITY OF SAN LUIS OBISPO CHANGES IN NET PENSION LIABILITY – SAFETY PLAN Proportionate Share Percentage share at 6/30/20 0.72250% Percentage share at 6/30/21 1.08299% Change – Increase/(Decrease) 0.36049% _______________ Source: City of San Luis Obispo Audited Financial Statements. Other Post-Employment Benefits. The City’s primary Other Post-Employment Benefits (“OPEB”) are for retiree health benefits under the City’s election to participate in the CalPERS Health Benefit Program. The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act. Page 472 of 501 -55- 4125-9942-2535.12 The required employer contribution is $149.00 per month per retiree in calendar year 2022 and $151.00 per month per retiree in calendar year 2023. Retirees pay the differential monthly amount of the premium, which varies depending on the health benefits they select. Additionally, the City has established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000 (together with the City’s participation in the CalPERS Health Benefit Program, the “Plan”). One retiree remains eligible for this benefit. The City pays one-half of the retiree health insurance premiums for this retiree. During the Fiscal Year ended June 30, 2009, the City entered into an agreement with California Employers’ Retiree Benefit Trust (“CERBT”) to pre-fund the City’s OPEB liability. The contribution requirement of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution (the “ARC”) including fully funding the implied subsidy. The ARC is an amount actuarially determined in accordance with the parameters of GASB standards. The City’s ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize the unfunded liability over a period of 30 years. For Fiscal Year 2021-22, the City contributed $949,000 to the Plan, which fully funded the annual required contribution. The City paid a total of $340,000 to the CalPERS Health Benefit Program and retirees during the year and $229,000 to the CERBT. In addition, the City contributed an additional $360,000 to prefund benefits and pay down a portion of the implied subsidy of the Plan. CERBT is a tax-qualified irrevocable trust organized under Internal Revenue Code Section 115 and established to pre-fund retiree healthcare benefits. CERBT issues a publicly available financial report including GASB disclosure information in aggregate with other CERBT participating employers. That report may be obtained by contacting CalPERS, 400 P Street, Sacramento, CA 95814. For the Fiscal Years ended June 30, 2020, 2021 and 2022, the City’s annual OPEB costs (expense) of $1,190,000, $921,000 and $949,000, respectively, were equal to the annual required contribution. Trend and funding status information is as follows, based on the Plan’s most recent actuarial valuation date of June 30, 2021. Fiscal Year Ending June 30 Annual OPEB Cost (AOC) Actual Contributions % of AOC Contributed Net OPEB Obligation (Asset) 2022 $ 949,000 $ 949,000 100% $ -- 2021 921,000 921,000 100% -- 2020 1,190,000 1,190,000 100% -- Actuarial accrued liability (AAL) $ 14,884,000 Actuarial value of plan assets 10,177,000 Unfunded AAL $ 4,707,000 Funded ratio (actuarial value of plan assets/AAL) 68.4% Covered payroll (active plan members) $ 30,033,000 UAAL as % of covered payroll 15.7% City Investment Policy and Portfolio The City’s primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Safety, liquidity and yield are the factors considered, in priority order, in determining individual investment placements. In April 2013, an Investment Oversight Committee was formed to advise the City Treasurer on investment policy and Page 473 of 501 -56- 4125-9942-2535.12 compliance. Investment policies are reviewed and approved annually by the City Council and the Investment Oversight Committee, consisting of the Mayor, City Manager, City Treasurer, staff, and a member of the public meets quarterly with an investment advisor to review compliance. The composition of investments in the City pool will vary from time-to-time depending on cash flow needs of the City, the maturity of investments, purchases of new securities, and due to fluctuations in interest rates. All investments are in compliance with the City’s investment policy. As of March 31, 2023, 55% of the investments within the City pool were in highly liquid instruments. The average duration of the investments managed by the City’s contracted investment advisor was 2.05 years. As of March 31, 2023, the investments in the City pool were as follows: TABLE 15 CITY OF SAN LUIS OBISPO INVESTMENT POOL SUMMARY OF ASSETS HELD Local Agency Investment Fund – Money Market Fund City & CIB $ 44,807,639 JP Morgan Chase – Money Market 50,000,000 PFMAM Managed Investments 100,649,077 Pacific Premier Bank – Collateralized Certificate of Deposit 1,000,000 Pacific Premier Bank – Money Market 1,026,162 TOTAL INVESTMENTS $ 197,482,878 Bank Balance $ 25,952,182 TOTAL TREASURY BALANCE $ 223,435,060 _______________ Source: City of San Luis Obispo. