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Resolution No. 3835RESOLUTION NO. 3835 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CYPRESS ACTING AS THE LEGISLATIVE BODY OF COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS AUTHORIZING THE ISSUANCE OF ITS 1990 SPECIAL TAX BONDS IN A PRINCIPAL AMOUNT NOT TO EXCEED FIFTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($15,500,000), AND APPROVING CERTAIN DOCUMENTS AND TAXING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH WHEREAS, the City Council (the "City Council ") of the City of Cypress (the "City "), located in Orange County, California (hereinafter sometimes referred to as the "legislative body of the District "), has heretofore undertaken proceedings and declared the necessity to issue bonds on behalf of the Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress (the "District ") pursuant to the terms and provisions of the Mello -Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of California (the "Act "); and WHEREAS, pursuant to Resolution Nos. 3820 and 3821 adopted by the legislative body of the District on the 10th day of September, 1990, the bond propositions attached as Exhibit A hereto and incorporated herein by reference were submitted to the qualified electors within the District, and were unanimously approved at an election held on September 10, 1990; and WHEREAS, based upon Resolution Nos. 3820 and 3821 and the election, the District is now authorized to issue bonds in one or more series, pursuant to the Act, in an aggregate principal amount not to exceed $15,500,000; and WHEREAS, the legislative body of the District hereby desires to proceed to issue bonds in an aggregate principal amount not to exceed $15,500,000 designated as the "Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress, California, 1990 Special Tax Bonds" (the "Bonds "); and WHEREAS, the legislative body of the District has determined in accordance with Government Code Section 53360.4 that a negotiated sale of the Bonds to Seidler - Fitgerald Public Finance (the "Underwriter ") in accordance with the terms of the Bond Purchase Agreement approved as to form by this legislative body herein will result in a lower overall cost to the District than a public sale; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CYPRESS ACTING AS THE LEGISLATIVE BODY OF THE COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS DOES HEREBY RESOLVE, ORDER AND DETERMINE AS FOLLOWS: SECTION 1. Each of the above recitals is true and correct. SECTION 2. The City, by its Resolution No. 3823, adopted on September 10, 1990, has declared that Proposition A and Proposition B presented to the qualified electors of the District on September 10, 1990, copies of which are attached as Exhibit A, have received a two - thirds affirmative vote of the qualified electors voting at said election, and Proposition A and Proposition B each has carried, and, accordingly, the legislative body of the District is hereby authorized to issue from time to time as determined by the legislative body bonds for the benefit of the District for the purposes set forth in Proposition A and to take the necessary steps to levy the special tax authorized by Proposition A. SECTION 3. The issuance of the Bonds in a principal amount not to exceed $15,500,000 is hereby authorized pursuant to the Act with the exact principal amount to be determined by the officer signing the Bond Purchase Agreement in accordance with Section 7 below. The Bonds shall have a term of not to exceed twenty -five years and shall mature on the dates and pay interest at the rates set forth in the Bond Purchase Agreement to be executed on behalf of the District in accordance with Section 7 hereof and otherwise shall be substantially in the form set forth in Exhibit B hereto with such additions thereto and changes therein as are recommended or approved by Bond Counsel to the District and the officers executing the same, with such approval to be conclusively evidenced by the execution and delivery of the Bond Purchase Agreement. All other provisions of the Bonds shall be governed by the terms and conditions set forth in an Indenture of Trust (the Indenture ") to be prepared by Bond Counsel to the District and executed by the Mayor of the legislative body of the District or the City Manager, or his written designee, which Indenture shall be substantially in the form attached hereto as Exhibit C, with such additions thereto and changes therein as are recommended or approved by Bond Counsel to the District and the officers executing the same, with such approval to be conclusively evidenced by the execution and delivery of the Indenture. The form of the Indenture presented at this meeting is hereby approved. Capitalized terms used in this Resolution which are not defined herein have the meaning ascribed to them in the form of the Indenture attached hereto as Exhibit C. SECTION 4. The Bonds shall be executed on behalf of the District by the manual or facsimile signature of the Mayor of the legislative body of the District, and the seal of the District, or a facsimile thereof, shall be impressed or imprinted thereon and attested with the manual or facsimile signature of the City Clerk of the legislative body of the District. The District hereby adopts as its seal the form of seal set forth in Exhibit D hereto. SECTION 5. The proceeds of the Bonds and the Special Taxes may be invested in any of the Authorized Investments of the type described in Exhibit C. The City CYP1 -RES8 -2- Council hereby determines that entering into an Investment Agreement of the type described in Exhibit C will reduce the risk of interest rate fluctuations on investments and reduce the overall cost of borrowing for the District. SECTION 6. The covenants set forth in the Indenture to be executed in accordance with Section 3 above are hereby approved, shall be deemed to be covenants of the City Council in its capacity as the legislative body of the District and shall be complied with by the District and its officers. The Indenture shall act as a bond indenture and constitute a contract between the District and the Owners of the Bonds. SECTION 7. Security Pacific National Bank is hereby appointed to act as Trustee for the Bonds and the City Manager, or his written designee, is hereby authorized to enter into an agreement with the Trustee to provide trustee services to the District. The forms of the Bond Purchase Agreement and the Preliminary Official Statement presented at this meeting are hereby approved and the Mayor and City Clerk of the legislative body of the District are hereby authorized and directed to execute the Bond Purchase Agreement and a final Official Statement in substantially the forms hereby approved, with such additions thereto and changes therein as are recommended or approved by Bond Counsel to the District and the officers executing the same, with such approval to be conclusively evidenced by the execution and delivery of such documents; provided, however, that the Bond Purchase Agreement shall be signed only if the average interest rate on the Bonds does not exceed 9.00% per annum and the Underwriter's discount does not exceed 2.5% of the principal amount of the Bonds. The Underwriter is hereby authorized to distribute the Preliminary Official Statement when it has been deemed final by the District to prospective purchasers, and the City Manager, or his written designee, shall approve the form of the final Official Statement to be delivered with the Bonds to the purchasers thereof. SECTION 8. The City Manager, or his written designee, is authorized to contract for all services necessary to effect the issuance of the Bonds. Such services shall include, but not be limited to, printing the Bonds, the Preliminary Official Statement and the final Official Statement, obtaining legal services, trustee services and any other services deemed appropriate as set forth in a certificate of the City Manager, or his written designee. The City Manager, or his written designee, is authorized to pay for the cost of such services, together with other Costs of Issuance, with Bond proceeds deposited to the Acquisition and Construction Fund established pursuant to the Indenture. SECTION 9. All actions heretofore taken by officers and agents of the District and the City with respect to the sale and issuance of the Bonds are hereby approved, confirmed and ratified, and the Mayor and City Clerk of the legislative body of the District and the other officers of the City and the District responsible for the fiscal affairs of the District are hereby authorized and directed to take any actions and execute and deliver any and all documents as are necessary to accomplish the issuance, CYP1 -RES8 -3- sale and delivery of the Bonds in accordance with the provisions of this Resolution and the Indenture and the fulfillment of the purposes of the Bonds as described in the Indenture. In the event that the Mayor of the legislative body of the District is unavailable to sign any document authorized for execution herein, any other member of the City Council or the City Manager, or his written designee, may sign such document. Any document authorized herein to be signed by the City Clerk of the legislative body of the District may be signed by a duly appointed deputy clerk. SECTION 10. The City Clerk shall certify the adoption of this Resolution. PASSED AND ADOPTED by the City Council of the City of Cypress at a regular meeting held on the 24th day of September , 1990. ATTEST: OR OF THE CITY OF PRESS CITY' CLERK OF THE C Y OF CYPRESS STATE OF CALIFORNIA ss COUNTY OF ORANGE I, DARRELL ESSEX, City Clerk of the City of Cypress, DO HEREBY CERTIFY that the foregoing Resolution was duly adopted at a regular meeting of the said City Council held on the 24th day of September , 1990, by the following roll call vote: AYES: 4 COUNCIL MEMBERS: Arnold, Bowman, Kerry and Kanel NOES: 0 COUNCIL MEMBERS: None ABSENT: 0 COUNCIL MEMBERS: None ABSTAINED: 1 COUNCIL MEMBERS• Age CITY CL RK OF THE CI OF CYPRESS CYP1 -RES8 -4- EXHIBIT A OFFICIAL BALLOT COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS SPECIAL BOND AND SPECIAL TAX ELECTION September 10, 1990 This ballot represents 144 votes. To vote, stamp a cross ( +) in the voting square after the word "YES" or after the word "NO ". All marks otherwise made are forbidden. All distinguishing marks are forbidden and make the ballot void. If you wrongly mark, tear, or deface this ballot, return it to the City Clerk as the election official and obtain another. PROPOSITION NO. A: Shall Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress incur an indebtedness and issue bonds in a maximum aggregate amount not to exceed $15,500,000, with interest at a rate or rates not to exceed the maximum interest rate permitted by law, the proceeds of which will be used to finance certain public facilities including the funding, financing, construction, rehabilitation or installation of streets and highways, drainage facilities, sewer facilities, traffic and safety lighting facilities, parkway landscaping improvements and school facilities together with appurtenances and appurtenant work, including equipment, real property and other tangible property (the "Facilities "), as provided in Resolution No. of the City Council of the City of Cypress (the "Resolution of Formation "), and shall a special tax with a rate and method of apportionment as provided in the Resolution of Formation be levied to pay for all or a portion of the Facilities described in the Resolution of Formation, for the creation or replenishment of any necessary reserve funds, for any incidental expenses of the District associated with the Facilities or the bonds and for principal of, premium, if any, and interest on such bonds? PROPOSITION NO. B: Shall the appropriations limit, as defined by subdivision (h) of Section 8 of Article XXXI B of the California Constitution, for the Community Facilities District No. 1 (Sorrento Homes) of City of Cypress be an amount equal to $15,500,000. 353 E x MIT 8 COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS 1990 SPECIAL TAX BONDS BOND PURCHASE AGREEMENT , 1990 Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress Cypress, California Ladies and Gentlemen: The undersigned (the "Underwriter ") offers to enter into this Purchase Agreement with Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress (the "District ") which, upon acceptance, will be binding upon the District and upon the Underwriter. This offer is made subject to the District's acceptance of it on the date hereof, and if not accepted will be subject to withdrawal by the Underwriter upon notice delivered to the District at any time prior to the acceptance hereof by the District. 1. Purchase, Sale and Delivery of the Bonds. (a) Subject to the terms and conditions and in reliance upon the representations and agreements set forth herein, the Underwriter agrees to purchase from the District, and the District agrees to sell to the Underwriter, all (but not less than all) of $ aggregate principal amount of Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress 1990 Special Tax Bonds (the "Bonds "), dated November 1, 1990, and bearing interest (payable commencing March 1, 1991 and semiannually thereafter on March 1 and September 1 in each year) at the rates per annum and maturing on the dates and in the amounts or redeemed in the amounts according to the maturity schedule set forth in Appendix A attached and incorporated herein. The purchase price for the Bonds shall be $ , which is percent (_ %) of the aggregate principal amount thereof (representing a price of par less an Underwriter's discount of $ plus' accrued interest for the period from November 1, 1990 to the Closing Date (hereinafter defined) and shall be paid to the District, or the District's designated trustee, in federal funds on the Closing Date. 351! The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable and subject to redemption as provided in, that certain Indenture of Trust by and between the District and Security Pacific National Bank (the "Trustee ") dated as of November 1, 1990 (the "Indenture of Trust ") and Resolution No. (the "Resolution of Issuance "), adopted by the City Council of the City of Cypress sitting as the legislative body of the District (the "City Council ") on September 24, 1990. The Bonds and interest thereon will be payable from a special tax (the "Special Tax ") levied and collected in accordance with the Resolution and an ordinance (the "Ordinance ") adopted by the City Council of the City of Cypress on , 1990. Proceeds of the sale of the Bonds will be used in accordance with the Indenture of Trust, the Resolution of Issuance, that Funding and Acquisition Agreement by and between the City of Cypress (the "City ") and Cypress Homes, Inc. (the "Owner ") dated as of February 12, 1990 (the "Funding Agreement "), that certain joint community facilities agreement by and between the City and Anaheim Union High School District (the "Joint Agreement ") and the Mello -Roos Community Facilities Act of 1982, as amended (the "Act "), to construct, rehabilitate and acquire certain public improvements described in Resolution No. 3820 (the "Resolution of Formation ") adopted by the City Council on September 10, 1990. (b) Pursuant to the authorization of the District, the Underwriter has distributed copies of the Preliminary Official Statement, dated , 1990, relating to the Bonds, which, together with the cover page and all appendices thereto, is herein called the "Preliminary Official Statement" and which, as amended with the prior approval of the Underwriter and executed by the District, will be referred to herein as the "Official Statement ". The District hereby ratifies the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to use and distribute the Indenture of Trust, Resolution of Issuance, the Official Statement, the Joint Agreement, the Funding Agreement and other documents or contracts to which the City or the District is a party, including this Purchase Agreement, and all information contained therein, and all other documents, certificates and statements furnished by the City or the District to the Underwriter in connection with the transactions contemplated by this Purchase Agreement, in connection with the offer and sale of the Bonds by the Underwriter. The District represents that the Preliminary Official Statement distributed by the Underwriter was deemed final,,f or purposes of Securities Exchange Commission Rule 15c2- 12(b)(1) by the District prior to its distribution, except for the omission of no more than the following information: 09/18/90 1508u/2245 -18 -2- 355 the offering price(s), interest rate(s), selling compensation, aggregate principal amounts, principal amount per maturity and delivery dates. It is a condition of the offer of the Underwriter made hereby that the District deliver the Official Statement, in a form deemed by it to be final, within seven days of the date hereof; and the delivery of an Official Statement executed by representatives of the District shall conclusively establish that the District deems the document so delivered to be final. A failure of the District to comply with the requirements of the preceding sentence shall entitle the Underwriter to rescind its offer hereunder. (c) At 8:00 A.M., Los Angeles time, on 1990, or at such other time or date as shall be agreed upon by the Underwriter and the District (such time and date being herein referred to as the "Closing Date "), the District will deliver to the Underwriter, at a location or locations to be designated by the Underwriter, in New York, New York, the Bonds in definitive form (all Bonds being printed or lithographed on steel engraved borders and having had the CUSIP numbers assigned to them printed thereon), duly executed by the officers of the District as provided in the Indenture of Trust and with the facsimile seal of the District printed thereon, and the other documents herein mentioned; provided, however, that the Underwriter may, in its discretion, accept delivery of the Bonds in temporary form upon making arrangements with the District which are satisfactory to the Underwriter relating to the delivery of the Bonds in definitive form. