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HomeMy WebLinkAboutStaff Report 4.A 03/07/2016Agenda Item #4.A DATE: March 7, 2016 TO: Honorable Mayor and Members of the City Council through City Manager FROM: William Mushallo, Finance Director SUBJECT: Resolutions of the Petaluma Public Financing Authority and the Petaluma City Council Authorizing the Issuance of a Refunding Lease Obligation for the Purpose of Refinancing at Lower Interest Rates the City of Petaluma 2003 Certificates of Participation and the City of Petaluma 2005 Caltrans Airport Loan RECOMMENDATION It is recommended that the Petaluma Public Financing Authority and the Petaluma City Council adopt the attached Resolutions authorizing the issuance of a Refunding Lease Obligation for the purpose of refinancing at lower interest rates the City of Petaluma 2003 Certificates of Participation and the City of Petaluma 2005 Caltrans Airport Loan. BACKGROUND In December 2003, the City of Petaluma issued $6,295,000 of Certificates of Participation (COPS) to finance certain capital improvements in the City, including improvements to the Petaluma Municipal Airport. Additionally, in February 2005, the City of Petaluma borrowed $1,400,000 from the State of California Department of Transportation (Caltrans) to finance improvements to the Petaluma Municipal Airport. Currently, $4,210,000 of the 2003 COPS and $706,394 of the 2005 Caltrans Airport Loan remain outstanding. An opportunity now exists for the City to refinance the outstanding COPS and Caltrans Loan at lower interest rates, and in so doing, realize significant debt service savings. At today's relatively low interest rates, the outstanding COPS and Caltrans Loan can be refinanced at an "all-inclusive" interest rate of approximately 3.05%, as compared to an average interest rate of approximately 5.00% on the outstanding COPS and an average interest rate of approximately 4.73% on the outstanding Caltrans Loan. DISCUSSION There are three common methods used by cities such as Petaluma to refinance outstanding debt: competitive sales, negotiated sales and direct private placements. Depending on a variety of factors including the security, size, term, structure and creditworthiness of the debt, one or another method of sale will achieve the best overall result, meaning the lowest possible true interest cost. City staff in consultation with the City's financing team determined that in this instance, a private placement would achieve the best overall result. A private placement is when a municipality such as the City of Petaluma sells a debt obligation directly to an investor, typically a large commercial bank. By comparison, with a competitive or negotiated sale a municipality sells its debt to a broker-dealer who then re -sells the debt to investors. During January, 2016 the City's financing team solicited proposals from several commercial banks that are active participants in the private placement market for municipal debt in California. Based on the responses, the City determined that the proposal submitted by BBVA Compass Bank (BBVA) was best. In their proposal, BBVA offered to refinance the outstanding COP and Caltrans Loan at an indicative interest rate of 2.50%. An indicative interest rate is the rate at which a bank or investor is willing to purchase debt on the date its proposal is submitted. The actual interest rate at which BBVA may refinance the City's outstanding debt will not be finalized until shortly before closing. Depending on market conditions at the time of closing, the actual interest rate may differ from the indicative rate. Moreover, BBVA is under no legal obligation to refinance the outstanding debt, and retains the right to rescind its offer any time prior to closing. Similarly, if for any reason prior to closing the City determines that refinancing the outstanding debt is no longer in its best interest, then the City may cancel the transaction. Notwithstanding the above, BBVA is highly experienced in transactions of this nature, and has a very good track record of completing such transactions once begun. BBVA, the City and the City's financing team are now working together to finalize all of the arrangements necessary to complete the transaction as soon as possible. FINANCIAL IMPACTS Based on current market conditions and prevailing interest rates, this refinancing will result in total debt service savings of approximately $855,000 over the life of the refinancing. These savings are net of all issuance costs and assume the final maturity of the Refunding Lease Obligation will be on November 1, 2025, which is approximately three years earlier than when the 2003 COPS were due to mature. Another useful measure of the savings from this type of refinancing is `net present value' savings. Net present value savings measures the "real" savings or the "economic benefit" of a refinancing by taking into account the time value of money and the costs of issuance. Based on current market conditions, the estimated net present value savings for this refinancing is $693,000 or 14.1% of the par amount of outstanding debt being refinanced. As a general rule of thumb, a refinancing that generates net present value savings of 10% or more is considered excellent. The actual amount of savings, however, will not be determined until shortly before closing. Moreover, if interest rates increase appreciably prior to closing, then the actual amount of savings may be considerably less. And, in the event interest rates increase dramatically prior to closing, it is even possible that the savings may not be sufficient to warrant proceeding with the refinancing, in which case the refinancing may be cancelled or delayed until a later date. The total cost of issuing the Refunding Lease Obligation is expected not -to -exceed $125,000 including all costs for legal counsel services, financial advisory services, placement agent, trustee, escrow agent and verification agent services, title insurance and miscellaneous expenses. All of these costs of issuance are payable from proceeds of the Refunding Lease Obligation. If the refinancing fails to close, then all of these costs will be waived and the City will not be billed, with one possible exception. A portion of the legal fees, estimated at not -to -exceed $5,000 is not contingent. In addition, all staff costs associated with the refinancing will be reimbursed from the proceeds of the refunding. No general fund monies will be expended in connection with this refinancing, however, the General Fund will continue to be required to make debt service payments should the Airport not be able to. This is the same arrangement as the current financing. A benefit of the refinancing is that the security will now be provided by the assets of the Airport, as opposed to the Police Station and the Community Center. The proposed refunding action takes the form of a lease/lease back arrangement. Typically, City lease actions are taken by ordinance to satisfy the requirement of Section 46 of the Petaluma City Charter. Section 46 of the Charter provides that certain specified City actions, including actions to lease property, shall be done by ordinance, except where the Council takes action pursuant to general state law. The proposed refunding action does not require action by ordinance because it satisfies the exception for actions under general state law, in accordance with the following. Section 37380 of the California Government Code authorizes cities to lease city owned and controlled property. The Marks -Roos Local Bond Pooling Act of 1985 (the Bond Act), California Government Code Section 6584 and following, authorizes the creation of financing authorities pursuant to Bond Act and the Joint Exercise of Powers Law (the Joint Exercise Law), Government Code Section 6500 and following, to assist in the financing of local agency capital improvement projects. The City of Petaluma adopted Resolution No. 96-131 on May 20th, 1996, to create the Petaluma Public Financing Authority (the Authority) pursuant to the Bond Act and the Joint Exercise Law. The powers of the Authority pursuant to the Bond Act include the power to lease land and structures as necessary or convenient for the financing of public capital improvements, in accordance with subdivision (h) of Section 6588 of the Bond Act. Accordingly, actions of the City Council and the Authority to authorize issuance of refunding lease obligations as proposed are in accordance with Section 46 of the City's charter as actions taken pursuant to the Bond Act and other general