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax . Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual, or receipt of interest o n, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity Page 474 of 501 -57- 4125-9942-2535.12 of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the 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 beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income . Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds . Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, Page 475 of 501 -58- 4125-9942-2535.12 or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the beneficial owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, beneficial owners would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or the beneficial owners to incur significant expense. Payments on the Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate beneficial owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a beneficial owner’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain beneficial owners (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS. CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Certain matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Underwriter’s Counsel. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Orrick, Herrington & Sutcliffe LLP, Bond Counsel and Disclosure Counsel, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. MUNICIPAL ADVISOR The City has retained PFM Financial Advisors LLC, of San Francisco, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. Page 476 of 501 -59- 4125-9942-2535.12 VERIFICATION [Verification Agent] (the “Verification Agent”) independent accountants, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them by Raymond James & Associates, Inc. (the “Underwriter”), relating to the sufficiency of moneys and securities deposited with the Escrow Agent to pay, when due, the interest, principal and redemption price of the 2012 Bonds. The report of the Verification Agent will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report. LITIGATION There is no action, suit, or proceeding known by the Authority or the City to be pending or threatened at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds, the Indenture, the Lease Agreement, the Gro und Lease or any proceedings of the Authority or the City taken with respect to the execution or delivery thereof. CONTINUING DISCLOSURE The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than nine months after the end of the City’s fiscal year (which is currently June 30) in each year commencing with the report for the fiscal year ended June 30, 2023 (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events. The Annual Report and event notices will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of material events by the City is set forth in Appendix E— “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” In the past five years, the City has from time to time failed to link certain bond CUSIPS to its timely filed audited financial statements. [Such errors have been corrected.] RATING S&P Global Ratings has assigned the rating of “[AA]” to the Bonds. Certain information was supplied by the Authority and the City to the rating agency to be considered in evaluating the Bonds. Such rating express only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. There is no assurance that such rating will continue for any given period of time or that it will not be reduced or withdrawn entirely by the rating agency if in its judgment circumstances so warrant . The Authority, the City and the Trustee undertake no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds. UNDERWRITING The Bonds were purchased by Raymond James & Associates, Inc. (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a purchase price of $[PURCHASE PRICE] (calculated as the principal amount of the Bonds, plus a net original issue premium of $[PREMIUM] and less an Underwriter’s discount of $[DISCOUNT]). The initial public offering prices set forth on the cover page Page 477 of 501 -60- 4125-9942-2535.12 may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof. MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds and of statutes and other documents contained in this Official Statement do not purport to be complete, and reference sh ould be made to the Bonds and such statutes and other documents for full and complete statements of their provisions. Page 478 of 501 -61- 4125-9942-2535.12 The preparation and distribution of this Official Statement have been authorized by the Authority and the City. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Executive Director CITY OF SAN LUIS OBISPO By: City Manager Page 479 of 501 A-1 4125-9942-2535.12 APPENDIX A AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 Page 480 of 501 B-1 4125-9942-2535.12 APPENDIX B CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provisions or limitations and the City is not obligated to levy any ad valorem taxes therefor or to use any other funds of the City to pay the Bonds or the interest thereon. The following information with respect to the County is presented for information purposes only. The following information regarding the City and the surrounding area is presented as general background data. The Bonds are payable solely from the sources described in this Official Statement (see “SOURCES OF PAYMENT FOR THE BONDS”). General The City of San Luis Obispo, California (the “City”) is located approximately 235 miles south of downtown San Francisco and 200 miles north of Los Angeles, on the central coast of California. The City is situated along State Route 101 and is the county seat of San Luis Obispo County. The City is located 315 feet above sea level in gentle mountain valley. San Luis Obispo has mild summers with an average high temperature of 78 degrees. San Luis Obispo County (the “County”) is the twenty-fourth largest county in the State and is located on the central coast of California. The County borders the Pacific Ocean, with Monterey County to the north, Santa Barbara County to the south and Kern County to the east. Population The following table summarizes the population estimates for the City, the County and State of California as of January 1, for the years 2019 through 2023. TABLE B-1 CITY OF SAN LUIS OBISPO 2019 THROUGH 2023 POPULATION ESTIMATES (as of January 1) Calendar Year City of San Luis Obispo County of San Luis Obispo State of California 2019 45,972 277,850 39,605,361 2020 45,916 276,818 39,648,938 2021 47,163 278,723 39,286,510 2022 47,247 279,751 39,078,674 2023 47,788 278,348 38,940,231 _______________ Source: State Department of Finance. Employment The following table summarizes the labor force, employment and unemployment data from 2018 through 2022 (the most current data available) for the City, the County, the State of California and the United States. Page 481 of 501 B-2 4125-9942-2535.12 TABLE B-2 LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, STATE OF CALIFORNIA AND UNITED STATES 2018 THROUGH 2022 Area Labor Force Employment Unemployment Rate 2018 City of San Luis Obispo 25,300 24,600 2.6 San Luis Obispo County 140,108 135,892 3.0 California 19,288,540 18,467,259 4.2 United States 162,075,000 155,761,000 3.9 2019 City of San Luis Obispo 25,300 24,700 2.5 San Luis Obispo County 139,905 135,854 2.9 California 19,415,066 18,620,302 4.1 United States 163,539,000 157,538,000 3.7 2020 City of San Luis Obispo 24,600 22,700 7.7 San Luis Obispo County 134,416 123,926 7.9 California 18,966,111 17,041,823 10.1 United States 160,742,000 147,795,000 8.1 2021 City of San Luis Obispo 24,700 23,500 5.0 San Luis Obispo County 135,428 128,208 5.3 California 18,977,110 17,587,983 7.3 United States 161,204,000 152,581,000 5.3 2022 City of San Luis Obispo 25,000 24,400 2.6 San Luis Obispo County 137,204 133,048 3.0 California 19,241,972 18,437,956 4.2 United States 164,287,000 158,291,000 3.6 _______________ Source: U.S. Department of Labor – Bureau of Labor Statistics and State of California Employment Development Department The County comprises the San Luis Obispo-Paso Robles Metropolitan Statistical Area (the “MSA”), reported by the State Employment Development Department. The following table summarizes employment information for the MSA, including unemployment rate and employment by industry. Page 482 of 501 B-3 4125-9942-2535.12 TABLE B-3 METROPOLITAN STATISTICAL AREA (SAN LUIS OBISPO COUNTY) CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CALENDAR YEARS 2018 THROUGH 2022 ANNUAL AVERAGES 2018 2019 2020 2021 2022 Civilian Labor Force(1) 140,100 140,000 134,400 135,400 137,200 Employment 135,900 135,900 123,900 128,200 133,000 Unemployment 4,200 4,100 10,500 7,200 4,200 Unemployment Rate 3.0% 2.9% 7.8% 5.3% 3.0% Wage and Salary Employment(2) Agriculture 5,200 5,000 4,800 5,000 5,700 Natural Resources/Mining/Construction 7,900 8,300 8,500 9,100 9,000 Manufacturing 7,700 7,800 7,300 7,900 8,200 Wholesale Trade 2,700 2,700 2,500 2,600 2,600 Retail Trade 14,300 14,000 12,900 13,500 13,800 Trans., Warehousing, Utilities 4,100 4,100 3,700 3,700 3,800 Information 1,200 1,200 1,100 1,200 1,300 Financial and Insurance 2,300 2,200 2,300 2,300 2,200 Real Estate, Rental & Leasing 1,600 1,700 1,500 1,600 1,800 Professional and Business Services 10,900 11,200 10,500 11,000 10,900 Educational and Health Services 17,700 18,200 17,000 17,500 18,100 Leisure and Hospitality 19,200 19,800 15,400 17,400 19,600 Other Services 4,000 4,100 3,300 3,400 3,700 Federal Government 500 500 600 600 600 State Government 10,800 10,800 10,600 10,200 10,400 Local Government 13,100 13,100 12,400 12,400 