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in pargraph (a) of this section by certified or:-official bank check or wire transfer payabre in federal or other immediately available funds. The Bonds shall be made available to the Underwriter not later than the last business day before the Closing Date for purposes of inspection and packaging. The Bonds shall be in fully registered form, with the registered owners as designated by the Underwriter at least five (5) days before the Closing Date. 2. Representations and Agreements of the District. The District represents and covenants to and agrees with the Underwriter that: (a) The City is duly organized and validly existing as a general law city and municipal corporation under the Constitution and laws of the State of California and has duly authorized the formation of the District pursuant to the Resolution of Formation and the District is duly organized and validly existing as a community facilities district under the laws of the State of California, and the City or the District, as appropriate, has, and at the Closing Date will have, as the case may be, full legal right, power and authority (i) to 09/18/90 1508u/2245 -18 -3- execute, deliver and perform its obligations under this Purchase Agreement and to carry out all transactions contemplated by such agreements, (ii) to adopt the Resolution of Issuance, the Resolution of Formation and the Ordinance and enter into the Joint Agreement, the Indenture of Trust, the Funding Agreement and other authorizing documents, (iii) to issue, sell and deliver the Bonds to the Underwriter pursuant to the Indenture of Trust and the Resolution of Issuance, as provided herein, and (iv) to carry out, give effect to and consummate the transactions contemplated by the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation, the Ordinance, the Official Statement, this Purchase Agreement, the Funding Agreement, the Joint Agreement and any other applicable agreements; (b) The City has complied, and will at the Closing Date be in compliance, in all respects with the Act, and the District has complied, and will at the Closing Date be in compliance, in all respects with the Indenture of Trust, the Resolution of Issuance, the Act, this Purchase Agreement, the Funding Agreement, the Joint Agreement and any other applicable agreements to which the District is a party; (c) The City Council has duly and validly adopted the Resolution of Issuance, the Resolution of Formation and the Ordinance, has duly authorized and approved the execution and delivery of the Bonds, the Indenture of Trust, this Purchase Agreement, the Official Statement, the Funding Agreement, the Joint Agreement and any other applicable agreements and has duly authorized and approved the performance by the District of its obligations contained in, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by, each of said documents (including, without limitation, the collection of the Special Tax and the use of the Special Tax to acquire, rehabilitate or construct public improvements), and at the Closing Date the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation, the Ordinance, the Bonds, this Purchase Agreement, the Funding Agreement, the Joint Agreement and any other applicable agreements will constitute the valid, legal and binding obligations of the District, the City, or both, as appropriate (assuming due authorization, execution and delivery by other parties thereto, where necessary) and will be enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; 09/18/90 1508u/2245 -18 -4- 357 (d) To their best knowledge, neither the District nor the City is in breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the District or the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the performance by the District or the City, as appropriate, under the Bonds, the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation, the Ordinance, this Purchase Agreement, the Indenture of Trust, the Funding Agreement, the Joint Agreement or any other applicable agreements, or the adoption of the Resolution of Formation, the Ordinance and the Resolution of Issuance and the execution and delivery of the Bonds, the Indenture of Trust, this Purchase Agreement, the Funding Agreement, the Joint Agreement or any other applicable agreements and the other instruments contemplated by any of such documents to which the District is a party, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the District is a party or is otherwise subject or bound; (e) To the best knowledge of the District, except as may be required under the Blue Sky or other securities laws of any jurisdiction, all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the District of its obligations hereunder, or under the Indenture of Trust, the Bonds or any other applicable agreements, have been obtained and are in full force and effect; (f) The Bonds, when delivered to and paid for by the Underwriter on the. Closing Date, as provided herein, will be validly issued and outstanding and entitled to all the benefits of the Resolution, the Resolution of Issuance and the security of the Special Tax; (g) The Special Tax constituting the security for the Bonds has been duly and lawfully authorized and may be levied under the Act and the Constitution and the applicable laws of 09/18/90 1508u/2245 -18 -5- the State of California, and such Special Tax, when levied, will constitute a valid and legally binding lien on the properties on which it has been levied; (h) For a period of ninety (90) days from the date hereof or until such time (if earlier) as the Underwriter shall no longer hold any of the Bonds for sale, if any event shall occur of which the District is aware, as a result of which it may be necessary to supplement the Official Statement in order to make the statements in the Official Statement, in light of the circumstances existing at such time, not misleading, the District shall forthwith notify the Underwriter of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, in the Underwriter's opinion, so that the statements therein as so supplemented will not be misleading in light of the circumstances existing at such time; (i) The Indenture of Trust and Resolution of Issuance create a valid pledge of the moneys in all funds and accounts established pursuant to the Resolution, including the investments thereof, subject in all cases to the provisions of the Indenture of Trust and Resolution of Issuance permitting the application thereof for the purposes and on the terms and conditions set forth therein; (j) No action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending, or to the knowledge of the District (after reasonable investigation), threatened in any way affecting the existence of the City or the District or the titles of their officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Funding Agreement, the Resolution of Issuance, the Indenture of Trust and the Joint Agreement, or the collection or application of the Special Taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation, the Ordinance, this Purchase Agreement, the Funding Agreement, the Joint Agreement or any other applicable agreements, or any action of the City or the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the powers of the City or the District or their authority with respect to the Bonds, the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation and the Ordinance, or any action of the City or the District 09/18/90 1508u/2245 -18 -6- 2,5S contemplated by any of said documents, or which would adversely affect the exclusion from gross income of interest paid on the Bonds for federal income tax purposes or the exemption of interest on the Bonds from California personal income taxation; nor to the knowledge of the District is there any basis therefor; (k) The District 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 for the Underwriter 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; provided, however, the District shall not be required to register as a dealer or a broker of securities; (1) Any certificate signed by any authorized official of the City or the District authorized to do so shall be deemed a representation by the District to the Underwriter as to the statements made therein; (m) The District will apply the proceeds of the Bonds in accordance with the Indenture of Trust, the Resolution of Issuance, the Funding Agreement, the Joint Agreement and as described in the Official Statement; and (n) The information under the captions "Introduction ", "Estimated Use of Proceeds ", "The Bonds ", "Sources of Payment for the Bonds ", "The District ", "The Special Tax Formula ", "The Indenture ", "Tax Matters" and "Absence of Litigation" and "Appendices A and B" contained in the Preliminary Official Statement, dated , 1990, was and in the Official Statement is, and on the Closing Date shall be, true and correct in all material respects and such information does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (o) In the event of a default in payment of a Special Tax, the District will cause foreclosure proceedings to be brought in accordance with the procedures set forth in the Indenture of Trust and thereafter diligently prosecute to completion such proceedings. (p) The District shall preserve and protect the security of the Bonds and the rights of the owners of the Bonds and will defend their rights against all claims and demands of all persons, but shall not be obligated to expend any funds other than Special Tax. Until such time as moneys have been 09/18/90 1508u/2245 -18 -7- 3 set aside in an amount sufficient to pay all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture of Trust and the Resolution of Issuance. (q) The District will diligently carry out and continue to completion, with all practicable dispatch, the acquisition, rehabilitation or construction of the public facilities in accordance with the Act and the proceedings for the formation of the District, all in a sound and economical manner. The public facilities to be acquired or constructed may be modified as provided in the Act, but no modification may be made which would substantially impair the security of the Bonds or materially adversely affect the rights of the owners of the Bonds. (r) Except as otherwise permitted in the Indenture of Trust, the District will not issue any other obligations, payable as to principal or interest from the Special Tax revenues which have, or purport to have, any lien upon the Special Tax revenues superior to or on a parity with the lien of the Bonds. (s) The District will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Bonds issued under the Indenture of Trust and the Resolution of Issuance, on the dates, at the place and in the manner provided in the Bonds, the Indenture of Trust and the Resolution of Issuance, solely from the Special Taxes and other funds as may be therein provided. (t) The District will not take or omit to take any action which would cause interest on the Bonds to be subject to federal income taxation or State of California personal income taxation. (u) All outstanding debt and all authorized but unissued debt of the City or the District which is applicable to the property within the District is accurately described in to the Official Statement. 3. Conditions to the Obligations of the Underwriter. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations on the part of the District contained herein, as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the 09/18/90 1508u/2245 -18 -8- 36: statements of the officers and other officials of the City and the District made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the District of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions: (a) At the Closing Date, the Indenture of Trust, the Resolution of Issuance, the Ordinance, this Purchase Agreement, the Funding Agreement, and any other applicable agreements shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and with the transactions contemplated thereby and by this Purchase Agreement, all such actions as, in the opinion of Burke, Williams, Sorensen & Gaar, Bond Counsel for the District, shall be necessary and appropriate; (b) Between the date hereof and the Closing Date, the market price or marketability of the Bonds at the initial offering prices set forth in the Official Statement shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the District terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of the outbreak of war or other hostilities any of the following: (1) legislation enacted (or resolution passed) by the Congress of the United States of America or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department or the Internal Revenue Service of the United States of America, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon the interest as would be received by the holders of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof; (2) legislation enacted (or resolution passed) by the Congress of the United States of America, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, or the Bonds, including any or all 09/18/90 1508u/2245 -18 -9- underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture of Trust and Resolution of Issuance are not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, or of the Bonds, including any or all underwriting arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws as amended and then in effect; (3) any amendment to the federal or California Constitution or action by any federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the District, its property, income, securities (or interest thereon), the validity or enforceability of the Special Tax or the ability of the District to construct and acquire the improvements as contemplated by the Indenture of Trust, the Resolution of Formation and the Official Statement; or (4) any event occurring, or information becoming known, which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or results in the Official Statement containing any untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On the Closing Date, the Underwriter shall have received counterpart originals or certified copies of the following documents, in each case satisfactory in form and substance to the Underwriter: (1) The Resolution of Issuance and all prior resolutions of the City relating to the formation of the District, together with a certificate dated as of the Closing Date of the City Clerk to the effect that each is a true, correct and complete copy of the one duly adopted by the City Council and that it has not been amended, modified or rescinded since its adoption (except as may have been agreed to by the Underwriter) and is in full force and effect as of the Closing Date; (2) The Official Statement, the Indenture of Trust, the Funding Agreement, and the Joint Agreement; (3) An unqualified approving opinion, dated the Closing Date and addressed to the District, of Burke, Williams, Sorensen & Gaar, Bond Counsel for the District, in the form 09/18/90 1508u/2245 -18 -10- attached to the Preliminary Official Statement as Appendix _, and a reliance letter of such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the District may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it; (4) A supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Burke, Williams, Sorensen & Gaar, Bond Counsel for the District, to the effect that (i) this Purchase Agreement has been duly authorized, executed and delivered by, and, assuming due authorization, execution and delivery by the other parties thereto, constitutes a legal, valid and binding agreement of the District enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (ii) the District is duly organized and validly existing as a Community Facilities District under the laws of the State of California; (iii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture of Trust is exempt from qualification under the Trust Indenture Act of 1939, as amended; (iv) the information contained in the Official Statement under the captions "Introduction ", "The Bonds ", "Sources of Payment for the Bonds ", "Special Risk Factors - Additional Taxation, "The Indenture of Trust ", "Tax Matters ", and "Certain Legal Matters ", is accurate insofar as it purports to summarize certain provisions of the Act, the Bonds and the