state law. The attached Resolutions confer upon City staff all necessary authority to complete the refinancing. Also attached are draft Financing Documents which drafts may be modified prior to execution by City staff, as necessary. ATTACHMENTS 1. Refinancing Analysis 2. BBVA Compass Bank Term Sheet 3. City Council Resolution 4. Petaluma Public Financing Authority Resolution 5. Draft Lease Agreement 6. Draft Site Lease 7. Draft Assignment Agreement 8. Draft Escrow Agreement 9. Draft Termination Agreement 10. Draft Investor Letter 12 -Mo. Ending June 30, 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Outstanding Debt: 2003 COPS and 2005 Caltrans Airport Loan 2003 Certificates of Participation (COPS) Principal Interest DSRF Total 2005 Caltrans Airport Loan Principal Interest Total 2003 COPS + 2005 Caltrans Airport Loan Principal Interest DSRF Total 235,000 200,815 435,815 99,308 28,952 128,260 334,308 229,767 564,075 250,000 190,141 440,141 104,152 24,254 128,406 354,152 214,395 568,547 260,000 178,664 438,664 108,997 19,326 128,323 368,997 197,990 566,987 275,000 166,286 441,286 113,841 14,169 128,010 388,841 180,455 569,296 285,000 153,055 438,055 118,685 8,783 127,468 403,685 161,838 565,523 300,000 139,086 439,086 66,947 3,167 70,114 366,947 142,253 509,200 315,000 124,248 439,248 315,000 124,248 439,248 335,000 108,401 443,401 335,000 108,401 443,401 350,000 91,225 441,225 350,000 91,225 441,225 370,000 72,775 442,775 370,000 72,775 442,775 390,000 53,300 443,300 390,000 53,300 443,300 410,000 32,800 442,800 410,000 32,800 442,800 435,000 11,147 (457,294) (11,147) 435,000 11,147 (457,294) (11,147) 4,210,000 1,521,943 (457,294) 5,274,649 611,930 98,651 710,581 4,821,930 1,620,594 (457,294) 5,985,230 1 Interest Rate Comparison: 2003 COPS and 2005 Caltrans Loan vs. Proposed Refinancing 6.00'5 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 5.125% 2.50% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2003 COPS 2005 Caltrans Airport Loan -*—Proposed Refinancing 2 12 -Mo. Ending June 30, 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Estimated Debt Service Savings 2003 COPS +2005 Caltrans Airport Loan Principal Interest DSRF Total Principal Proposed Refinancing Rate Interest Total Annual Savings ($) (% } 334,308 229,767 564,075 390,000 2.50% 122,076 512,076 51,999 11.9% 354,152 214,395 568,547 415,000 2.50% 98,188 513,188 55,360 12.6% 368,997 197,990 566,987 425,000 2.50% 87,688 512,688 54,299 12.4% 388,841 180,455 569,296 435,000 2.50% 76,938 511,938 57,359 13.0% 403,685 161,838 565,523 450,000 2.50% 65,875 515,875 49,648 11.3% 366,947 142,253 509,200 460,000 2.50% 54,500 514,500 (5,300) -1.2% 315,000 124,248 439,248 470,000 2.50% 42,875 512,875 (73,627) -16.8% 335,000 108,401 443,401 480,000 2.50% 31,000 511,000 (67,599) -15.2% 350,000 91,225 441,225 495,000 2.50% 18,813 513,813 (72,587) -16.5% 370,000 72,775 442,775 505,000 2.50% 6,313 511,313 (68,537) -15.5% 390,000 53,300 443,300 443,300 100.0% 410,000 32,800 442,800 442,800 100.0% 435,000 11,147 (457,294) (11,147) (11,147) 4,821,930 1,620,594 (457,294) 5,985,230 4,525,000 604,264 5,129,264 855,967 16.L%u 3 Estimated Net Present (NPV) Savings Net Present Value (NPV) Savings 693,078 Par Amount of Refunded Bonds 4,916,394 NPV Savings/ Refunded Par Amount 14.1% Estimated Sources & Uses of Funds Sources of Funds: Par Amount of Refunding Lease Obligation 4,525,000 Transfer from 2005 Debt Service Fund 127,886 Transfer from 2003 Reserve Fund 457,294 Total Sources 5,110,179 Uses of Funds: Deposit to 2003 COP Redemption Fund 4,254,045 Depositto 2005 Caltrans Airport Loan Redemption Fund 731,739 Estimated Costs of Issuance 124,395 Total Uses 5,110,179 Estimated Costs of Issuance Service Estimated Fee Bond Counsel 35,000 Financial Advisor 20,000 Placement Agent 15,000 Bank Counsel 15,000 Time & Materials (City of Petaluma) 10,000 City Attorney 5,000 Title I nsurance 4,525 Trustee 3,500 Escrow Verification 2,000 Contingency 14,370 124,395 F1 ATTACHMENT 2 Summary Terms and Conditions CITY OF PETALUMA, CALIFORNIA Summary of Non -Binding Indicative Terms and Conditions for the Proposed Tax Exempt Financing (Private Placement) February 24, 2016 This summary of indicative terms and conditions is not a commitment to lend, purchase or to provide any other service related to a financing and does not impose any other obligation on Lender. Any such commitment or undertaking will be issued only in writing subject to appropriate documentation, the terms of which are not limited to those set forth herein. This summary of indicative terms and conditions is intended as an outline of certain of the material terms of a proposed financing and is not intended to summarize all of the conditions, covenants, representations, warranties and other provisions that would be contained in definitive documents, and is subject to, among other things, completion of due diligence and final credit approval by Lender. Borrower: City of Petaluma, California (the "Borrower"). Lender: Compass Bank and/or Compass Mortgage Corporation (the "Lender" or the "Bank"). Ted M. Singh, Senior Vice President Northern California Commercial Banking 1490 Stone Point Drive Ste. 250 Sacramento, CA 95661 Phone: (916) 945-3840 ted.singh@bbva.com James Manning, Senior Vice President Government & Institutional Banking 2850 E. Camelback Rd., Ste. 140 Phoenix, AZ 85016 Phone: (602) 778-0795 james.manning@bbvacompass.com Obligation Type: Tax Exempt lease agreement. Obligation Amount: Up to $4,525,000(the "Obligation" or "Financing"). Purpose: To refund outstanding Certificates of Participation issued in 2003 in the original par amount of $6,295M and refund 2005 Caltrans Airport Loan. Maturity: 11/01/2025 Repayment: The Obligation will amortize over approximately 10 years consistent with the attached sample schedule, calling for annual principal due on each 11/01 beginning 11/01/16 and semi-annual interest payments due on each 11/01 and 05/01 beginning on 11/01/16 over the Obligation's tenor. Interest Rate: Tax Exempt Fixed Rate of 2.50% fixed for the full tenor of the Obligation." This rate is indicative and subject to change daily depending on market conditions. CONFIDENTIAL Page 1 This term sheet does not represent a commitment to lend and may not be relied upon as such. Targeted Closing: March 17, 2016 or as requested by the Borrower. Prepayment: Obligation is not subject to optional redemption (at the proposed rate) prior to the 10th anniversary of loan closing, after which time the Borrower may prepay the loan without penalty. However, a par call option to prepay without penalty after the 5th or 7th anniversaries of loan closing is available at a 22 bps or 18 bps premium to the proposed interest rate, respectively. The par call option must be selected prior to rate lock. Security: The obligation is proposed to be issued as a lease agreement with the Borrower. Obligations are to be secured with a leasehold interest in property valued in excess of the loan amount. It is expected that the Leased Property will consist of airport property valued at approximately $10,000,000. Covenants: Borrower will to covenant to take such action as may be necessary to include all lease payments in its annual budgets and to make the necessary annual appropriations for all such lease payments. The Obligation with the Borrower shall include affirmative covenants that are standard and customary for a transaction of this nature including, but not limited to (i) to repair and make replacements to the leased property at its own cost and expense, so as to fully maintain the full property in a good condition for use as intended; (ii) to keep the leased property free and clear of all liens, charges and encumbrances other than those permitted by Bank; (iii) to pay for all utilities and related charges for the leased property; (iv) adequately insure the lease property as documented with the Bank named as the additional insured and make annual insurance payments on time; (v) maintain 24 month Rental Interruption Insurance to mitigate the risks of abatement; and (vi) confirmation that the leased property was built in compliance with seismic building code requirements of the State of California at the time of construction. Representations/ The documents will contain those representations, warranties and covenants customarily Warranties/ found in transactions of this nature, and others appropriate to the transaction, including but Covenants: not limited to: • City to appropriate lease payments annually. • Standard representations including but not limited to: no adverse litigation