12,800 Total All Industries(3) 123,200 124,700 114,400 119,400 124,500 _______________ (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. The principal employers in the County are shown in the following table. Page 483 of 501 B-4 4125-9942-2535.12 TABLE B-4 COUNTY OF SAN LUIS OBISPO PRINCIPAL EMPLOYERS FISCAL YEAR 2021-22 Employer Name Number of Employees Rank % of Total County Employment Cal Poly State University 3,100 1 12.45% County of San Luis Obispo 2,920 2 11.73 Dept. of State Hospitals - Atascadero 2,140 3 8.59 Pacific Gas & Electric Company 1,950 4 7.83 California Men’s Colony 1,500 5 6.02 Tenet Health Central Coast 1,305 6 5.24 Compass Health 1,200 7 4.82 San Luis Coastal Unified School District 1,200 8 4.82 Dignity Health Central Coast 1,000 9 4.02 Lucia Mar Unified School District 1,000 10 4.02 TOTAL: 17,315 69.54% _______________ Source: City of San Luis Obispo Audited Financial Statements, obtained from the Pacific Coast Business Times (The List). The Diablo Canyon nuclear power plant (“Diablo Canyon”), a principal employer in the County and located in the community of Avila Beach, was to cease operations in 2025 under a plan approved by the State Public Utilities Commission in January 2018. In September 2022, Governor Newsom signed SB 846, enabling Pacific Gas and Electric (PG&E) to extend operations beyond 2025 and in March 2023 the Nuclear Regulatory Commission (NRC) authorized PG&E to continue operating Diablo Canyon while the NRC considers renewal of its license. The initial plan to close Di ablo Canyon included a program to retain skilled workers through 2025 and funding to retrain workers displaced by the closure. Despite the continued operation of Diablo Canyon, the City will retain the funding provided via SB 1090 for employee retention. Per Capita Income The following table summarizes the per capita income for the City, the County, the State and the United States for the period 2017 through 2021. TABLE B-5 CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, CALIFORNIA AND UNITED STATES PER CAPITA INCOME CALENDAR YEARS 2017 THROUGH 2021 Year City of San Luis Obispo San Luis Obispo County State of California United States 2017 $ 29,748 $ 35,982 $ 35,046 $ 32,397 2018 31,914 36,924 37,124 33,831 2019 34,357 38,308 39,393 35,672 2020 36,232 38,686 38,576 35,384 2021 39,464 42,831 42,396 38,332 _______________ Source: U.S. Census Bureau. Page 484 of 501 B-5 4125-9942-2535.12 Commercial Activity Taxable sales within the City are shown in Table 6 under “CITY FINANCIAL INFORMATION— Sales and Use Taxes” herein. Preliminary total taxable sales during calendar year 2022 in the City were reported to be $1,859,569,000, a 2.9% increase over the total taxable sales of approximately $1,806,306,000 reported during calendar year 2021. Construction Activity The following tables show a three-year summary of the number and valuation of building permits issued in the City. Building permits are issued for various projects ranging from the relatively simple (e.g., water heaters, window change outs, reroofing, etc.) to the more complex projects (e.g., additions and new buildings). Plan reviews are typically required for the more complex projects where it is necessary to review proposed design documents for code compliance. Table B-6 shows the number of plan check applications conducted by the Building Division over the last 3 years. Development activity remained relatively steady in 2022. TABLE B-6 CITY OF SAN LUIS OBISPO PLAN CHECK APPLICATIONS SUBMITTED 2020-2022 2020 2021 2022 Plan Check Applications Submitted 1,438 1,426 1,386 _______________ Source: Community Development Department, 2022 Table B-7 depicts the number of building permits issued over the past 3 years. In 2022, 266 permits were issued for new residential projects, representing 562 new residential units. TABLE B-7 CITY OF SAN LUIS OBISPO BUILDING PERMITS ISSUED, 2020-2022 2020 2021 2022 permits units permits units permits units New Single Family 252 252 198 198 162 162 New Accessory Dwelling Units (ADUs)1 44 60 62 93 73 97 New Multi Family & New Mixed Use 22 153 47 326 31 303 Demolitions2 25 -8 22 -3 11 -4 New Commercial 2 0 3 0 10 0 Residential Additions / Alterations 220 0 199 0 214 0 Commercial Additions / Alterations 89 0 99 0 122 0 Total 654 457 630 614 623 558 _______________ Source: Community Development Department, 2022 1 ADU unit totals come from ADU permits and single-family permits. 