Indenture of Trust, and the statements contained under such captions in the Preliminary Official Statement and the Official Statement, as of their respective dates, and in the case of the Official Statement as of the Closing Date, contained no untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading in any material respect; (v) the Bonds are secured by Special Taxes to be levied for the payment of principal of, premium, if any, and interest on the Bonds, that principal of, premium, if any, and interest on, the Bonds are payable out of the Special Tax, and that installments of Special Taxes are to be collected on the tax roll on which general taxes on real property are collected; (vi) the Special Taxes have been duly and validly authorized in accordance with the provisions of the Act and, when levied, the Special Taxes will be valid and binding obligations of the affected property enforceable by the District in accordance with the provisions of the Indenture of Trust and the Act; (vii) the legislative body of the District has a valid and binding obligation to annually fix and levy that amount of Special Taxes (up to the 09/18/90 1508u/2245 -18 -11- maximum authorized Special Tax rates) required for the payment of principal and interest on the Bonds for the ensuing year, including any necessary replenishment of the Reserve Account of the Special Tax Fund; (viii) based upon the information provided to such counsel in the course of their participation in the preparation of the Official Statement and (except as provided above) without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement (except for the financial and statistical data included therein and assumptions with respect thereto, as to which no view need be expressed) as of the date of the Official statement omitted, or as of the Closing Date omits, to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (ix) each of the District and the City has obtained all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which constitute a condition precedent to the levy of the Special Tax, the issuance of the Bonds or the performance by the District of its obligations thereunder or under the Indenture of Trust; (5) An opinion, dated the Closing Date and addressed to the Underwriter, of Stradling, Yocca, Carlson & Rauth, counsel for the Underwriter, to the effect that (i) the Bonds are exempt from the registration requirements of the Securities Act of 1933, as amended, and the Indenture of Trust is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (ii) without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, but on the basis of their participation in conferences with representatives of the City, the City attorney, Bond Counsel, representatives of the Underwriter and others, and their examination of certain documents, nothing has come to their attention which would lead them to believe that the Official Statement as of its date and as of the Closing Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to the Appendices of the Official Statement or any other financial and statistical data contained in the Official Statement); (6) A certificate, dated the Closing Date and signed by an authorized representative of the District, ratifying the use and distribution by the Underwriter of the Preliminary Official Statement and the Official Statement in 09/18/90 1508u/2245 -18 -12- 36 connection with the offering and sale of the Bonds; and certifying that (i) the representations of the District contained herein 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; (ii) to the best of his or her knowledge, no event has occurred since the date of the Official Statement affecting the District which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make the statements and information contained in the Official Statement not misleading in any material respect; and (iii) the District has complied with all the agreements and has satisfied all the conditions on its part to be performed or satisfied under this Purchase Agreement, the Funding Agreement, the Joint Agreement or the Indenture of Trust at and prior to the Closing; (7) A certificate, dated the Closing Date and signed by an authorized representative of the City certifying that (i) the information regarding the City in the Official Statement is true and correct and does not contain any untrue statement of material fact or omit to state a material fact, and (ii) to the best of his or her knowledge, no event has occurred since the date of the Official Statement affecting the City which should be disclosed in the Official Statement in order to make the statements and information contained in the Official Statement not misleading in any material respect; (8) An opinion, dated the Closing Date and addressed to the Underwriter, of counsel to the City and District, to the effect that (i) to the best of his or her knowledge after due inquiry, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or threatened in any way affecting the existence of the City or the District or the titles of their officers to their respective offices, or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds or the application of the proceeds thereof in accordance with the Resolution of Issuance or the collection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture of Trust, the Resolution of Issuance, the Resolution of Formation, the Ordinance, this Purchase Agreement, the Funding Agreement, the Joint Agreement or any other applicable agreements or any action of the City or the District contemplated by any of said documents or in any way seeking to enjoin or restrain development of the property within the District, or which challenges the exclusion from gross income for federal income tax purposes of interest paid on the Bonds or the exemption of interest paid on the Bonds from State of California personal income taxation, nor to his 09/18/90 1508u/2245 -18 -13- 366 knowledge is there any basis therefor; (ii) the City is duly organized and validly existing as a charter city and municipal corporation under the Constitution and laws of the State of California, with, as the case may be, full legal right, power and authority to issue the Bonds and to perform all of their respective obligations under this Purchase Agreement, the Funding Agreement, the Joint Agreement, the Bonds, the Indenture of Trust, the Resolution of Issuance and all other applicable agreements; and (iii) the City Council has duly and validly adopted the Indenture of Trust, the Ordinance and the Resolution of Formation, at meetings of the City Council which were 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 Resolution of Issuance, the Ordinance and the Resolution of Formation are now in full force and effect and have not been amended, and the District has duly authorized, executed and delivered this Purchase Agreement, the Indenture of Trust, the Funding Agreement, the Joint Agreement and the Official Statement; (9) One counterpart original or copy certified by the Clerk of the District of a transcript of all proceedings relating to the authorization, issuance, sale and delivery of the Bonds; (10) A certificate addressed to the Underwriter from the Owner to the effect that (i) any and all information submitted by it to the Underwriter in connection with the preparation of the Preliminary Official Statement and the Official Statement, was, to the best of its knowledge, true and correct; (ii) the statements relating to it, its proposed developments, its property ownership and its contractual arrangements, if any, contained in the Official Statement under the captions "Bondowner's Risks ", "The Development" and "The District ", to the best of its knowledge after due inquiry, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (iii) no proceedings are pending or threatened in which it may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts or a reorganization or readjustment of its debts; and (iv) except as disclosed in the Official Statement no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, is pending or, to its knowledge, threatened in any way seeking to restrain or to enjoin the development of its property; 09/18/90 1508u/2245 -18 -14- • (11) An opinion addressed to the Underwriter, by counsel to the Owner, to the effect that (i) the Owner is an entity validly organized under the laws of its state of formation and authorized to do business in the State of California, (ii) based upon his or her review of the Official Statement and after diligent inquiry of the Owner, nothing has come to his or her attention which causes him or her to believe that any of the statements relating to such client contained in the Official Statement under the captions "Bondowner's Risks ", "The Development" and "The District" contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iii) to the best of his or her knowledge, no proceedings are pending or threatened in which the Owner may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts or a reorganization or readjustment of its debts; and no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, is pending or, to his or her knowledge, threatened in any way seeking to restrain or to enjoin the development of the Owner's property; (12) A certificate addressed to the Underwriter from Willdan and Associates to the effect that it assisted in the preparation of the special tax formula set forth in Appendix C to the Official Statement and that it is of the opinion that, under all circumstances, including the circumstance where one or more property owners elects to prepay its Special Tax in accordance with the provisions set forth in Appendix C to the Official Statement, the Special Tax, if applied in accordance with the terms as set forth in the Resolution, will annually yield not less than 1.06 times gross debt service on the Bonds and that the statements relating to the rate and method of apportionment of the Special Tax and any other information provided by it for inclusion in the Preliminary Official Statement and the Official Statement are, to the best of its knowledge, true and correct and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (14) A Certificate of the Trustee, dated the Closing Date, to the effect that (i) the Trustee is duly organized and existing as a national banking association under the laws of the United States of America having the full power and authority to perform its duties under the Resolution; (ii) the Trustee is duly authorized to accept the obligations created by the Resolution and to authenticate the Bonds 09/18/90 1508u/2245 -18 -15- 367 1s8 pursuant to the terms of the Resolution; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the authentication of the Bonds or the consummation by the Trustee of the other transactions contemplated to be performed by the Trustee in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Resolution; and (iv) compliance with the terms of the Resolution 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; (15) A certificate of the District, in a form acceptable to Bond Counsel, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; (16) A certificate of each entity other than the District to the Joint Agreement to the effect that the Joint Agreement has been duly authorized and executed and is a valid, binding and enforceable obligation of such party; and (17) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Preliminary Official Statement and the Official Statement, of the District's representations contained herein and the due performance or satisfaction by the District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the District in connection with the transactions contemplated hereby and by the Resolution and the Official Statement. If any of the conditions to the obligations of the Underwriter contained in this section or elsewhere in this Purchase Agreement shall not have been satisfied when and as required herein, all obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the District. 4. Conditions of the District's Obligations. The District's obligations hereunder are subject to the Underwriter's performance of its obligations hereunder, and are also subject to the following conditions: 09/18/90 1508u/2245 -18 -16- 369 (a) As of the Closing Date, no litigation shall be pending or, to the knowledge of the duly authorized officer of the District executing the certificate referred to in Section 3(c)(6) hereof, threatened, to restrain or enjoin the issuance or sale of the Bonds or in any way affecting any authority for or the validity of the Bonds, the Resolution or this Purchase Agreement or the existence or powers of the District; and (b) As of the Closing Date, the District shall receive the approving opinions of Bond Counsel referred to in Section 3(c)(3) and (4) hereof, dated as of the Closing Date, addressed to the District, as well as to the Underwriter. 5. Fees and Expenses. The Underwriter shall pay the costs and expenses incurred by it in connection with this financing, including advertising and selling expenses, the fees and disbursements of Underwriter's Counsel, the fees and disbursements of Management Services Institute, the fees and disbursements of Douglas W. Ayres, Consultant. The District shall pay all other costs in connection with the execution and delivery of the Bonds from the proceeds of the Bonds, including the cost of printing or reproducing the Preliminary Official Statement, the Official Statement and the Bonds, the fees of the Trustee, the fees and disbursements of Bond Counsel, the fees and disbursements of the District and the fees and disbursements of any other experts or consultants retained by the District or otherwise permitted by Law. 6. Notices. Any notice or other communication to be given to the District under this Purchase Agreement may be given by delivering the same in writing at the District's address set forth above, Attention: City Manager; and any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to: Seidler - Fitzgerald Public Finance (A Division of Seidler Amdec Securities, Inc.) at 515 South Figueroa, Suite 600, Los Angeles, California 90071 -3396, Attention: Managing Director. 7. Parties in Interest. This Purchase Agreement is made solely for the benefit of the District and the Underwriter (including their successors or assigns) and no other person shall acquire or have any right hereunder or by virtue hereof. 8. Survival of Representations. The representations of the District set forth in or made pursuant to this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Agreement and regardless of any investigations made by or on behalf of the Underwriter (or 09/18/90 1508u/2245 -18 -17- 310 statements as to the results of such investigations) concerning such representations and statements of the District and regardless of delivery of and payment for the Bonds. 9. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the District and shall be valid and enforceable as of the time of such acceptance. This Purchase Agreement may be signed in counterparts by each party. 10. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds for the District. 