and Borrower has not defaulted or non -appropriated on past obligations, indemnification from hazardous materials. • Default rate of 5.00% over the Obligation's proposed rate. Default rate to apply if payment is not made within 10 days of due date in addition to other events of default. • No material adverse change in financial condition since fiscal year ended 6/30/15. • Notices of (i) any default on any obligation, (ii) material litigation, (iii) material governmental proceedings and (iv) material adverse effect. • Bank will sign a traveling "Big Boy" letter in form acceptable to Bank's counsel. Bank will CONFIDENTIAL Page 2 This term sheet does not represent a commitment to lend and may not be relied upon as such. Summary Terms and Conditions agree that any future transferee of the Obligation signs a "Big Boy" letter in the substantially the same form that the Bank signed prior to any transfer. The Borrower will indemnify the Bank and its officers against all and any liabilities that might arise related to the Obligation. Additional representations and warranties, and other affirmative and negative covenants that Bank considers customary and reasonably appropriate for the Obligation. This Obligation is being purchased by Lender under the following conditions: (i) not being registered or otherwise qualified for sale under the "Blue Sky" laws; (ii) the Lender will hold as one single debt instrument; (iii) no CUSIP numbers will be obtained for the Obligation; (iv) no official Statement or similar offering document has been prepared in connection with the private placement of this Obligation; (v) the Obligation will not close through the DTC or any similar repository and will not be in book entry form. Obligation must be able to be classified as a loan or held -to -maturity security in order to be acceptable to the Lender. *Note, all of the foregoing are subject to Lender's receipt and satisfactory review. Financial Reporting: • CPA Audited Statements, within 180 days of fiscal year end. • Annual approved operating budget due within 30 days of fiscal year end. • Borrower shall furnish at Lender's request such additional information that Lender may from time to time reasonably request. Annual disclosure information may be provided via EMMA. Tax Exempt Status / The quoted tax exempt interest rate will be subject to gross -up upon an event of taxability. Yield Adjustment Event: Closing Costs: Borrower will pay all reasonable, out-of-pocket costs and expenses incurred by Lender in connection with due diligence and the preparation of documentation, regardless of whether or not the Obligation is closed, including but not limited to, financial advisory fees if applicable, bond counsel, Lender's counsel, title policy and CDIAC fees. Lender's Counsel limited to $17,500. Credit Approval This indicative term sheet is being provided prior to final credit approval of the Bank. The Requirements: following information is needed to complete underwriting and for formal approval: • Any other information which Lender may attach significance to in determining the credit- worthiness.of the Borrower, such as additional information disclosures. Conditions Precedent: Prior to the consummation of the Financing, the following conditions precedent shall have occurred, all of which shall be in form and substance satisfactory to the Lender and its counsel. • Formal credit approval from the Bank. • Receipt and satisfactory review of an acceptable title policy. • Opinion addressed to the Bank, from counsel to Borrower reasonably acceptable to the Bank, setting forth such opinions as the Bank may require, including opinions concerning the legal status of Borrower, the due authorization, execution and delivery of the Obligation documents, the enforceability of the private placement documents, no conflict CONFIDENTIAL Page 3 This term sheet does not represent a commitment to lend and may not be relied upon as such. Summary Terms and Conditions with law, no litigation, and the receipt of all necessary governmental approvals. • Tax Opinion addressed to the Bank from counsel reasonably acceptable to the Bank that interest payable with respect to the debt service payments is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Service Code and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for purposes of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. • Supporting documentation related to standard levels of insurance. • Properly executed documents in form and substance satisfactory to Bank and/or Bank's counsel evidencing or supporting the Obligation. In terms of service level commitment, Lender's counsel will respond with initial comments within 7 business days of receiving draft legal documents from bond counsel, and within 5 business days of receiving any subsequent iteration of the legal documents. • Additional conditions precedent that Bank considers customary and reasonably appropriate for the Obligation, including further information disclosures. Ancillary Business: The structure, pricing, and terms contained herein are conditioned upon the establishment of a banking relationship that includes the opportunity to reasonably bid on ancillary financial services in good faith. Governing Law: This transaction shall be governed by and construed in accordance with the laws of the State of California. Expiration: This term sheet shall expire by 4:OOpm on 03/07/16 unless previously accepted. This term sheet is issued in reliance on the accuracy of all information, representations, schedules, and other data and materials submitted by Borrower, all of which are deemed material. This term sheet does not contain all of the terms and conditions or other provisions that may be included in the final documents evidencing the Obligation, and is issued at a time before Lender has undertaken a full business, credit, and legal analysis of Borrower and the Obligation. The terms and provisions of this correspondence are confidential and may not be disclosed by Borrower to any other person or entity. However, the foregoing restrictions on disclosure shall not apply to disclosure(s): (i) to Borrower's legal counsel or financial advisor for purposes of advising Borrower with respect hereto and provided, however, that such counsel and financial advisor agree to preserve the confidentiality of this correspondence; or (ii) in response to any properly issued subpoena from any court or other governmental authority with jurisdiction over Borrower, provided that Lender has been furnished reasonable advance notice of the intended disclosure and the opportunity to prevent or limit the scope of any such disclosure. Lender is providing the information contained in the document for discussion purposes only in connection with a proposed arm's-length commercial banking transaction between Borrower and Lender. This information is provided to you pursuant to and in reliance upon the "independent municipal investment advisor exemption" or "request for proposals exemption" provided under the municipal advisor rules of the Securities and Exchange Commission, 17 C.F.R. § 240.15Ba1-1 et seq. (the "Municipal Advisor Rules"). CONFIDENTIAL Page 4 This term sheet does not represent a commitment to lend and may not be relied upon as such. Summary Terms and Conditions Lender is acting for its own interest and has financial or other interests that differ from yours. Lender is not acting as o municipal advisor or financial advisor, and has no fiduciary duty to you or any other person pursuant to Section 15B of the Securities Exchange Act of 1934 or otherwise. The information provided in this document is not intended to be and should not be construed as "advice" within the meaning of Section 15B of the Securities Exchange Act of 1934 and the Municipal Advisor Rules. Lender is not recommending that you take any action with respect to the information contained in this document. Before acting on this information, you should discuss it with your own financial and/or municipal, legal, accounting, tax, and other advisors as you deem appropriate. If you would like a municipal advisor in this transaction that has legal fiduciary duties to you, then you are free to engage a municipal advisor to serve in that capacity. Lender does not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters are not intended by Lender to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. This term sheet is intended for the sole and exclusive benefit of Borrower and Lender and may not be relied upon by third parties. Sincerely, BBVA COMPASS Ted