2 Includes units lost from demolitions. Page 485 of 501 B-6 4125-9942-2535.12 Construction valuation is a good indicator of the level of private investment in building construction. Table B-8 depicts the annual construction valuation over the past 3 years. Valuation data shows a substantial increase in commercial valuation while residential valuation remained relatively steady. The total valuation increased by approximately $41.9 million from 2021 to 2022. This increase is despite a decrease in total number of issued permits. This is an indicator that the cost of construction has increased since 2021. TABLE B-8 CITY OF SAN LUIS OBISPO VALUATION OF CONSTRUCTION, 2020-2022 2020 2021 2022 Single Family 53,949,613 34,211,415 32,464,875 Multi Family 8,225,494 46,933,301 43,655,086 Commercial 17,475,937 1,229,510 33,950,000 Residential Additions / Alterations 7,834,680 6,459,062 8,741,375 Commercial Additions / Alterations 11,178,790 6,722,907 18,711,218 Total Valuation $ 98,664,514 $ 95,556,195 $ 137,522,554 _______________ Source: Community Development Department, 2022 Climate Action and Response The City adopted and is now implementing its Climate Action Plan in 2022 for Community Recovery (2020) with the goal of achieving carbon neutrality within the City by 2035. Through the Climate Action Plan, the City is decreasing transportation emissions by improving bike and pedestrian facilities, installing electric vehicle chargers and upgrading public transit to make community members more likely to adopt alternative forms of transportation. The City is also implementing measures to divert organic waste from the landfill (a source of methane emissions), as well as an initiative to plant 10,000 new trees and to protect and manage its open space lands for carbon sequestration. In addition, the City has implemented a project titled “Resilient SLO” that resulted in the adoption of the Climate Adaptation and Safety Element of the City’s General Plan in 2023, which identifies and prioritizes the actions that are necessary for preparing the community for climate change impacts, focusing on finding the best ways to develop community resilience based on a range of potential physical hazards that are negatively affected by climate change such as floods, extreme heat and wildfires. Cyber Security To date, the City is not aware of any significant cyber security events affecting the City or its funds. The City has cybersecurity policies and practices in place designed to protect the confidentiality, integrity and availability of City data and resources including personally identifiable information and sensitive information. At a high level, these policies are organized into several areas and summarized as follows: • Risk Assessment: The City conducts regular external and internal assessments to identify and mitigate potential vulnerabilities and threats to the City’s infrastructure. This involves internal analysis and quarterly external expert security assessments of existing systems, networks, assets, and alerts to prioritize updates, patches and other security measures accordingly. • Incident Response Plan: The City has a comprehensive plan outlining the steps to be taken in the event of a cyber incident. This plan includes procedures for reporting, investigating, Page 486 of 501 B-7 4125-9942-2535.12 containing, and recovering from cybersecurity breaches as well as contact information for relevant consultant, law enforcement, legal, and insurance representatives. • Access Control and Authentication: The City implements strong access controls and multifactor authentication mechanisms to ensure that only authorized personnel can access sensitive information and critical systems. National Institute of Standards and Technology (NIST) password recommendations, multi-factor authentication, role-based access controls as appropriate and access logging on sensitive or critical data are all enforced. • Network Security: The City has robust layered defenses, and implements new systems based on zero trust methodologies. The City’s security solutions include intrusion detection and prevention systems on north/south and east/west traffic with SSL decryption, virtual private networks (VPNs) for external network access, security proxied web traffic, best in class mail and endpoint security, and segmented network access with firewalls between zones. Network devices, endpoints, and our virtual infrastructure are regularly updated and patched to address known vulnerabilities and protect against emerging threats. • Encryption: Sensitive data (primarily criminal justice information services) is encrypted in transit and at rest. The City uses industry-standard CJIS approved encryption protocols for secure communication and storage of data. • Employee Awareness and Training: City employees are given data security basics and expectations immediately upon hire and are required to take an hour-long Cybersecurity awareness course within 6 weeks of hire date on data security and expectations. A shorter course is required for continued access to network resources annually. Quarterly phishing “tests” are conducted and any failure results in further education. • Regular Backups and Recovery: The City implements regular data backups to ensure critical information can be recovered in the event of