11. Governing Law. This Purchase Contract shall be governed by the laws of the State of California. SEIDLER - FITZGERALD PUBLIC FINANCE (A Division of SEIDLER AMDEC SECURITIES, INC.) By: COMMUNITY FACILITIES DISTRICT NO. 1 OF THE CITY OF CYPRESS By: 09/18/90 1508u/2245 -18 -18- APPENDIX A MATURITY SCHEDULE COMMUNITY FACILITIES DISTRICT NO. 1 OF THE CITY OF CYPRESS 1990 SPECIAL TAX BONDS Maturity Date September 1 Principal Interest Amount Rate 09/18/90 1508u/2245 -18 -19- 371 CAL /CYPRESS CYPRESS -01 EXHIBIT C BURKE, WILLIAMS, SORENSEN & GAAR DRAFT NO. 2, AUGUST 31, 1990 FOR DISCUSSION PURPOSES ONLY INDENTURE OF TRUST by and between the CITY OF CYPRESS acting as legislative body of the COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) and SECURITY PACIFIC NATIONAL BANK as Trustee Dated as of October 1, 1990 Relating to $15,500,000 COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS 1990 SPECIAL TAX BONDS 37J INDENTURE OF TRUST THIS INDENTURE OF TRUST dated as of October 1, 1990 (the "Indenture "), by and between the CITY OF CYPRESS, California (the "City "), acting as the legislative body of the COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS, a legally constituted public entity, organized and existing under the laws of the State of California (the "District ") and Security Pacific National Bank, as trustee, a national banking association, organized under the laws of the United States of America, with a principal corporate trust office in Los Angeles, California, and being qualified to accept and administer the trusts herein created, as trustee (the "Trustee "); WITNESSETH WHEREAS, the District is a legally constituted public entity, organized and existing pursuant to Division 2, Part 1, Chapter 2.5 of the California Government Code and is authorized pursuant to the Act to issue bonds for the purpose of financing certain public capital improvements which will benefit the land within the District; and WHEREAS, for the purpose of providing financing for the acquisition, construction installation and rehabilitation of certain public capital improvements, specifically the streets and highways, sewer facilities, drainage facilities, traffic and safety lighting facilities, parkway landscaping improvements and school facilities as more specifically described in Exhibit A of Resolution No. of the City adopted on September 10, 1990 (the "Project "), the District has determined to issue its Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress, 1990 Special Tax Bonds (the "Bonds ") in the aggregate principal amount of $15,500,000 all pursuant to and secured by this Indenture in the manner provided herein; 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 to secure the payment of principal thereof and interest thereon, the City on behalf of the District has authorized the execution and delivery of this Indenture; and WHEREAS, all acts and proceedings required by law necessary to make the Bonds, when executed by the District, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the District, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture have been in all respects duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of and the interest and premium, if any, 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 of the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, the District does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS Section 101. Definitions. In addition to any words and terms defined elsewhere in this Indenture, the following words and terms as used in this Indenture shall have the following meanings unless the context otherwise requires: "Act" means the Mello -Roos Community Facilities Act of 1982, as amended, Sections 53311, et seq. of the California Government Code. "Acquisition and Construction Fund" means the fund by that name created in Section 302 of this Indenture. "Administrative Expense Account of the Special Tax Fund" means the account by that name created in Section 302 of this Indenture. "Administrative Expenses" means the administrative costs with respect to the calculation and collection of the Special Taxes, or costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and the fees and expenses of the Trustee including any costs incurred by the City, the District or the Trustee in connection with the determination of what amounts, if any, are required to be rebated to the United States in accordance with Section 309 herein. "Annual Debt Service" means the principal amount of any Outstanding Bonds and payable in a Bond Year either at maturity or pursuant to a Sinking Account Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Outstanding Bonds are retired as scheduled. "Authorized 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: (a) direct general obligations of, including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America, or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America; (b) Federal National Mortgage Association mortgage- backed securities or senior debt obligations; (c) taxable government money market portfolios restricted to obligations with maturities of one year or less issued or guaranteed as to payment of principal and interest by the full faith and credit of the United States of America; (d) investment agreements or contracts issued by entities which are rated (i) in one of the top two long- term rating categories by Moody's or by S P's or (ii) in the highest short -term rating category of either of such rating agencies; or (e) deposits which are fully insured by the Federal Deposit Insurance Corporation, provided, however, that any investment under subsection (c) of this definition in excess of $5,000 shall be limited in duration to no more than seven (7) Business Days. "Bond Counsel" means an attorney at law or a firm of attorneys selected by the District, of nationally recognized standing in matters pertaining to the tax- exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. -2- 3(,J "Bond Register" means the books which the Trustee shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded. "Bonds" means the Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress, 1990 Special Tax Bonds, in the aggregate principal amount of $15,500,000. "Bondowner" or "Owner" means the person or persons in whose name or names any Bond is registered. "Bond Year" means the twelve (12) month period commencing on September 2 of each year and ending on September 1 of the following year. "Business Day" means a day of the year not including Saturday or Sunday on which banks in Los Angeles, California or in the City of New York, New York, are not required or authorized to be closed. "Certificate of the City" means a written certificate executed by either the City Engineer or the Finance Director, and countersigned by the City Manager, or City Manager's written designee, or such other person as is designated in writing to the Trustee by the legislative body of the District. "City" means the City of Cypress, California, a charter city and municipal corporation organized and existing under the laws of the State of California. "Code" means the Internal Revenue Code of 1986, as amended, together with any temporary or permanent regulations promulgated thereunder by the United States Department of the Treasury, and the regulations promulgated under the predecessor to the Code, the Internal Revenue Code of 1954, as amended. "Costs of Issuance" means the costs and expenses incurred in connection with the formation of the District and the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Trustee, legal fees and expenses, costs of printing the Bonds and the Preliminary Official Statement and Official Statement, fees of financial consultants and other fees and expenses set forth in a Certificate of the City. "Cost of Issuance Account" means the account by that name created in Section 302 of this Indenture. "Delivery Date" means the date on which the Bonds were issued and delivered to the Underwriter. "District" means the Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress, California, established pursuant to the Act and the Resolution of Formation. Excess Investment Earnings" means an amount equal to the sum of -- (a) The excess of -- (1) the amount earned on all Nonpurpose Investments (other than investments attributable to an excess described in this paragraph), over -3- 37 5 (2) the amount which would have been earned if such Nonpurpose Investments were invested at a rate equal to the yield on the Bonds, as the case may be, plus (b) Any income attributable to the excess described in subparagraph (a) above. "Facilities" mean the facilities particularly described in Exhibit of the Resolution of Formation, together with appurtenances and appurtenant work, including equipment, real property and other tangible property. "Fiscal Year" means the period beginning on July 1 of each year and ending twelve months later on June 30. "Gross Proceeds" means any proceeds of the Bonds and any funds (other than proceeds of the Bonds that are part of a reserve or replacement fund for the Bonds within the meaning of Section 1.148 -8T(d) of the Regulations. "Gross Taxes" means the amount of all Special Taxes received by the District from the County of Orange Treasurer /Tax Collector together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Indenture for the delinquency of such Special Taxes. "Indenture" means this Indenture of Trust, dated as of October 1, 1990, by and between the District and the Trustee, together with the Resolution of Issuance approving this Indenture, and any Supplemental Indenture approved pursuant to Article VI hereof. "Independent Financial Consultant" means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the District, who, or each of whom: (a) is in fact independent and not under the domination of the District; (b) does not have any substantial interest, direct or indirect, in the District; and (c) is not connected with the District as a member, officer or employee of the District, but who may be regularly retained to make annual or other reports to the District. "Interest Account of the Special Tax Fund" means the account by that name created in Section 302 of this Indenture. "Interest Payment Date" means each March 1 and September 1, commencing March 1, 1991; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the Business Day next succeeding such date. "Investment Agreement" means (1) one or more agreements to be entered into between the District and an entity or entities whose long -term debt or claims paying ability is rated as of the date of such agreement in either of the two highest categories (without regard to gradations of plus and minus within such categories) by S&P or Moody's, or (2) one or more agreements between the District and an entity which is rated as of the date of such agreement in either of the two highest categories (without regard to gradations of plus and minus within such categories) by S&P or Moody's , or (3) one or more agreements which are collateralized with obligations of the type described in -4- 377 subparagraph (1) of the definition of Authorized Investments, the principal amount of which is at least equal to 102 percent of the principal amount invested under such agreement. "Maximum Annual Debt Service" means the maximum sum obtained for any Bond Year prior to the final maturity on the Bonds by adding the following for each Bond Year: (a) the principal amount of all Outstanding Bonds payable in such Bond Year either at maturity or pursuant to a Sinking Account Payment; and (b) the interest payable on the aggregate principal amount of the Bonds Outstanding in such Bond Year if the Outstanding Bonds are retired as scheduled. "Moody's" means Moody's Investors Service, its successors or assigns. "Net Taxes" means Gross Taxes minus amounts applied to pay Administrative Expenses. "Nonpurpose Investments" means any "investment property" within the meaning of Section 1.148 -8T(e) of the Regulations in which Gross Proceeds are invested and which is not acquired to carry out the governmental purpose of the Bonds. "Ordinance" means Ordinance No. adopted by the legislative body of the District on September 24, providing for the levying of the Special Tax. "Outstanding" or "Outstanding Bonds means all Bonds theretofore issued by the District, except: (a) Bonds theretofore cancelled or surrendered for cancellation in accordance with Section 1001 hereof; (b) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in this Indenture or any applicable Supplemental Indenture; and (c) Bonds which have been surrendered to the Trustee for transfer or exchange pursuant to Section 209 or for which a replacement has been issued pursuant to Section 209. "Principal Account of the Special Tax Fund" means the account by that name created in Section 302 of this Indenture. "Project" means those public Facilities described in Exhibit A of the Resolution of Formation which are to be acquired or constructed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities. "Project Costs" means the amounts necessary to finance the Project, to create any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, -5- including, but not limited to, remarketing, credit enhancement, Trustee and other fees and expenses relating to the issuance of the Bonds and the formation of the District, and to pay any other "incidental expenses" of the District, as such term is defined in the Act. "Purchase Price ", for the purpose of computation of the Yield of the Bonds, has the same meaning as the term "issue price" in Sections 1273(b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of the Bonds are sold or, if the Bonds are privately placed, the price paid by the original purchaser or the acquisition cost of the original purchaser. The term "Purchase Price ", for the purpose of computation of the Yield of Nonpurpose Investments, means the fair market value of the Nonpurpose Investments on the date of use of Gross Proceeds for acquisition thereof, or, if later, on the date that Investment Property constituting a Nonpurpose Investment becomes a Nonpurpose Investment of the Bonds, as the case may be. "Rebate Fund" means the account by that name created in Section 302 of this Indenture. "Record Date" means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day. "Redemption Account of the Special Tax Fund" means the account by that name created in Section 302 of this Indenture. "Regulations" means regulations adopted or proposed by the United States Treasury from time to time with respect to obligations issued pursuant to Sections 103 and 141 to 150, inclusive, of the Code. "Reserve Account of the Special Tax Fund" means the account by that name created in Section 302 of this Indenture. "Reserve Requirement" means, as of any date of calculation, an amount equal to the lowest of (1) ten percent (10%) of the original proceeds of the Bonds, or (2) Maximum Annual Debt Service for the Bonds. "Resolution of Formation" means Resolution No. adopted by the City Council of the City on September 10, 1990, pursuant to which the City formed the District. "Resolution of Issuance" means Resolution No. adopted by the City Council of the City on September 24, 1990, pursuant to which the District authorized the issuance of the Bonds and approved this Indenture. "Sinking Account Payment" means any annual sinking account payment to retire the Bonds. "Special Taxes" means the taxes authorized to be levied by the District in accordance with the Ordinance, the Resolution of Formation, the Act and the voter approval obtained at the September 10, 1990, election in the District. "Special Tax Fund" means the fund by that name created in Section 302 of this Indenture. -6- 379 "Special Tax Rate and Method" means the rate and method of apportionment of the Special Taxes as described in Exhibit B to the Resolution of Formation. "S&P" means Standard & Poor's Corporation, its successors and assigns. "Supplemental Indenture" means any indenture supplemented or amendatory to the Indenture entered into by and between the District and the Trustee pursuant to Article VI of this Indenture. "Term Bonds" means the Bonds maturing on September 10, 2016. "Trustee" means Security Pacific National Bank, a national banking association, organized under the laws of the United States of America, with a principal corporate trust office in Los Angeles, California, and being qualified to accept and administer the trusts herein created, and any successor thereto. "Underwriter" means Seidler- Fitzgerald Public Finance. "Yield" means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Nonpurpose Investments which require payments in a form not characterized as principal and interest) on a Nonpurpose Investment or on the Bonds produces an amount equal to the Purchase Price of such Nonpurpose Investment, the Bonds, as the case may be, all computed as prescribed in the applicable Regulations. ARTICLE II GENERAL AUTHORIZATION AND BOND TERMS Section 201. Amount, Issuance, Purpose and Nature of Bonds. Under and pursuant to the Act, the Bonds in the amount of $15,500,000 shall be issued for the purposes of paying Project Costs, provided that the aggregate principal amount of the Bonds shall not exceed the total indebtedness presently approved or subsequently approved by the qualified electors of the District in accordance with the Act. The Bonds shall be and are limited obligations of the District and shall be payable as to the principal thereof and interest thereon and any premiums, if any, upon the redemption thereof solely from the Net Taxes and the amounts in the funds created hereunder, other than amounts in the Administrative Expense Account of the Special Tax Fund, the Acquisition and Construction Fund and the Rebate Fund. Section 202. Type and Nature of Bonds. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the City nor general obligations of the District, but are limited obligations of the District payable solely from certain amounts deposited by the District in the Special Tax Fund, as more fully described herein. No Owner of the Bonds may compel the exercise of the taxing power by the District (except as pertains to the Special Taxes) or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The Bonds are not a legal or equitable pledge, charge, lien, or encumbrance, upon any of the District's property, or -7- T30 upon any of its income, receipts, or revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account) which are, under the terms of this Indenture and the Act, set aside for the payment of the Bonds, and interest thereon and neither the members of the legislative body of the District nor the City Council of the City nor any persons executing the Bonds, are liable personally on the Bonds, by reason of their issuance. Notwithstanding anything to the contrary contained in this Indenture, the District shall not be required to advance any money derived from any source of income other than the Net Taxes for the payment of the interest on or the principal of the Bonds, or for the performance of any covenants contained herein. The District may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose. Section 203. Equality of Bonds, Pledge of Net Taxes. Pursuant to the Act and this Indenture, the Bonds shall be equally payable from the Net Taxes without priority for number, date of the Bonds, date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of the Bonds and any premiums upon the redemption thereof, shall be exclusively paid from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account), which are hereby set aside for the payment of the Bonds. The Net Taxes and any interest earned on the Net Taxes on deposit in the Special Tax Fund shall constitute a trust fund held for the benefit of the Owners to be applied to the payment of the interest on and principal of the Bonds and so long as any of the Bonds or interest thereon remain Outstanding shall not be used for any other purpose, except as permitted by this Indenture or any Supplemental Indenture. Notwithstanding any provision contained in this Indenture to the contrary, Net Taxes deposited in the Rebate Fund and the Administrative Expense Account of the Special Tax Fund shall no longer . be considered to be pledged to the Bonds, and neither the Rebate Fund nor the Administrative Expense Account of the Special Tax Fund shall be construed as a trust fund held for the benefit of the Owners. Nothing in this Indenture or any Supplemental Indenture shall preclude: (a) the redemption prior to maturity of any Bonds subject to call and redemption and payment of said Bonds from proceeds of bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California. Section 204. Description of Bonds; Interest Rates. The Bonds shall be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof within a single maturity and shall be numbered as desired by the Trustee. The Bonds shall be designated "COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS, 1990 SPECIAL TAX BONDS ". The Bonds shall be dated as of October 1, 1990 and shall mature and be payable on September 1 in the years and in the aggregate principal amounts and shall be subject to and shall bear interest from October 1, 1990, at the rates set forth in the table below: -8- Maturity Maturity Date Principal Interest Date Principal Interest September 1 Amount Rate September 1 Amount Rate 1992 $ 190,542 1999 $ 335,000 1993 205,000 2000 365,000 1994 220,000 2001 395,000 1995 240,000 2002 425,000 1996 260,000 2003 465,000 1997 285,000 2004 500,000 1998 310,000 2005 545,000 2006 590,000 $9,510,000 - % Term Bonds due September 10, 2016 - Price % (Plus Accrued Interest from October 1, 1990) Interest shall be payable with respect to each Bond on each Interest Payment Date until the principal sum of that Bond has been paid; provided, however, that if at the maturity date of any Bond (or if the same is redeemable and shall be duly called for redemption, then at the date fixed for redemption) funds are available for the payment or redemption thereof in full, in accordance with the terms of this Indenture, such Bonds shall then cease to bear interest. Interest due on the Bonds shall be calculated on the basis of a 360 -day year comprised of twelve (12) thirty (30) day months. Section 205. Place and Form of Payment. The Bonds shall be payable both as to principal and interest, and as to any premiums upon the redemption thereof, in lawful money of the United States of America. The principal of the Bonds and any premiums due upon the redemption thereof shall be payable upon presentation thereof at the principal corporate trust office of the Trustee in Los Angeles, California. Interest on any Bond shall be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless (i) such date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest shall be payable from the dated date of such Bond, as applicable; provided, however, that if at the time of authentication of such Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond, interest on that Bond shall be payable from its dated date. Interest on any Bond shall be paid to the person whose name shall appear in the Bond Register as the Owner of such Bond as of the close of business on the Record Date. Such interest shall be paid by check or draft of the Trustee mailed by first class mail, postage prepaid, to such Bondowner at the Bondowner's address as it appears on the Bond Register; provided however, that interest shall be paid by wire transfer to any Owner of at least $1,000,000, of Bonds if such Owner shall have so requested in writing and furnished adequate instructions with respect thereto to the Trustee not later than the Record Date preceding the applicable Interest Payment Date. Section 206. Form of Bonds; Temporary Bonds. The definitive Bonds shall be printed from steel engraved or lithographic plates, and the Bonds and the certificate of -9- authentication shall be substantially in the form attached hereto as Exhibit A, which form is hereby approved and adopted as the form of the Bonds and of the certificate of authentication. Until definitive Bonds shall be prepared, the District may cause to be executed and delivered in lieu of such definitive Bonds temporary bonds in typed, printed, lithographed or engraved form and in fully registered form, subject to the same provisions, limitations and conditions as are applicable in the case of definitive Bonds, except that they may be in any denominations authorized by the District. Until exchanged for definitive Bonds, any temporary bond shall be entitled and subject to the same benefits and provisions of this Indenture as definitive Bonds. If the District issues temporary Bonds, it shall execute and furnish definitive Bonds without unnecessary delay and thereupon any temporary Bond may be surrendered to the Trustee at its office, without expense to the Owner, in exchange for a definitive Bond of the same maturity, interest rate and principal amount in any authorized denomination. All temporary Bonds so surrendered shall be canceled by the Trustee and shall not be reissued. Section 207. Execution and Authentication. The Bonds shall be signed on behalf of the District by the manual or facsimile signature of the of the City and by the manual or facsimile signature of the City Clerk, or any duly appointed deputy clerk, in their capacity as officers of the District, and the seal of the District (or a facsimile thereof) shall be impressed, imprinted, engraved or otherwise reproduced thereon, and attested by the signature of the City Clerk. In case any one or more of the officers who shall have signed or sealed any of the Bonds shall cease to be such officer before the Bonds so signed and sealed have been authenticated and delivered by the Trustee (including new Bonds delivered pursuant to the provisions hereof with reference to the transfer and exchange of Bonds or to lost, stolen, destroyed or mutilated Bonds) such Bonds shall nevertheless be valid and may be authenticated and delivered as herein provided, and may be issued as if the person who signed or sealed such Bonds had not ceased to hold such office. Only such Bonds as shall bear thereon such certificate of authentication in the form set forth in Exhibit A hereto shall be entitled to any right or benefit under this Indenture, and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly executed by the Trustee. Section 208. Bond Register. The Trustee shall keep or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the Bonds which shall be open to inspection by the District during all regular business hours, and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be transferred on said Bond Register, Bonds as herein provided. The District and the Trustee may treat the Owner of any Bond whose name appears on the Bond Register as the absolute Owner of that Bond for any and all purposes, and the District and the Trustee shall not be affected by any notice to the contrary. The District and the Trustee may rely on the address of the Bondowner as it appears in the Bond Register for any and all purposes. It shall be the duty of the Bondowner to give written notice to the Trustee of any change in the Bondowner's address so that the Bond Register may be revised accordingly. Section 209. Registration of Exchange or Transfer. The registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by such duly authorized attorney or legal -10- 38 representative, upon surrender of such Bond for cancellation at the principal corporate trust office of the Trustee, accompanied by delivery of written instrument of transfer in such form as set forth in the Bonds or otherwise as approved by the Trustee and duly executed by the Bondowner or such Bondowner's duly authorized attorney or legal representative. Bonds may be exchanged at the principal corporate office of the Trustee for a like aggregate principal amount of Bonds, as applicable, of other authorized denominations of the same maturity and interest rate. The Trustee shall collect from the Owner any tax or other governmental charge required to be paid with respect to such exchange or transfer. The cost of printing the Bonds will be paid for by the District as will the cost of registration for the initial Bondowner. Any services rendered or any expenses incurred by the Trustee in connection with any exchange or transfer of the Bonds thereafter shall be paid by the Bondowner in accordance with a schedule of fees agreed to between the District and the Trustee. Whenever any Bonds shall be surrendered for registration of transfer or exchange, the District shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds of the same maturity and interest rate, for a like aggregate principal amount. The Trustee shall not be required to register transfers or make exchanges of (i) Bonds for a period of fifteen (15) days next preceding any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. Section 210. Mutilated, Lost, Destroyed or Stolen Bonds. If any Bond shall become mutilated, the District, at the expense of the Bondowner, shall execute, and the Trustee shall authenticate and deliver, a new Bond of like tenor, date, interest rate and maturity 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 cancelled by the Trustee pursuant to Section 1001. 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 is satisfactory to the Trustee and, if indemnity satisfactory to the District and the Trustee shall be given, the District, at the expense of the Bondowner, shall execute and the Trustee shall authenticate and deliver, a new Bond of like tenor and maturity, numbered and dated as such Trustee shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued in lieu of any Bond alleged to be mutilated, lost, destroyed or stolen, shall be equally and proportionately entitled to the benefits hereof with all other Bonds issued hereunder. The Trustee shall not treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered hereunder or for the purpose of determining any percentage of Bonds Outstanding hereunder, but both the original and replacement Bond shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Bond which has been mutilated, lost, destroyed or stolen, and which has matured, the Trustee may make payment with respect to such Bonds. Section 211. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any way by any defect in any proceedings taken by the District for the financing of the Project, or by the invalidity, in whole or in part, of any contracts made by the District in connection therewith, and shall not be dependent upon the completion of the financing of the Project or upon the performance by any person of such person's obligation with respect to the Project, and the recital contained in the Bonds that the same are issued pursuant to the Act and other applicable laws of the State shall be conclusive evidence of their validity and of the regularity of their issuance. 384 ARTICLE III CREATION OF FUNDS AND APPLICATION OF PROCEEDS AND NET TAXES Section 301. Issuance of the Bonds. Upon the execution and delivery of this Indenture, the District shall execute and the Trustee shall authenticate and deliver the Bonds in the aggregate principal amount of $15,500,000. Section 302. Creation of Funds. There is hereby created and established and shall be held and maintained by the Trustee in trust the following funds and accounts: (a) The Community Facilities District No. 1 (Sorrento Homes), Special Tax Fund (the "Special Tax Fund ") in which there shall be established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve Account and an Administrative Expense Account; and (b) The Community Facilities District No. 1 (Sorrento Homes), Acquisition and Construction Fund (the "Acquisition and Construction Fund ") in which there is established a Cost of Issuance Account. (c) The Community Facilities District No. 1 (Sorrento Homes) Rebate Fund (the "Rebate Fund "). The amounts on deposit in the foregoing funds shall be held by the Trustee and the Trustee shall disburse the amounts in such funds in accordance with the provisions of this Article III and shall be invested by the Trustee in accordance with the provisions of Section 311. Section 303. Disposition of Bond Proceeds. The proceeds of the sale of the Bonds shall be received by the Trustee on behalf of the District and deposited as follows: (a) The amount representing the accrued interest on the Bonds shall be deposited in the Interest Account of the Special Tax Fund, and such amount shall be applied to the payment of interest on the first Interest Payment Date; (b) $ shall be deposited in the Reserve Account of the Special Tax Fund; and (c) After making the deposits required above, all remaining amounts of Bond proceeds shall be deposited in the Acquisition and Construction Fund, with $ of such amount being deposited to the Cost of Issuance Account. Section 304. Deposits to and Disbursements from Special Tax Fund. On each date on which the Special Taxes are apportioned to the District, and in no event later than seven (7) days prior to the Interest Payment Date on which such Special Taxes will be needed to pay amounts due in accordance with the terms of this Indenture, the District shall transfer the Special Taxes to the Trustee for deposit in the Special Tax Fund. The Trustee shall, on each date on which the Special Taxes are apportioned to the District, -12- ?85 deposit the Special Taxes in the Special Tax Fund, to be held in trust and will then transfer the Special Taxes on the dates and in the amounts set forth in the following Sections, in the following order of priority, to: (a) The Administrative Expense Account of the Special Tax Fund; (b) The Interest Account of the Special Tax Fund; (c) The Principal Account of the Special Tax Fund; (d) The Redemption Account of the Special Tax Fund; and (e) The Reserve Account of the Special Tax Fund. At the maturity of the Bonds and, after all principal and interest then due on the Bonds then Outstanding has been paid or provided for, moneys in the Special Tax Fund and any accounts therein may be used by the District for any lawful purpose. Section 305. Administrative Expense Account of the Special Tax Fund. The Trustee shall withdraw from the Special Tax Fund and place in the Administrative Expense Account of the Special Tax Fund from time to time, as needed to make timely payment of Administrative Expenses, an amount determined by the Director of Finance and approved by the City Manager or such City Manager's designee to be necessary to pay Administrative Expenses as evidenced by delivery of a Certificate of the City to the Trustee. Moneys in the Administrative Expense Account of the Special Tax Fund may be invested in any Authorized Investments, provided that the maturity or maturities thereof shall not exceed thirty (30) days from the date of purchase. Section 306. Interest Account and Principal Account of the Special Tax Fund. The principal and interest due on the Bonds until maturity, otherwise than by redemption, shall be paid by the Trustee from amounts transferred from the Interest Account and the Principal Account of the Special Tax Fund. For the purpose of assuring that the payment of principal of and interest on the Bonds will be made when due, after making the transfer required by Section 305, at least one (1) Business Day prior to each Interest Payment Date, the Trustee shall make the following transfers first to the Interest Account of the Special Tax Fund and then to the Principal Account of the Special Tax Fund; provided, however, that to the extent that deposits have been made in the Interest Account of the Special Tax Fund or the Principal Account of the Special Tax Fund from the proceeds of the sale of the Bonds, or otherwise, or to the extent that a transfer will be made from the Reserve Account of the Special Tax Fund to the Interest Account of the Special Tax Fund in accordance with the last paragraph of Section 308 hereof, the transfer from the Special Tax Fund need not be made: (a) To the Interest Account of the Special Tax Fund, an amount such that the balance in the Interest Account of the Special Tax Fund one (1) Business Day prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds on said Interest Payment Date. Moneys in the Interest Account of the Special Tax Fund shall be used for the payment of interest on the Bonds as the same become due. (b) To the Principal Account of the Special Tax Fund, an amount such that the balance in the Principal Account of the Special Tax Fund one (1) Business Day prior to September 1 of each year commencing 1992, shall equal the -13- 883 principal payment due on the Bonds maturing on such September 1. Moneys in the Principal Account of the Special Tax Fund shall be used for the payment of the principal of such Bonds as the same become due at maturity. Section 