M. Singh, Senior Vice President Agreed and Accepted: By Its: Date: CONFIDENTIAL This term sheet does not represent a commitment to lend and may not be relied upon as such. Page 5 ATTACHMENT 3 Resolution No. 2016- N.C.S. of the City of Petaluma, California RESOLUTION OF THE CITY OF PETALUMA APPROVING DOCUMENTS AND ACTIONS RELATING TO THE REFINANCING OF THE CITY OF PETALUMA 2003 CERTIFICATES OF PARTICIPATION AND THE 2005 CALTRANS LOAN THROUGH A PRIVATE PLACEMENT WITH COMPASS MORTGAGE CORPORATION WHEREAS, in order to provide financing and refinancing of certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation, as lessor, and the City, as lessee; and WHEREAS, 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the prepayment date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates; and WHEREAS, in order to finance certain capital improvements to the Petaluma Municipal Airport, the City has heretofore borrowed $1,400,000 from the Department of Transportation of the State of California ("CalTrans"), pursuant to a California Airport Loan Agreement (the "CalTrans Loan Agreement") dated February 16, 2005, between CalTrans and the City; and WHEREAS, the loan made pursuant to the CalTrans Loan Agreement (the "2005 CalTrans Loan") is subject to prepayment, and in order to realize debt service savings the City has determined to refinance the 2005 CalTrans Loan; WHEREAS, Compass Mortgage Company (the "Lender") has submitted a proposal to the City wherein the Lender proposes to refinance the 2003 Certificates and the 2005 CalTrans Loan through a direct private placement, and the City desires at this time to utilize the Petaluma Public Financing Authority (the "Authority") to effect such refinancing in accordance with said proposal; WHEREAS, Section 46 of the Petaluma Charter (the "Charter") provides that certain specified City actions, including actions to lease property, shall be done by ordinance, except where the Council takes action pursuant to general state law; WHEREAS, Section 37380 of the California Government Code authorizes cities to lease city owned and controlled property, and the Marks -Roos Local Bond Pooling Act of 1985 (the Bond Act), California Government Code Section 6584 and following, authorizes the creation of financing authorities pursuant to Bond Act and the Joint Exercise of Powers Law (the Joint Exercise Law), Government Code Section 6500 and following, to assist in the financing of local agency capital improvement projects; WHEREAS, the City of Petaluma adopted Resolution No. 96-131 on May 20tH 1996, to create the Petaluma Public Financing Authority (the Authority) pursuant to the Bond Act and the Joint Exercise Law, and as created, the powers of the Authority pursuant to the Bond Act include the power to lease land and structures as necessary or convenient for the financing of public capital improvements, in accordance with subdivision (h) of Section 6588 of the Bond Act; and WHEREAS, as actions taken pursuant to the Bond Act and other general state law, actions of the City Council and the Authority to authorize issuance of refunding lease obligations as proposed are in accordance with Section 46 of the Charter; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Petaluma, as follows: Section 1. Approval of Financing Proposal. The City Council hereby approves the financing proposal from the Lender, providing for the refinancing of the 2003 Certificates and the 2005 CalTrans Loan on a private placement basis. Acceptance of said proposal by the City Manager is hereby approved, authorized and ratified. Section 2. Approval of Related Financing Agreements. The City Council hereby approves each of the following agreements required for the refinancing of the 2003 Certificates and the 2005 CalTrans Loan in accordance with said financing proposal, in substantially the respective forms on file with the City Clerk together with any changes therein or additions thereto deemed advisable by City Manager or the Finance Director (each, an "Authorized Officer"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions: Site Lease, between the City as lessor and the Authority as lessee, under which the City leases the Leased Property to the Authority in consideration of the payment of an amount which will be applied by the City to refinance the 2003 Certificates and the 2005 CalTrans Loan; Lease Agreement, between the Authority as lessor and the City as lessee, under which the Authority leases the Leased Property back to the City and the City agrees to pay semiannual lease payments as rental for the Leased Property; and • Escrow Deposit and Trust Agreement, between the City and U.S Bank National Association, as escrow agent and as trustee (the "2003 Trustee") for the 2003 Certificates, providing for the deposit and administration of funds for the purpose of refinancing the 2003 Certificates. An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest to the final form of each of the foregoing agreements. -2- Section 3. Notice of Prepayment of 2003 Certificates. The City Council hereby authorizes an Authorized Officer to instruct the 2003 Trustee to give a notice of prepayment of the 2003 Certificates in accordance with the documents authorizing the issuance of the 2003 Certificates, which notice shall be conditioned upon the completion of the financing proceedings described in this Resolution. Section 4. Official Actions. The Mayor, the City Manager, the Finance Director, the City Clerk and any and all other officers of the City are hereby authorized and directed, for and in the name and on behalf of the City, to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the transactions described herein. Whenever in this resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. Section 5. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. PASSED AND ADOPTED by the City Council of the City of Petaluma at a regular meeting held this 7th day of March, 2016, by the following vote: Attest: AYES: NOES: ABSENT: City Clerk -3- Mayor ATTACHMENT 4 RESOLUTION NO. 2016- PETALUMA PUBLIC FINANCING AUTHORITY RESOLUTION APPROVING DOCUMENTS AND ACTIONS RELATING TO THE REFINANCING OF THE CITY OF PETALUMA 2003 CERTIFICATES OF PARTICIPATION AND THE 2005 CALTRANS THROUGH A PRIVATE PLACEMENT WITH COMPASS MORTGAGE CORPORATION WHEREAS, in order to provide financing and refinancing certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to the Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation, as lessor, and the City, as lessee; and WHEREAS, 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the prepayment date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates; and WHEREAS, in order to finance additional improvements to the Petaluma Municipal Airport, the City has heretofore borrowed $1,400,000 from the Department of Transportation of the State of California ("CalTrans"), pursuant to a California Airport Loan Agreement (the "CalTrans Loan Agreement") dated February 16, 2005, between CalTrans and the City; and WHEREAS, the loan made pursuant to the CalTrans Loan Agreement (the "2005 CalTrans Loan") is subject to prepayment, and in order to realize debt service savings the City has determined to refinance the 2005 CalTrans Loan; WHEREAS, Compass Mortgage Company (the Lender") has submitted a proposal to the City wherein the Lender proposes to refinance the 2003 Certificates and the 2005 CalTrans Loan, and the City desires at this time to utilize the Petaluma Public Financing Authority (the "Authority") to effect such refinancing in accordance with said proposal; WHEREAS, Section 46 of the Petaluma Charter (the "Charter') provides that certain specified City actions, including actions to lease property, shall be done by ordinance, except where the Council takes action pursuant to general state law; WHEREAS, Section 37380 of the California Government Code authorizes cities to lease city owned and controlled property, and the Marks -Roos Local Bond Pooling Act of 1985 (the Bond Act), California Government Code Section 6584 and following, authorizes the creation of financing authorities pursuant to Bond Act and the Joint Exercise of Powers Law (the Joint Exercise Law), Government Code Section 6500 and following, to assist in the financing of local agency capital improvement projects; WHEREAS, the City of Petaluma adopted Resolution No. 96-131 on May 20th 1996, to create the Petaluma Public Financing Authority (the Authority) pursuant to the Bond Act and the Joint Exercise Law, and as created, the powers of the Authority pursuant to the Bond Act include the power