data loss or a successful cyberattack. Backups are maintained with protocols meeting industry best practices. • Vendor and Third-Party Risk: The City continuously assess and manage the cybersecurity risks associated with third-party vendors and contractors access the City’s systems or data and implement the same password and multifactor access requirements required of all employees. Vendors and third parties are held to contractual obligations regarding data security and due diligence with City data. • Continuous Monitoring and Incident Detection: The City has automated monitoring and alerting systems tuned to detect potential security incidents in real-time and alert standby network administrators of threats that require our attention. This includes IDS/IPS, mail security, endpoint security, hardware alerts and event monitoring. • Compliance with Regulations: The City’s IT department works with other departments to ensure applicable industry specific cybersecurity regulations, such as data privacy laws and industry standards such as ELAP and CJIS, are followed for accreditation and audit protection. • Insurance: As a member of the California Joint Powers Insurance Authority (CJPIA), the City also has cyber liability coverage of $1,000,000 per year after a $250,000 deductible. The insurance covers privacy incidents, network security incidents, media incidents, and cyber crime with certain exclusions, for both first party and third party liability. Page 487 of 501 B-8 4125-9942-2535.12 Education and Community Facilities The City is adjacent to California Polytechnic State University, San Luis Obispo (“Cal Poly”), one of the more prominent campuses in the California State University system. Cal Poly offers a wide variety of degree programs at both undergraduate and graduate levels. Undergraduate and graduate enrollment at Cal Poly was 22,287 students for the 2022-23 academic year. In FY 2021-22, Cal Poly employed 3,100 people. Cuesta Community College schedules day and evening courses where residents can complete a two-year degree, obtain vocational training or take general education courses. Fall 2022 enrollment was 14,002 full-time students. San Luis Coastal Unified School District provides 10 elementary schools, two middle schools, three senior high schools and an adult school (the “District”). The District also provides a full-day, six- week program from mid-June through the end of July that is open to all current San Luis Coastal kindergarten through high school students free of charge. The total District enrollment is approximately 7,500 students. The boundaries of the San Luis Coastal Unified School District are significantly larger than the City. Medical facilities include Sierra Vista Regional Medical Center with approximately 164 licensed beds in addition to a designated trauma center and the only dedicated pediatric unit in San Luis Obispo County, and French Hospital with approximately 112 acute care beds. Recreational facilities in close proximity include 12 golf courses within a 30 minute drive of the City’s downtown, Lake Lopez, Lake Nacimiento and Montana De Oro State Park. Community facilities include the Performing Arts Center located on the campus of Cal Poly, Mission San Luis Obispo de Tolosa, San Luis Obispo County Historical Museum and San Luis Obispo Art Center. The City has 12 designated open space areas and owns 22 parks and 14 playgrounds. The City operates a 10-hole municipal golf course and the San Luis Obispo Swim Center that offers participants a full range of aquatic programs. Transportation Primary access to the City is provided by State Route 101, which is a major transportation corridor that extends in a general north-south direction from Los Angeles to San Francisco. San Luis Obispo can be accessed at various off-ramps from the highway. This network of roads provides access to the various neighborhoods and business areas dispersed throughout the community. The San Luis Obispo County Airport is within ten minutes from downtown. Commercial service is offered to Dallas, Denver, Los Angeles, Phoenix, Portland, San Diego, San Francisco and Seattle International Airports. Rail passenger service is provided by AMTRAK, which has a station in the City. Union Pac ific Transportation Company provides freight rail service to the City. Local bus service is provided by SLO Transit and is linked to a trolley line which operates seasonally in the City’s downtown area, and to the San Luis Obispo Regional Transit Authority-run bus service. Page 488 of 501 C-1 4125-9942-2535.12 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS Certain provisions of the Lease Agreement, the Ground Lease and the Indenture, not previously discussed in this Official Statement, are summarized below. These summaries do not purport to be complete or definitive and are qualified in their entirety by reference to