307. Redemption Account of the Special Tax Fund. (a) Commencing on the last Business Day prior to the first date, if any, on which a Sinking Account Payment, if any, is to be made with respect to a Bond and on each last Business Day prior to the date on which any subsequent such Sinking Account Payment is to be made, after the deposits have been made to the Administrative Expense Account of the Special Tax Fund and the Interest Account and the Principal Account of the Special Tax Fund as required by Sections 305 and 306, the Trustee shall transfer into the Redemption Account of the Special Tax ,Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account of the Special Tax Fund equal to the Sinking Account Payment due on any Bonds on such September 1 one (1) Business Day prior to such September 1. Moneys so deposited in the Redemption Account of the Special Tax Fund shall be used and applied by the Trustee to call and redeem Bonds in accordance with any Sinking Account Payment schedule in the Supplemental Indenture for such Bonds. (b) After making the deposits to the Administrative Expense Account of the Special Tax Fund and the Interest Account and the Principal Account of the Special Tax Fund pursuant to Sections 305 and 306 above and to the Redemption Account of the Special Tax Fund for Sinking Account Payments then due pursuant to subparagraph (a) of this Section, and in accordance with the District's election to call Bonds for optional redemption as set forth in Section 401 hereof or in accordance with the mandatory redemption as set forth in Section 402 hereof, the Trustee shall transfer from the Special Tax Fund and deposit in the Redemption Account of the Special Tax Fund moneys available for the purpose and sufficient to pay the principal and the premiums payable as provided in Sections 401 and 402 hereof on the Bonds called for redemption at least thirty (30) days prior to the redemption date; provided, however, that Net Taxes may be applied to optionally redeem Bonds only if following such redemption the amount in the Reserve Account of the Special Tax Fund will equal the Reserve Requirement. (c) Moneys set aside in the Redemption Account of the Special Tax Fund shall be used solely for the purpose of redeeming Bonds and shall be applied on or after the redemption date to the payment of principal of and premium on the Bonds to be redeemed upon presentation and surrender of such Bonds; provided, however, in lieu or partially in lieu of such call and redemption, moneys deposited in the Redemption Account of the Special Tax Fund as set forth above may be used to purchase Outstanding Bonds in the manner hereinafter provided. Purchases of Outstanding Bonds may be made by the District at public or private sale as and when and at such prices as the District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, or, in the case of purchases to be made from funds to be applied to a redemption pursuant to Sections 401 and 402, par plus accrued interest, plus, in the case of moneys set aside for an optional redemption, the premium applicable at the next following call date according to the premium schedule established in any Supplemental Indenture. Any accrued interest payable upon the -14- 38;, purchase of Bonds may be paid from the amount reserved in the Interest Account of the Special Tax Fund for the payment of interest on the next following Interest Payment Date. Any moneys in the Redemption Account of the Special Tax Fund following redemption of the Bonds designated in the notice of redemption shall be transferred to the Special Tax Fund. Section 308. Reserve Account of the Special Tax Fund. There shall be maintained in the Reserve Account of the Special Tax Fund an amount equal to the Reserve Requirement. If the amount in the Reserve Account of the Special Tax Fund is drawn upon, it will be restored from available funds of the City or, if funds are unavailable, by the inclusion of a sufficient amount in the next annual Special Tax levy, subject to the maximum Special Tax rates, to replenish the Reserve Account of the Special Tax Fund to an amount equal to the Reserve Requirement. Moneys in the Reserve Account of the Special Tax Fund shall be used solely for the purpose of paying the principal of, including Sinking Account Payments, and interest on the Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Account Payment when due and for the purpose of making any required transfer to the Rebate Fund pursuant to Section 309 upon written direction from the District; provided, however, amounts in the Reserve Account of the Special Tax Fund may be applied to pay the principal and interest due on any Bonds in the final Bond Year in which any Bonds are Outstanding. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Account Payments, or interest on the Bonds when due, or amounts in the Special Tax Fund are insufficient to make transfers to the Rebate Fund when required, the Trustee shall withdraw from the Reserve Account of the Special Tax Fund for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund or the Rebate Fund, as applicable, moneys necessary for such purposes. Following any transfer to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund or to the Rebate Fund as described above, the District shall then take the steps necessary to cause to be deposited to the Reserve Account of the Special Tax Fund the amount needed to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement if the District so elects, by including such amount in the next annual Special Tax levy to the extent of the permitted maximum Special Tax rates. Notwithstanding anything herein to the contrary, whenever moneys are withdrawn from the Reserve Account of the Special Tax Fund, after making the required transfers to Sections 305, 306 and 307 above, the Trustee shall transfer to the Reserve Account of the Special Tax Fund from available moneys in the Special Tax Fund the amount needed to restore the amount of such account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account of the Special Tax Fund only if the Trustee determines that such amounts will not be needed to make the deposits required to be made to the Administrative Expense Account, the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. Notwithstanding any provision herein to the contrary, moneys in the Reserve Account of the Special Tax Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Account of the Special Tax Fund on the Business Day before each Interest Payment Date and transferred at the option of the District to the Redemption Account of the Special Tax Fund to be applied to the redemption of Bonds on -15- 386 the next September 1 or to the Principal Account of the Special Tax Fund to the extent required to make any principal payment on the next succeeding September 1, with any excess being transferred to the Redemption Account of the Special Tax Fund. Section 309. Deposits into and Payments from the Rebate Fund. (a) In the manner and at the times required by the Code, the Trustee shall determine or cause to be determined, the Excess Investment Earnings on each fund or account held by the Trustee pursuant to this Indenture and shall deposit, from moneys held on deposit in such fund or account or from any lawfully available source, into the Rebate Fund an amount equal to such Excess Investment Earnings, plus such additional moneys, if any, which are necessary or required to be set aside for rebate to the United States under the Code. (b) All income or interest on the investment of moneys on deposit in the Rebate Fund shall remain in the Rebate Fund unless and until required to be rebated to the United States. (c) The provisions in paragraphs (a) and (b) above shall not be applied if an exemption from rebate is provided by the Code. (d) On or before September 1 of the years , and , and within sixty (60) days after the retirement of all of the Outstanding Bonds, the Trustee shall pay to the United States from the Rebate Fund and if insufficient therefor, from other lawfully available funds of the District, the rebatable arbitrage calculated in accordance with the Code. (e) The Trustee shall keep and retain for a period of six (6) years following the retirement of the Bonds records of the determinations made pursuant to this Section. The Trustee shall keep a record of all investments made with moneys on deposit in any fund or account established hereunder. Such records shall contain a reference to the date of purchase, the date of sale, the purchase price, the sales price, the principal amount and coupon rate of each obligation purchased or sold. (f) Payments pursuant to this Section shall be made to the maximum extent possible from moneys on deposit in the Rebate Fund and, to the extent of any deficiency therein for such purpose, shall be made first from Special Taxes in the Special Tax Fund and then, if necessary, from amounts in the Reserve Account of the Special Tax Fund. In the event of any remaining deficiency in available moneys for the purposes of such transfer, such deficiency shall be paid by the District from any legally available funds. Section 310. Acquisition and Construction Fund. (a) The moneys in the Acquisition and Construction Fund shall be applied exclusively to pay the Project Costs and any Costs of Issuance for the Bonds. Amounts for Costs of Issuance shall be disbursed by the Trustee from the Cost of Issuance Account upon receipt of a Certificate of the City, executed by the Finance Director and approved by the City Manager or his or her designee, stating the amount due, the nature of the services rendered and the name of the payee. On the date which is six months following the -16- Delivery Date, the Trustee shall transfer any amounts remaining in the Cost of Issuance Account to the Administrative Expense Account of the Special Tax Fund. Amounts for Project Costs shall be disbursed by the Trustee only upon receipt of a Certificate of the City, substantially in the form attached hereto as Exhibit B, stating that (1) the name of the person to whom payment is due, (2) the amount to be paid, (3) the purpose for which the obligation to be paid was incurred, and (4) there has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, stop notice or claim affecting the right to receive payment of, any of the moneys payable to any of the persons named in such certificate or written requisition, which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen's or mechanic's liens accruing by mere operation of law. If after the payment of any such requisition the balance of the proceeds of the Bonds on deposit in the Acquisition and Construction Fund would be less than $ , such requisition must also be accompanied by a certificate of an Independent Financial Consultant which states that the aggregate amount of Special Taxes (assuming the levy of Special Taxes at the maximum rate) payable throughout the District in each Fiscal Year subsequent to the date of such certificate will not be less than the Maximum Annual Debt Service with respect to a principal amount of Bonds equal to the remainder of (1) the Outstanding Bonds, less (2) the balance of the proceeds of the Bonds which will remain on deposit in the Acquisition and Construction Fund immediately subsequent to the payment of such requisition. (b) Upon the earlier of (1) a date which is three (3) years from the Delivery Date of the Bonds or (2) receipt of a Certificate of the City that all or a specified portion of the amount remaining in the Acquisition and Construction Fund derived from the proceeds of the Bonds is no longer needed to pay Project Costs, the Trustee shall transfer such moneys remaining on deposit in the Acquisition and Construction Fund to the Redemption Account of the Special Tax Fund. Section 311. Investments. Moneys held in any of the Funds and Accounts under this Indenture shall be invested by the Trustee at the direction of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such Funds and Accounts. Any income realized or loss resulting from such Authorized Investments shall be credited or charged to the Fund or Account from which such investment was made, and any investment earnings on a Fund or Account shall be applied as follows: (i) investment earnings on all amounts deposited in the Acquisition and Construction Fund shall be deposited in the Acquisition and Construction Fund until the amounts therein are fully expended; provided, however, that earnings on amounts in the Cost of Issuance Account shall be deposited therein, (ii) investment earnings on all amounts in the Rebate Fund shall be deposited in that Fund, and (iii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund. Moneys in the Funds and Accounts held under this Indenture may at the written investment direction of the District be invested by the Trustee, from time to time, in Authorized Investments subject to the following restrictions: -17- 3,90 (a) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund. (b) Net Taxes in the Special Tax Fund and other moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due. (c) The Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not more than five (5) years from the date of purchase by the Trustee; provided that such amounts may be invested in an Investment Agreement to the later of the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with Section 308 hereof; and provided that no such Authorized Investment shall mature later than the final maturity of the Bonds. Amounts in the Reserve Account of the Special Tax Fund may be invested in an Investment Agreement only if such Investment Agreement, by its terms, permits the District to withdraw all principal at par and without penalty, together with accrued interest to the withdrawal date, in the event that the rating of the provider of the Investment Agreement or the rating on the Investment Agreement is suspended or downgraded below "A" by Moody's or S&P. (d) Moneys in the Rebate Fund shall be invested only in Authorized Investments of the type described in clause (1) of the definition thereof which by their terms will mature, as nearly as practicable, on the dates such amounts are needed to be paid to the United States Government pursuant to Section 309 hereof. The Trustee, at the direction of the District, shall sell or present for redemption, any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such funds, any such investments constituting a part of such Funds and Accounts shall be valued at their cost. Notwithstanding anything herein to the contrary, the Trustee shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of this Indenture. ARTICLE IV REDEMPTION OF BONDS Section 401. Optional Redemption of Bonds. The Bonds maturing on or before September 1, 1995, are not subject to call and redemption prior to maturity. The Bonds maturing on or after September 1, 1996, may be redeemed, at the option of the District, in whole or in part, in authorized denominations from each maturity in the same -18- ?9; proportion which such maturity represents to all Outstanding Bonds and by lot within a maturity, on September 1, 1995, or any Interest Payment Date thereafter, at the following redemption prices, expressed as a percentage of the principal amount of the Bonds, together with accrued interest to the date of redemption: Redemption Dates Redemption Price September 1, 1995 or March 1, 1996 102.0% September 1, 1996 or March 1, 1997 101.5% September 1, 1997 or March 1, 1998 101.0% September 1, 1998 or March 1, 1999 100.5% September 1, 1999 and thereafter 100.0% In the event the District shall elect to redeem Bonds as provided in this Section 401, the District shall give written notice to the Trustee of its election so to redeem, the redemption date and the principal amount of the Bonds to be redeemed. The notice to the Trustee shall be given at least sixty (60) but no more than ninety (90) days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. Section 402. Mandatory Redemption. The Term Bonds maturing on September 10, 2016, shall be subject to mandatory redemption, on each September 1, commencing on September 1, 2007, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum Sinking Account Payments made by the District in the years and amounts as set forth in the following table; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of all future Sinking Account Payments shall be reduced by the aggregate principal amount of Term Bonds so redeemed, to be allocated among such Sinking Account Payments on a pro rata basis in integral multiples of $5,000. Year Amount Year Amount 2007 $ 640,000 2012 $ 965,000 2008 695,000 2013 1,045,000 2009 755,000 2014 1,135,000 2010 820,000 2015 1,230,000 2011 890,000 2016 1,335,000* * Final Maturity Section 403. Special Mandatory Redemption of Bonds. The Bonds may also be subject to mandatory redemption for moneys set aside therefor in the Redemption Account of the Special Tax Fund, in an amount equal to the amount transferred from the Acquisition and Construction Fund to the Redemption Account of the Special Tax Fund, rounded to the closest multiple of $5,000, on the first Interest Payment Date following the date of such transfer or deposit when such Bonds can be called and notice of their redemption can be given. The Bonds so called for redemption, if any, shall be selected proportionately among maturities and by lot within a maturity, and shall be redeemed at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. -19- Section 404. Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof, and, in selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bond to be redeemed in part by $5,000. The Trustee shall promptly notify the District in writing of the Bonds, or portions thereof, selected for redemption. Section 405. Notice of Redemption. Notice of redemption of such Bonds shall be given by the Trustee in the name of the District. Such notice of redemption shall (a) specify the CUSIP numbers, the serial numbers and the maturity date or dates of the Bonds selected for redemption, except that where all the Bonds are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the serial numbers thereof need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Trustee. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least thirty (30) days but no more than sixty (60) days prior to the redemption date, the Trustee shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent thereto, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Trustee that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption. In addition to the foregoing notice, further notice shall be given by the Trustee as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed. Each further notice of redemption shall be sent by first class mail or overnight delivery service to the entities listed below and to any other registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds as shall be specified in writing by the District to the Trustee: Registered Securities Depositories The Depository Trust Company 711 Stewart Avenue Garden City, New York 11530 -20- Midwest Securities Trust Company Capital Structures -Call Notification 440 South LaSalle Street Chicago, lllinois 60605 Philadelphia Depository Trust Company Reorganization Division 1900 Market Street Philadelphia, Pennsylvania 19103 Attention: Bond Department National Information Services Financial Information, Inc's Financial Daily Called Bond Service 30 Montgomery Street, 10th Floor Jersey City, New Jersey 07302 Attention: Editor Kenny Information Service's Called Bond Service 55 Broad Street, 29th Floor New York, New York 10004 Moody's Municipal and Government 99 Church Street, 8th Floor New York, New York 10007 Attention: Municipal News Report Standard and Poor's Called Bond Record 25 Broadway, 3rd Floor New York, New York 10004 Section 406. Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the District shall execute and the Trustee shall authenticate and deliver to the Bondowner, at the expense of the District, a new Bond(s) of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity. Section 407. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in Section 405, and the amount necessary for the redemption having been deposited by the Trustee in the Redemption Account of the Special Tax Fund for that purpose and being available therefor on the date fixed for such redemption: (a) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Indenture, anything in this Indenture or in the Bonds to the contrary notwithstanding; (b) Upon presentation and surrender thereof at the principal corporate trust office of the Trustee, the redemption price of such Bonds shall be paid to the Owners thereof; -21- (c) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and (d) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption shall be entitled to any of the benefits of this Indenture or any Supplemental Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. ARTICLE V COVENANTS AND AGREEMENT Section 501. Agreement. The District shall preserve and protect the security pledged hereunder to the Bonds against all claims and demands of all persons. Section 502. Covenants. So long as any of the Bonds issued hereunder are Outstanding and unpaid, the District makes the following covenants with the Bondowners under the provisions of the Act and this Indenture (to be performed by the District or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the District to expend any funds or moneys other than the Special Taxes: (a) Punctual Payment; Against Encumbrances. The District covenants that it will receive all Net Taxes in trust and will immediately deposit the Net Taxes with the Trustee, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by this Indenture. All such Net Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth herein, and shall be accounted for separately and apart from all other moneys, funds, accounts or other resources of the District. The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued hereunder, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with this Indenture to the extent Net Taxes are available therefor, and that the payments into the Funds and Accounts created hereunder will be made, all in strict conformity with the terms of the Bonds and this Indenture, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Indenture and all Supplemental Indentures and of the Bonds issued hereunder. The District will not mortgage or otherwise encumber, pledge or place any charge upon any of the Net Taxes, except as provided in this Indenture, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds. Nothing herein shall prevent the District from issuing or incurring indebtedness which is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds. -22- 39Z) (b) Levy of Special Tax. The legislative body of the District shall levy the Special Tax in an amount sufficient, together with moneys on deposit in the Special Tax Fund, to pay the principal of, premium, if any, and interest on the Bonds when due and the Administrative Expenses and any amounts required to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement so long as any Bonds issued under this Indenture are Outstanding. (c) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds that it will commence judicial foreclosure proceedings against parcels with any delinquent Special Taxes within 150 days following the applicable delinquency date and diligently pursue to completion such foreclosures. (d) Extension of Payment. The District shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to prior payment in full of the principal of all Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the District to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds. (e) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon any portion of the Project acquired or constructed by the District, or upon the Net Taxes or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Bonds then Outstanding; provided that nothing herein contained shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims. (f) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the Project, the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Trustee or of the Owners of not less than ten percent (10%) of the principal amount of the Bonds or their representatives authorized in writing. (g) Power to Issue Bonds and Make Pledge and Assignment. The District is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Net Taxes under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the District in accordance with their terms, and the District and the Trustee (subject to the provisions of Article VII and VIII) shall at all times, to the extent permitted by law, defend, preserve and -23- 393 protect said pledge and assignment of Net Taxes and other assets and all the rights of the Bond Owners under this Indenture against all claims and demands of all persons whomsoever. (h) No Arbitrage. The District shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the Gross Proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Delivery Date would have caused any of the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Code. (i) Private Business Use Limitation. The District shall assure that not more than ten percent (10%) of the net proceeds shall be used for private business use if, in addition, the payment of more than ten percent (10%) of the principal of the Bonds or ten percent (10%) of the interest due on the Bonds during the term thereof is, under the terms of the Bonds or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a private business use of in payments in respect of property used or to be used for a private business use or is to be derived from payments, whether or not to the District, in respect of property or borrowed money used or to be used for a private business use. In the event that both (i) an amount in excess of five percent (5%) of the net proceeds is used for a private business use, and (ii) an amount in excess of five percent (5%) of the principal or five percent (5%) of the interest due on the Bonds during the term thereof is, under the terms of the Bonds or any underlying arrangement, directly or indirectly secured by any interest in property used or to be used for said private business use or in payments in respect of property used or to be used for said private business use or is to be derived from payments, whether or not to the District, in respect of property or borrowed money used or to be used for said private business use, the District shall assure that such excess over five percent (5%) of net proceeds used for a private business use shall be used for a private business use related to the governmental use of the Bonds. (i) Private Loan Limitation. The District shall assure that not more than five percent (5%) of the net proceeds shall be used, directly or indirectly, to make or finance a loan (other than loans constituting Nonpurpose Investments or assessments) to persons other than state of local government units. (k) Federal Guarantee Prohibition. The District shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (1) Compliance with Rebate Requirements. The District shall assure compliance with the requirements for rebate of excess investment earnings to the federal government in accordance with Section 148(f) of the Code and applicable Regulations. (m) Completion of Project. The District will diligently carry out and continue to completion with all practical dispatch the acquisition or construction of the Project in accordance with the Act and the proceedings for the formation of the District and in a sound and economical manner; provided, however, that -24- 397 the District shall not be obligated to expend any funds other than the proceeds of the Bonds for such purpose. The Project to be acquired or constructed may be amended as provided in the Act, but no amendment may be made which would substantially impair the security of the Bonds or the rights of the Owners. Once acquired or constructed, the District will maintain the Project, or cause it to be maintained by another public entity, in accordance with the customary and reasonable maintenance and repair practices for such facilities. (n) Further Assurances. The District will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VI AMENDMENTS TO INDENTURE OF TRUST Section 601. Supplemental Indentures of Trust or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt indentures or orders supplemental hereto for any of the following purposes: (a) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under this Indenture or in any additional indenture or order, provided that such action is not materially adverse to the interest of the Bondowners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in this Indenture, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with this Indenture as theretofore in effect or which further secure Bond payments; (c) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; (d) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than 110% of the principal and interest due in each future Bond Year on the Bonds Outstanding as of the date of such amendment; or -25- 396 (e) to conform this Indenture to the Code or other or future applicable federal law concerning tax - exempt obligations; (f) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Bondowners. Section 602. Supplemental Indentures of Trust or Orders Requiring Bondowner Consent. Exclusive of the indentures or orders supplemental hereto set forth in Section 601, the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds Outstanding shall have the right to consent to and approve the adoption by the District of such indentures or orders supplemental hereto as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided, however, that nothing herein shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon, (c) a preference or priority of any Bond over any other Bond, (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such amendment, or (e) the creation of a pledge of or a lien upon or charge upon the Net Taxes superior to the pledge in the Indenture without the consent of the Owners of all Bonds then Outstanding. If at any time the District shall desire to authorize the execution of an indenture or order supplemental hereto, which pursuant to the terms of this Section shall require the consent of the Bondowners, the District shall so notify the Trustee and shall deliver to the Trustee a copy of the proposed indenture or order. The Trustee shall, at the expense of the District, cause notice of the proposed indenture or order to be mailed, by first class mail postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed indenture or order and shall state that a copy thereof is on file at the office of the Trustee for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such resolution or order when consented to and approved by the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds Outstanding as required by this Section. Whenever at any time within one year after the date of the first mailing of such notice, the Trustee shall receive an instrument or instruments purporting to be executed by the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed indenture or order described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Trustee, such proposed indenture or order, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of sixty percent (60%) of the aggregate principal amount of the Bonds have consented to the adoption of any supplemental indenture or order, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any indenture or order supplemental hereto and the receipt of consent to any such indenture or order from the Owners of not less than sixty percent (60%) in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of this Section, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the -26- respective rights, duties and obligations under this Indenture of the District and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. Section 603. Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as hereinabove provided, the District may determine that the Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond at such effective date and presentation of such Owner's Bond for the purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the District shall so determine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the principal corporate trust office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds. ARTICLE VU TRUSTEE Section 701. Appointment and Duties of Trustee. The District hereby appoints Security Pacific National Bank, as trustee, paying agent and bond registrar and designates the corporate trust office in Los Angeles, California, as the place of payment for the Bonds, such appointment and designation to remain in effect until notice of change is filed with the Trustee. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default (which has not been cured), 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 702. Removal or Resignation of Trustee. The District may at any time at its sole discretion remove the Trustee initially appointed, and any successor thereto, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if 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 if at any time the Trustee shall cease to be eligible in accordance with 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 and thereupon shall appoint a successor Trustee by an instrument in writing. The Trustee may at any time resign by giving ninety (90) days written notice of such resignation to the District and the Owners of the Bonds, by first class mail. Upon receiving such notice of resignation, the District shall promptly appoint a successor Trustee by an instrument in writing. -27- Any removal or resignation of the Trustee and appointment of successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Promptly upon such acceptance, the District shall notify Owners of the Bonds in writing. If no successor Trustee shall have been appointed and have accepted appointment within forty -five (45) days of giving of notice of removal or notice of resignation as aforesaid, the resigning Trustee, any Owner of the Bonds (on behalf of himself or all other Owners of the Bonds) 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 District 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 request of the District 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 here in set forth. Upon request of the successor Trustee, the District shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. The Trustee's rights to indemnification hereunder and to payment of its fees and expenses shall survive its resignation or removal and the final payment or defeasance of the Bonds. Any Trustee appointed under the provisions . of this Section in succession to the Trustee shall be a trust company or commercial bank having trust powers and a corporate trust office located within or without the State of California having a combined capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If any bank or trust company appointed as a successor publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Section 703. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under Section 702 shall be the successor to such Trustee, without execution or filing of any paper or further act, anything herein to the contrary notwithstanding. Section 704. Liability of Trustee. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds shall be taken as statements, promises, covenants and agreements of the District, and the Trustee assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Indenture or of the Bonds, and shall incur no responsibility in respect thereof, other than in connection with its duties or obligations specifically set forth herein, in the Bonds, or in the certificate of authentication assigned to or imposed upon -28- 4 01, the Trustee. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall not be accountable for the use or application by the District or any other party of any funds which the Trustee has released under this Indenture. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, indenture, Bond, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered hereunder in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and such Owner's title thereto satisfactorily established, if disputed. Whenever in the administration of its duties under 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, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by a written certificate of the District, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. The permissive right of the Trustee to do things enumerated or contemplated by this Indenture shall not be construed as a duty and the Trustee shall not be liable in the performance of its obligations hereunder except for its negligence or willful misconduct. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or be deemed to have notice of any Event of Default hereunder unless and until an officer thereof shall have actual knowledge except the Trustee shall have such knowledge if the District shall fail to make or cause to be made any of the payments to the Bondowners required to be made by Article IV or Article XI hereof, or if, the Trustee shall be specifically notified in writing of such Event of Default by the District or by the Owners of at least twenty -five percent (25%) in aggregate principal amount of all Bonds then Outstanding. The Trustee shall not be required to give any bond or surety in respect of the execution of its trusts and powers hereunder. Before taking any action under Article VIII hereof or this Section at the request of the Bondowners, the Trustee may require that a satisfactory indemnity bond be furnished by the Bondowners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. -29- 40 Z All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received and shall not be commingled with the general funds of the Trustee but need not be segregated from other funds except to the extent required by law. The Trustee shall not be liable hereunder for any error of judgment made in good faith by a responsible officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. 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 a majority in aggregate principal amount of the Bonds Outstanding relating to the time, method and place of conducting any proceeding or any remedy available to the Trustee, or the exercise of any trust or power conferred upon the Trustee, under this Indenture. No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The District agrees to pay the reasonable fees, costs and expenses of the Trustee pursuant to this Indenture, as set forth in the fee schedule delivered to the District from time to time. The immunities extended to the Trustee also extend to its officers, directors, employees and agents. The Trustee shall have no responsibility or liability with respect to any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. ARTICLE VIII EVENTS OF DEFAULT; REMEDIES Section 801. Events of Default. Any one or more of the following events shall constitute an "event of default ": (a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Except as described in (a) or (b), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in this Indenture, the Bonds, and such default shall have continued for a period of thirty (30) days after the District shall have been given -30- 403 notice in writing of such default by the Trustee or the Owners of twenty -five percent (25%) in aggregate principal amount of the Outstanding Bonds. Section 802. Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (a) By mandamus or other suit or proceeding at law or in equity to enforce such Owner's rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in this Indenture; (b) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (c) By a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust. Nothing in this Article or in any other provision of this Indenture, the Bonds shall affect or impair the obligations of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective owners thereof at the respective dates of maturity, as herein provided, out of the Net Taxes pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in this Indenture. A waiver of any default or breach of duty or contract by any owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by this Article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law. In case the moneys held by the Trustee after an event of default pursuant to Section 801(a) or (b) shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. -31- L1 0 ARTICLE IX DEFEASANCE Section 901. Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof and premium, if any, at the times and in the manner stipulated in this Indenture or any Supplemental Indenture, then the Owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under this Indenture shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to this Section, the Trustee shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the District's general fund all money or securities held by it pursuant to this Indenture which are not required for the payment of the interest due on and the principal of such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the first paragraph of this section if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account), is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable or, in the event of redemption thereof, before their respective maturity dates; or (c) by depositing with the Trustee, or another escrow bank appointed by the Trustee, in trust, direct, noncallable Authorized Investments, of the type defined in clause (1) of the definition thereof set forth in Section 101 hereof, in which the District may lawfully invest its money, in such amount as an Independent Financial Consultant shall determine will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account), together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under this Indenture and any Supplemental Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Trustee to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in Section 502(f) or any covenants in a Supplemental Indenture relating to compliance with the requirements of the Code and except for the obligation of the District to pay or cause to be paid the fees and expenses of the Trustee or right to indemnification. Notice of such election shall be filed with the Trustee not -32- 405 less than thirty (30) days prior to the proposed defeasance date. In connection with a defeasance under (b) or (c) above, there shall be provided to the Trustee a certificate of a certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Trustee or the escrow bank to pay and discharge the principal of and interest on all Outstanding Bonds to be defeased in accordance with this Section, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with this Indenture and any applicable Supplemental Indenture. Upon a defeasance, the Trustee, upon request of the District, shall release the rights of the Owners of such Bonds which have been defeased under this Indenture and any Supplemental Indenture and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance hereunder of all Outstanding Bonds, the Trustee shall pay over or deliver to the District any funds held by the Trustee at the time of a defeasance less any fees and expenses owing to the Trustee, which are not required for the purpose of paying and discharging the principal of or interest on the Bonds when due. The Trustee shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred. ARTICLE X MISCELLANEOUS Section 1001. Cancellation of Bonds. All Bonds surrendered to the Trustee for payment upon maturity or for redemption shall upon payment therefor and any Bond purchased by the District as authorized herein shall be cancelled forthwith and shall not be reissued. The Trustee shall destroy such Bonds, as provided by law, and furnish to the District a certificate of such destruction. Section 1002. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by this Indenture to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by the bank, trust company or other depository for such Bonds. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, and of the ownership of Bonds shall be sufficient for the purposes of this Indenture (except as otherwise herein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or such Owner's attorney of any such instrument and of any instrument appointing any such attorney, may be proved by a signature guarantee of any bank or trust company located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such signature guarantee shall also constitute sufficient proof of such Owner's authority. -33- 405 (b) As to any Bond, the person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal of any such Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or such Owner's legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond and the interest thereon to the extent of the sum or sums to be paid. The Trustee shall be affected by any notice to the contrary. Nothing contained in this Indenture shall be construed as limiting the Trustee to such proof, it being intended that the Trustee accept any other evidence of the matters herein stated which the Trustee may deem sufficient. Any request or consent of the Owner of any Bond shall bind every future Owner of the same Bond in respect of anything done or suffered to be done by the Trustee in pursuance of such request or consent. Section 1003. Unclaimed Moneys. Anything in this Indenture to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the Outstanding Bonds which remain unclaimed for four (4) years after the date when such Outstanding Bonds have become due and payable, if such money was held by the Trustee at such date, or for four (4) years after the date of deposit of such money if deposited with the Trustee after the said date when such Outstanding Bonds become due and payable, shall, at the written request of the District, be repaid by the Trustee to the District, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for the payment of such Outstanding Bonds; provided, however, that, before being required to make any such payment to the District, the Trustee shall, at the expense of the District, cause to be mailed to the registered Owners of such Outstanding Bonds at their addresses as they appear on the registration books of the Trustee a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than thirty (30) days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the District. Section 1004. Provisions Constitute Contract. In consideration of the purchase and acceptance of any and all of the Bonds issued hereunder by those who shall hold the same from time to time, the provisions of this Indenture shall be deemed to be and shall constitute a contract among the District, the Trustee and the Bondowners and the provisions hereof shall be construed in accordance with the laws of the State of California. The pledge made in this Indenture and the provisions, covenants and agreements herein set forth to be performed by or on behalf of the District shall be for equal benefit, protection and security of the Bondowners. All of the Bonds, without regard to the time or times of issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other Bond, except as expressly provided in or permitted by this Indenture. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and, should said suit, action or proceeding be abandoned, or be determined adversely to the Bondowners or the Trustee, then the District, the Trustee and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. After the issuance and delivery of the Bonds this Indenture shall be irrepealable, but shall be subject to modifications to the extent and in the manner provided in this Indenture, but to no greater extent and in no other manner. -34- 407 Section 1005. Future Contracts. Nothing herein contained shall be deemed to restrict or prohibit the District from making contracts or creating bonded or other indebtedness payable from a pledge of the Net Taxes which are subordinate to the pledge hereunder, the general fund of the District or from taxes or any source other than the Net Taxes as defined herein. Section 1006. Further Assurances. The District will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. Section 1007. Severability. If any covenant, agreement or provision, or any portion thereof, contained in this Indenture, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of this Indenture and the application of any such covenant, agreement or provision, or portion thereof, to other persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Indenture, the Bonds issued pursuant hereto shall remain valid and the Bondowners shall retain all valid rights and benefits accorded to them under the laws of the State of California. Section 1008. Notices. Any notices required to be given to the District with respect to the Bonds or this Indenture shall be mailed, first class, or personally delivered to the City Manager of the City of Cypress, 5275 Orange Avenue, Cypress, California 90680, and all notices to the Trustee shall be mailed, first class, or personally delivered to the Trustee at , Ref. No. Section 1009. Waiver of Personal Liability. No member, officer, agent or employee of the District or the City shall be individually or personally liable for the payment of the principal of, premium, if any, or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained herein shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture. Section 1010. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the District and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. Section 1011. Payments due on other than Business Day. 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, is not a Business Day, such payment, with no interest for the period after such nominal date, 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 therefore in this Indenture. -35- 40S IN WITNESS WHEREOF, the CITY OF CYPRESS, acting as the legislative body of the COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS has caused this Indenture to be signed in its name by its and attested to by its City Clerk, and , in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officers thereunto duly authorized, all as of the day and year first above written. COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS By: Title: (SEAL) ATTEST: City Clerk 405 SECURITY PACIFIC NATIONAL BANK as Trustee By: Authorized Officer EXHIBIT B CERTIFICATE OF CITY FOR DISBURSEMENT OF COSTS The undersigned, a duly authorized representative of Community Facilities District No. 1 (Sorrento Homes) of the City of Cypress, hereby certifies to the Trustee for purposes of disbursing funds from the Costs of Issuance Account /Acquisition and Construction Fund to pay Costs of Issuance /Project Costs that: (a) The Trustee is to pay to the payees set forth on Exhibit C hereto the amount set forth next to each payees name for the item described on Exhibit C hereto. (b) The conditions to the release of these amounts from the Costs of Issuance Account /Acquisition and Construction Fund have been satisfied; and (c) There has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, stop notice or claim affecting the right to receive payment of, any of the moneys payable to any of the payees named on Exhibit A hereto which has not been released or will not be released simultaneously with the payment of such amounts, other than materialmen's or mechanic's liens accruing by mere operation of law. Dated: COMMUNITY FACILITIES DISTRICT NO. 1 (SORRENTO HOMES) OF THE CITY OF CYPRESS By: City Engineer/ Finance Director By: City Manager 4/3 EXHIBIT D FORM OF SEAL COMMUNITY FACILITIES DISTRICT NO. 1 OF THE CITY OF CYPRESS ESTABLISHED SEPTEMBER 10 1990 CALIFORNIA