to lease land and structures as necessary or convenient for the financing of public capital improvements, in accordance with subdivision (h) of Section 6588 of the Bond Act; and WHEREAS, as actions taken pursuant to the Bond Act and other general state law, actions of the City Council and the Authority to authorize issuance of refunding lease obligations as proposed are in accordance with Section 46 of the Charter; NOW, THEREFORE, BE IT RESOLVED, DETRMINED AND ORDERED BY THE GOVERNING BOARD OF THE PETALUMA PUBLIC FINANCING AUTHORITY AS FOLLOWS: Section 1. Approval of Financing Agreements. The Board of Directors hereby approves each of the following, agreements required for the refinancing of the 2003 Certificates and the 2005 CalTrans Loan in accordance with said financing proposal, in substantially the respective forms on file with the Secretary together with any changes therein or additions thereto deemed advisable by the Chairman, the Executive Director or the Treasurer (each, an "Authorized Officer"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions: Site Lease, between the City as lessor and the Authority as lessee, under which the City leases the Leased Property to the Authority in consideration of the payment of an amount which will be applied by the City to refinance the 2003 Certificates and the 2005 CalTrans Loan; Lease Agreement, between the Authority as lessor and the City as lessee, under which the Authority leases the Leased Property back to the City and the City agrees to pay semiannual lease payments as rental for the Leased Property; and • Assignment Agreement, between the Authority and the Lender, whereby the Authority assigns certain of its rights under the Site Lease and the Lease Agreement to the Lender in consideration of the agreement by the Lender to provide funds to refinance the 2003 Certificates and the 2005 CalTrans Loan. Each Authorized Officer acting alone is hereby authorized and directed for and in the name and on behalf of the Authority to execute, and the Secretary is hereby authorized and directed to attest to, the final form of each of the foregoing agreements. If the Authorized Officer executing the foregoing agreements is not the Chairman, such Authorized Officer shall be executing the financing documents as the designee of the Chairman. -2- Section 3. Official Actions. The Chairman, the Executive Director, the Treasurer, the Secretary and any and all other officers of the Authority are hereby authorized and directed, for and in the name and on behalf of the Authority, to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the transactions described herein. Whenever in this resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. Section 4. Appointment of Executive Director. The position of Executive Director of the Authority is hereby created, and the person acting as City Manager of the City is hereby appointed to serve as the Executive Director. The Executive Director may only act as directed by resolution of the Authority. Section 5. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. PASSED AND ADOPTED by the Governing Board of Petaluma Public Financing Authority at a special meeting held this 7th day of March, 2016, by the following vote: Attest: AYES: NOES: ABSENT: Secretary -3- Chairman ATTACHMENT 5 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 475 Sansome Street, Suite 1700 San Francisco, California 94111 Attention: Stephen G. Melikian, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX UNDER SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. LEASE AGREEMENT This Lease (this "Lease"), dated for convenience as of March 1, 2016, is between the PETALUMA PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California (the "Authority"), and the CITY OF PETALUMA, a charter city duly organized and existing under the laws of the State of California, as lessee (the "City"). BACKGROUND: 1. In order to provide financing and refinancing certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to the Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation, as lessor, and the City, as lessee. 2. The 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the redemption date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates. 3. In order to finance certain capital improvements to the Petaluma Municipal Airport, the City has heretofore borrowed $1,400,000 from the Department of Transportation of the State of California ("CalTrans"), pursuant to a California Airport Loan Agreement (the "CalTrans Loan Agreement") dated February 16, 2005, between CalTrans and the City. 4. The loan made pursuant to the CalTrans Loan Agreement (the "2005 CalTrans Loan") is subject to prepayment, and in order to realize debt service savings the City has determined to refinance the 2005 CalTrans Loan. 5. In order to refinance the 2003 Certificates and the 2005 CalTrans Loan, the City has leased the real property, consisting generally of the land and improvements which constitute certain airport hangers at the City's municipal airport, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under a Site Lease dated as of March 1, 2016, which has been recorded concurrently herewith (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2003 Certificates and the 2005 CalTrans Loan. 6. In order to provide revenues which are sufficient to enable the Authority to pay the Site Lease Payment, the Authority has agreed to lease the Leased Property back to the City under this Lease 7. Under this Lease, as provided herein, the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property. 8. Funds required to pay the Site Lease Payment to the City will be provided by Compass Mortgage Corporation (the "Bank"), which will be secured by an assignment of substantially all of the Authority's rights hereunder and under the Site Lease, including the right to receive Lease Payments, under an Assignment Agreement dated as of March 1, 2016, between the Authority as assignor and the Bank as assignee, which has been recorded concurrently herewith. 9. The City and the Authority have found and determined that all acts and proceedings required by law necessary to make this Lease, when executed by the City and the Authority, the valid, binding and legal obligations of the City and the Authority, and to constitute this Lease a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Lease have been in all respects duly authorized. 10. Section 46 of the Petaluma Charter (the "Charter") provides that certain specified City actions, including actions to lease property, shall be done by ordinance, except where the Council takes action pursuant to general state law. 11. Section 37380 of the California Government Code authorizes cities to lease city owned and controlled property, and the Marks -Roos Local Bond Pooling Act of 1985 (the Bond Act), California Government Code Section 6584 and following, authorizes the creation of financing authorities pursuant to Bond Act and the Joint Exercise of Powers Law (the Joint Exercise Law), Government Code Section 6500 and following, to assist in the financing of local agency capital improvement projects. 12. The City of Petaluma adopted Resolution No. 96-131 on May 201h, 1996, to create the Petaluma Public Financing Authority (the Authority) pursuant to the Bond Act and the Joint Exercise Law, and as created, the powers of the Authority pursuant to the Bond Act include the power to lease land and structures as necessary or convenient for -2- the financing of public capital improvements, in accordance with subdivision (h) of Section 6588 of the Bond Act. 13. As actions taken pursuant to the Bond Act and other general state law, actions of the City Council and the Authority to authorize issuance of refunding lease obligations as proposed are in accordance with Section 46 of the Charter. AGREEMENT: In consideration of the material covenants contained in this Lease, the parties hereto hereby formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS; RULES OF INTERPRETATION SECTION 1.1. Definitions. All terms defined in this Section shall for all purposes of this Lease have the meanings herein specified. "Additional Rental Payments" means the amounts specified as such in Section 4.5. "Applicable Environmental Laws" means and shall include, but shall not be limited to, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 USC Sections 9601 et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 USC Sections 6901 et seq.; the Federal Water Pollution Control Act, 33 USC Sections 1251 et seq.; the Clean Air Act, 42 USC Sections 