the full terms of the documents. Page 489 of 501 D-1 4125-9942-2535.12 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION Upon issuance of the Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially the following form: September [_], 2023 San Luis Obispo Public Financing Authority San Luis Obispo, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the San Luis Obispo Public Financing Authority (the “Authority”) in connection with issuance of $[PAR] aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), issued pursuant to an Indenture, dated as of [September 1, 2023] (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Lease Agreement, the Ground Lease, the Tax Certificate, certificates of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, thi s letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and Page 490 of 501 D-2 4125-9942-2535.12 other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities and joint powers agencies in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Lease Agreement, the Ground Lease or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding limited obligations of the Authority. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. 3. The Ground Lease and the Lease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority. 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per Page 491 of 501 E-1 4125-9942-2535.12 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of San Luis Obispo (the “City”), on behalf of itself and th e San Luis Obispo Public Financing Authority (the “Authority”), in connection with the issuance of the Authority’s Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued under an Indenture dated as of [September 1, 2023] (the “Indenture”) between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees, on behalf of itself and the Authority, as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” means any Annual Report provided by the City under, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Dissemination Agent” means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means, for purposes of the listed events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securitie s Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule. “Fiscal Year” means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other 12-month period selected and designated by the City. “Listed Events” means any of the events listed in Section 5(a) hereof. “MSRB” means the Municipal Securities Rulemaking Board, which has been desi gnated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. “Official Statement” means the final official statement dated _____ _, 2023, prepared with respect to the Bonds. “Participating Underwriter” means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Report Date” means March 1 of each year. Page 492 of 501 E-2 4125-9942-2535.12 “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Report Date, commencing March 1, 2024, with the report for Fiscal Year 2022-2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 business days prior to the Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Report Date if not available by the Report Date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City under the Indenture. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the City prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed under the preceding clause (a), the Annual Report shall contain information showing: Page 493 of 501 E-3 4125-9942-2535.12 (i) information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year; (ii) information showing the aggregate principal amount of long-term bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the close of the most recent completed Fiscal Year; (iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year; (iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year; (v) with respect to the top 10 property taxpayers in the City, information showing the identity of each such taxpayer, and the total assessed valuation of properties owned by each such taxpayer. (vi) information concerning the sales and use tax revenue collected by the City for the most recently completed Fiscal Year; (vii) information concerning the transient occupancy tax revenue collected by the City for the most recently completed Fiscal Year; and (viii) a statement on whether the County of San Luis Obispo used the Teeter Plan to assess and collect tax during the most recently completed Fiscal Year. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; Page 494 of 501 E-4 4125-9942-2535.12 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); 6. Tender offers; 7. Defeasances; 8. Rating changes; or 9. Bankruptcy, insolvency, receivership or similar event of the obligated person. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. 