7401 et seq.; the California Hazardous Waste Control Law ("HWCL"), California Health & Safety Code Sections 25100 et seq.; the Hazardous Substance Account Act ("HSAA" ), California Health & Safety Code Sections 25300 et seq.; the Porter- Cologne Water Quality Control Act (the "Porter -Cologne Act"), California Water Code Sections 1300 et seq.; the Air Resources Act, California Health & Safety Code Sections 3900 et seq.; the Safe Drinking Water & Toxic Enforcement Act, California Health & Safety Code Sections 25249.5 et seq.; and the regulations under each thereof; and any other local, state, and/or federal laws or regulations, whether currently in existence or hereafter enacted, that govern: (a) the existence, cleanup, and/or remedy of contamination on property; (b) the protection of the environment from spilled, deposited, or otherwise emplaced contamination; (c) the control of hazardous wastes; or (d) the use, generation, transport, treatment, removal, or recovery of Hazardous Substances, including building materials. -3- "Assignment Agreement" means the Assignment Agreement dated as of March 1, 2016, between the Authority as assignor and the Bank as assignee, as originally executed or as thereafter amended. "Authorized Representative" means: (a) with respect to the Authority, its Chairman, Executive Director, Treasurer or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director and filed with the City and the Bank; and (b) with respect to the City, its Mayor, City Manager, Finance Director or any other person designated as an Authorized Representative of the City by a Written Certificate of the City signed by its City Manager and filed with the Authority and the Bank. "Bank" means Compass Mortgage Corporation, a corporation duly organized and existing under the laws of the State of Alabama, as assignee of the rights of the Authority hereunder, its successors and assigns. "Bond Counsel" means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Authority and the Bank of nationally -recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California are closed. "CalTrans" means Department of Transportation of the State of California. "CalTrans Loan Agreement" means the California Airport Loan Agreement dated February 16, 2005, between CalTrans and the City. "Closing Date" means the date of execution and delivery of this Lease by the parties hereto, being March _, 2016. "Corporation" means the City of Petaluma Public Financing Corporation. "Default Rate" means a rate of interest equal to the interest rate with respect to the Lease Payments, plus 5% (500 basis points). "Determination of Taxability" means any determination, decision or decree by the Commissioner of Internal Revenue, or any District Director of Internal Revenue, or any court of competent jurisdiction, to the effect that an Event of Taxability shall have occurred; provided, however, that the City shall have the opportunity to take such remedial action necessary to restore the tax-exempt status of the interest component of the Lease Payments under this Lease. A Determination of Taxability also shall be deemed to have occurred on the first to occur of the following: (a) the date when the City files any statement, supplemental statement, or other tax schedule, return or document, which discloses that an Event of Taxability shall have occurred; M (b) the effective date of any federal legislation enacted after the date of this Lease or promulgation of any income tax regulation or ruling by the Internal Revenue Service that causes an Event of Taxability after the date of this Lease; or (c) a sale or other deliberate action within the meaning of Treas. Reg. §1.141 2(d), occurs with respect to all or a portion of the Project without the City furnishing the Bank with an opinion of Bond Counsel to the effect that such change in use (and accompanying remedial action, if any) will not cause the interest components of the Lease Payments to become includable in the gross income of the recipient. "Escrow Agreement" means the Escrow Deposit and Trust Agreement dated as of March 1, 2016, between the City and the 2003 Trustee, relating to the payment and prepayment of the 2003 Certificates and the discharge of the City's and the Corporation's obligations relating thereto. "Event of Default" means any of the events specified in Section 8.1. "Event of Taxability" means, with respect to this Lease, (a) the application of the proceeds of this Lease in such manner that this Lease becomes an "arbitrage bond" within the meaning of Tax Code Sections 103(b)(2) and 148, and with the result that interest components of the Lease Payments are or become includable in a recipient's gross income (as defined in Tax Code Section 61); or (b) if as the result of any act, failure to act or use of the proceeds of this Lease or any misrepresentation or inaccuracy in any of the representations, warranties or covenants contained in this Lease by the City or the enactment of any federal legislation or the promulgation of any federal rule or regulation after the date of this Lease, the interest component of Lease Payments is or becomes includable in a recipient's gross income (as defined in Tax Code Section 61); and (c) with respect to (a) and (b), the City does not undertake any remedial action afforded to it by the Internal Revenue Service. "Excess Investment Earnings" means an amount required to be rebated to the United States of America under Section 148(f) of the Tax Code due to investment of gross proceeds of this Lease at a yield in excess of the yield on this Lease. "Federal Securities" means any direct general non -callable obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), or obligations the timely payment of principal of and interest on which are directly guaranteed by the United States of America. "Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the City as its official fiscal year period. "Governmental Authority" means any governmental or quasi -governmental entity, including any court, department, commission, board, bureau, agency, administration, -5- central bank, service, district or other instrumentality of any governmental entity or other entity exercising executive, legislative, judicial, taxing, regulatory, fiscal, monetary or administrative powers or functions of or pertaining to government, or any arbitrator, mediator or other person with authority to bind a party at law. "Gross Up Rate" means, an interest rate equal to the Original Rate plus a rate sufficient such that the total interest to be paid on any Lease Payment Date would, after such interest was reduced by the amount of any federal income tax and state personal income tax (including any interest or penalties) actually payable thereon, be equal the amount of interest due with respect to the Lease Payments calculated at the Original Rate. "Hazardous Substance" means any substance that shall, at any time, be listed as "hazardous" or "toxic" in any Applicable Environmental Law or that has been or shall be determined at any time by any agency or court to be a hazardous or toxic substance regulated under Applicable Environmental Laws; and also means, without limitation, raw materials, building components, the products of any manufacturing, or other activities on the Leased Property, wastes, petroleum, and source, special nuclear, or by-product material as defined by the Atomic Energy Act of 1954, as amended (42 USC Sections 3011 et seq.). "Independent Accountant" means any certified public accountant or firm of certified public accountants appointed and paid by the Authority or the City, and who, or each of whom (a) is in fact independent and not under domination of the Authority or the City; (b) does not have any substantial interest, direct or indirect, in the Authority or the City; and (c) is not connected with the Authority or the City as an officer or employee of the Authority or the City but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the City. "Lease Payment Date" means each May 1 and November 1, commencing November 1, 2016. "Lease Payments" means the amounts payable by the City under Section 4.3(a), including any prepayment thereof and including any amounts payable upon a delinquency in the payment thereof. "Leased Property" means the real property described in Appendix A to this Lease, together with all improvements and facilities at any time situated thereon, consisting of certain hangers at Petaluma's Municipal Airport. "Material Adverse Effect" means an event or occurrence which adversely affects in a material manner (a) the assets, liabilities, condition (financial or otherwise), business, facilities or operations of the City, (b) the ability of the City to carry out its business in the manner conducted as of the date of this Lease or to meet or perform its obligations under this Lease on a timely basis, (c) the validity or enforceability of this Lease, or (d) the exclusion of the interest components of the Lease Payments from gross income for federal income tax purposes or the exemption of such interest for state income tax purposes. "Material Litigation" means any action, suit, proceeding, inquiry or investigation against the City in any court or before any arbitrator of any kind or before or by any 01 Governmental Authority, of which the City has notice or knowledge and which, (i) if determined adversely to the City, may have a Material Adverse Effect, (ii) seek to restrain or enjoin any of the transactions contemplated by this Lease or the Site Lease, or (iii) may adversely affect (A) the exclusion of interest with respect to the Lease Payments from gross income for federal income tax purposes or the exemption of such interest for state income tax purposes or (B) the ability of the City to perform its obligations under this Lease. "Net Proceeds" means amounts derived from any policy of casualty insurance or title insurance with respect to the Leased Property, or the proceeds of any taking of the Leased Property or any portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof. "Original Principal Amount" means the aggregate original amount of the principal components of the Lease Payments, being $ "Original Rate" means the rate at which the interest components of the Lease Payments are originally determined, being the rate of % per annum. "Permitted Encumbrances" means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may permit to remain unpaid under Article V of this Lease; (b) the Site Lease, this Lease and the Assignment Agreement; (c) any right or claim of any mechanic, laborer, material man, supplier or vendor not filed or perfected in the manner prescribed by law; (d) the exceptions disclosed in the title insurance policy with respect to the Leased Property issued as of the Closing Date by Title Company; and (e) easements, rights of way, mineral rights, drilling rights ' and other rights, reservations, covenants, conditions or restrictions which exist of record and which the City certifies in writing will not materially impair the use of the Leased Property for its intended purposes. "Prior Lease Payments" means a payment of interest component of Lease Payments made on or prior to the date of any Determination of Taxability. "Site Lease" means the Site Lease dated as of March 1, 2016, between the City as lessor and the Authority as lessee, as amended from time to time in accordance with its terms. "Site Lease Payment" means the amount of $ which is payable by the Authority to the City on the Closing Date under Section 3 of the Site Lease. "Tax Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said Code. "Term" means, with reference to this Lease, the time during which this Lease is in effect, as provided in Section 4.2. -7- "2003 Certificates" means the outstanding City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) issued in the initial aggregate original principal amount of $6,295,000. "2003 Trustee" means U.S. Bank National Association, its successors and assigns, as trustee for the 2003 Certificates. "2005 CalTrans Loan" means the loan made by CalTrans to the City in the initial aggregate principal amount of $1,400,000, of which $[706,394] is currently outstanding, pursuant to the CalTrans Loan Agreement. "Written Certificate," "Written Request" and "Written Requisition" of the Authority or the City mean, respectively, a written certificate, request or requisition signed in the name of the Authority or the City by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. SECTION 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular includes the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and includes the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and do not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Lease; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or subdivision hereof. IRI ARTICLE II COVENANTS, REPRESENTATIONS AND WARRANTIES SECTION 2.1. Covenants, Representations and Warranties of the City. The City makes the following covenants, representations and warranties to the Authority and the Bank as of the date of the execution and delivery of this Lease: (a) Due Organization and Existence. The City is a charter city duly organized and validly existing under the laws of the State of California, has full legal right, power and authority under the laws of the State of California to enter into the Site Lease, the Escrow Agreement and this Lease and to carry out and consummate all transactions contemplated hereby, and by proper action the City has duly authorized the execution and delivery of the Site Lease, the Escrow Agreement and this Lease. (b) Due Execution. The representatives of the City executing the Site Lease, the Escrow Agreement and this Lease have been fully authorized to execute the same under a resolution duly adopted by the City Council of the City. (c) Valid Bindinq and Enforceable Obligations. The Site Lease, the Escrow Agreement and this Lease have been duly authorized, executed and delivered by the City and constitute the legal, valid and binding obligations of the City enforceable against the City in accordance with their respective terms. (d) No Conflicts. The execution and delivery of the Site Lease, the Escrow Agreement and this Lease, the consummation of the transactions therein and herein contemplated and the fulfillment of or compliance with the terms and conditions thereof and hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the City is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the Leased Property or assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially and adversely affect the consummation of the transactions contemplated by the Site Lease, the Escrow Agreement and this Lease or the financial condition, assets, properties or operations of the City. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the City or of the voters of the City, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in M connection with the execution and delivery of the Site Lease, the Escrow Agreement and this Lease, or the consummation of any transaction therein and herein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending and notice of which has been served on the City or, to the knowledge of the City after reasonable investigation, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a Material Adverse Effect upon the consummation of the transactions contemplated by or the validity of the Site Lease, the Escrow Agreement and this Lease, and the City is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by the Site Lease, the Escrow Agreement and this Lease. (g) Condition of Leased Property. The City is the owner in fee of title to the Leased Property. As of the Closing Date the Leased Property is sound condition, free and clear of all liens and encumbrances other than Permitted Encumbrances, and free of all defects which would render it unfit for occupancy by the City. All buildings and other structures which are situated on the Leased Property have been constructed in full conformity with all applicable building codes, including all applicable seismic requirements. (h) Sufficient Funds. The City reasonably believes that sufficient funds can be obtained to make all Lease Payments and all other amounts required to be paid pursuant to this Lease. (i) No Defaults. The City has never non -appropriated or defaulted under any of its payment or performance obligations or covenants, either under any financing lease of the same general nature as this Lease, or under any of its bonds, notes, or other debt obligations. (j) Use of the Leased Property, Essentiality. During the Term of this Lease, the Leased Property will be used by the City only for the purpose of performing one or more governmental or proprietary functions of the City consistent with the permissible scope of the City's authority. The Leased Property is essential to the City's efficient and economic operations and the lease thereof for use by the City is in the best interest of the City. (k) Hazardous Substances. Other than the storage and use of products and materials which may be considered Hazardous Substances in the