10. Default, event of acceleration, termination event, modification of terms, or other simil ar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties. (b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: 1. Unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. Modifications to rights of Bond holders; 3. Bond calls; 4. Release, substitution, or sale of property securing repayment of the Bonds; 5. Non-payment related defaults; 6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or 7. Appointment of a successor or additional trustee or the change of name of a trustee. Page 495 of 501 E-5 4125-9942-2535.12 8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws. (d) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. SECTION 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended under the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the Page 496 of 501 E-6 4125-9942-2535.12 amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial inform ation, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(a). SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of disseminati on set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [September _, 2023] CITY OF SAN LUIS OBISPO By: Finance Director Page 497 of 501 E-A-1 4125-9942-2535.12 CONTINUING DISCLOSURE EXHIBIT A FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Name of Obligated Person: CITY OF SAN LUIS OBISPO Name of Bond Issue: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Date of Issuance: [September _, 2023] NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the Issuer, dated the Date of Issuance. [The Issuer anticipates that the Annual Report will be filed by _____________.] Dated: _______________ CITY OF SAN LUIS OBISPO By [to be signed only if filed] Page 498 of 501 F-1 4125-9942-2535.12 APPENDIX F DTC DESCRIPTION The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of principal of, premium, if any, and interest on the Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds, and other related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the City and the Authority believe to be reliable, but the City and the Authority do not take responsibility for the completeness or accuracy thereof. The City and the Authority cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of principal, premium, if any, and interest with respect to the Bonds or (b) certificates representing ownership interests in or other confirmation of ownership interests in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement . The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity (and each yield in the case of bifurcated maturities) of the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com; provided that nothing contained in such website is incorporated into this Official Statement. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as Page 499 of 501 F-2 4125-9942-2535.12 periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures . Under its usual procedures, DTC mails an Omnibus Proxy to the City and the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City, the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, the City or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. Page 500 of 501 F-3 4125-9942-2535.12 The City and the Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC. NEITHER THE CITY, THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF Bonds FOR REDEMPTION. DTC (or a successor securities depository) may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City and the Authority. The City and the Authority, in their sole discretion and without the consent of any other person, may terminate the services of DTC (or a successor securities depository) with respect to the Bonds . The City and the Authority undertake no obligation to investigate matters that would enable the City and the Authority to make such a determination. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply. THE CITY, THE AUTHORITY AND THE UNDERWRITERS CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL, INTEREST OR PREMIUM, IF ANY, WITH RESPECT TO THE Bonds PAID TO DTC OR ITS NOMINEE AS THE REGISTERED OWNER, OR WILL DISTRIBUTE ANY REDEMPTION NOTICES OR OTHER NOTICES, TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CITY, THE AUTHORITY AND THE UNDERWRITERS ARE NOT RESPONSIBLE OR LIABLE FOR THE FAILURE OF DTC OR ANY PARTICIPANT TO MAKE ANY PAYMENT OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE Bonds OR AN ERROR OR DELAY RELATING THERETO. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City and the Authority deem reliable, but the City and the Authority take no responsibility for the accuracy thereof. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City, the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The City and the Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Bonds may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee’s receipt of such request. Page 501 of 501