ordinary course of the City's operation of the Leased Property for its intended purpose as airport hangers, the Leased Property is -10- otherwise free of Hazardous Substances, and the City is in full compliance with all Applicable Environmental Laws. (I) Flooding Risk. The Leased Property is not located in a flood hazard area and has never been subject to material damage from flooding. (m) Value of Property. The value of the Leased Property (real property replacement cost) is not less than $ (n) Financial Statements. The statement of financial position of the City as of June 30, [2015], and the related statement of activities and statement of cash flows and changes in financial position for the year then ended and the auditors' reports with respect thereto, copies of which have heretofore been furnished to the Bank, are complete and correct and fairly present the financial condition, changes in financial position and results of operations of the City at such date and for such period, and were prepared in accordance with generally accepted accounting principles. Since the period of such statements, there has been no (i) change which would have a Material Adverse Effect and (ii) material increase in the indebtedness of the City. (o) No Material Adverse Change. Since the most current date of the information, financial or otherwise, supplied by the City to the Bank: (1) There has been no change in the assets, liabilities, financial position or results of operations of the City that might reasonably be anticipated to cause a Material Adverse Effect. (2) The City has not incurred any obligations or liabilities that might reasonably be anticipated to cause a Material Adverse Effect. (3) The City has not (A) incurred any material indebtedness, other than the Lease Payments, and trade accounts payable arising in the ordinary course of the City's business and not past due, or (B) guaranteed the indebtedness of any other person. (p) Accuracy of Information. The City's audited financial statements for the period ended June 30, 2015, presents fairly the financial condition of the City as of the date hereof and the results of operation for the period covered thereby. Except as has been disclosed to the Bank, there has been no change in the financial condition of the City since June 30, 2015, that will materially impair its ability to perform its obligations under this Lease. All information provided by the City to the Bank with respect to the financial performance of the City is accurate in all material respects as of its respective date and does not omit any information necessary to make the information provided not misleading. -11- SECTION 2.2. Covenants, Representations and Warranties of the Authority. The Authority makes the following covenants, representations and warranties to the City and the Bank as of the date of the execution and delivery of this Lease: (a) Due Organization and Existence. The Authority is a joint exercise of powers authority duly organized and validly existing under a joint powers agreement and the laws of the State of California; has power to enter into this Lease, the Site Lease, the Escrow Agreement and the Assignment Agreement; is possessed of full power to own and hold, improve and equip real and personal property, and to lease the same; and has duly authorized the execution and delivery of each of the aforesaid agreements and such agreements constitute the legal, valid and binding obligations of the Authority, enforceable against the Authority in accordance with their respective terms. (b) Due Execution. The representatives of the Authority executing this Lease, the Site Lease, the Escrow Agreement and the Assignment Agreement are fully authorized to execute the same pursuant to official action taken by the governing body of the Authority. (c) Valid Binding and Enforceable Obligations. This Lease, the Site Lease, the Escrow Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding agreements of the Authority, enforceable against the Authority in accordance with their respective terms. (d) No Conflicts. The execution and delivery of this Lease, the Site Lease, the Escrow Agreement and the Assignment Agreement, the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the Authority is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the Leased Property or assets of the Authority, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease, the Site Lease, the Escrow Agreement and the Assignment Agreement or the financial condition, assets, properties or operations of the Authority. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the Authority, and no consent, permission, authorization, order or license of, or filing or registration -12- with, any governmental authority is necessary in connection with the execution and delivery of this Lease, the Site Lease, the Escrow Agreement or the Assignment Agreement, or the consummation of any transaction herein or therein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the Authority after reasonable investigation, threatened against or affecting the Authority or the assets, properties or operations of the Authority which, if determined adversely to the Authority or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Lease, the Site Lease, the Escrow Agreement or the Assignment Agreement, or upon the financial condition, assets, properties or operations of the Authority, and the Authority is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease, the Site Lease, the Escrow Agreement or the Assignment Agreement or the financial conditions, assets, properties or operations of the Authority. ARTICLE III DEPOSIT AND APPLICATION OF FUNDS; SUBSTITUTION AND RELEASE OF PROPERTY SECTION 3.1. Amount of Financing; Deposit of Amounts. Pursuant to the Assignment Agreement, the Authority shall cause the Bank to apply the proceeds of this Lease on the Closing Date as follows: (a) the Bank shall transfer the amount of $ to the Escrow Agent, to be deposited and applied under the Escrow Agreement for the purpose of refinancing the 2003 Certificates; (b) the Bank will transfer $ to CalTrans to prepay the 2005 CalTrans Loan and discharge the CalTrans Loan Agreement; and (b) the Bank shall pay financing costs relating to the transaction, in the aggregate amount of $ , in accordance with a written request executed by an authorized representative of the City and filed with the Bank for that purpose. SECTION 3.2. Substitution of Property. With the prior written consent of the Bank (which shall be at its sole discretion), the City has the option at any time and from time to time, to substitute other real property (the "Substitute Property") for the Leased Property -13- or any portion thereof (the "Former Property"), upon satisfaction of all of the following requirements that are hereby declared to be conditions precedent to such substitution: (a) No Event of Default has occurred and is continuing. (b) The City has filed with the Authority and the Bank, and caused to be recorded in the office of the Sonoma County Recorder sufficient memorialization of, an amendment hereof which adds the legal description of the Substitute Property to Appendix A and deletes therefrom the legal description of the Former Property. (c) The City has obtained a CLTA policy of title insurance insuring the Authority's leasehold estate under the Site Lease and the City's leasehold estate hereunder in the Substitute Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate unpaid principal components of the remaining Lease Payments. (d) The City has certified in writing to the Authority and the Bank that the Substitute Property serves the municipal purposes of the City and constitutes property which the City is permitted to lease under the laws of the State of California, and has been determined to be essential to the proper, efficient and economic operation of the City and to serve an essential governmental function of the City. (e) The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made herein. (g) The City has filed with the Authority and the Bank a written certificate of the City or other written evidencing stating that the estimated value of the Substitute Property is at least equal to the Original Principal Amount, and that the useful life of the Substitute Property at least extends to August 1, 2030. Upon the satisfaction of all such conditions precedent, the Term of this Lease will thereupon end as to the Former Property and commence as to the Substitute Property, and all references to the Former Property will apply with full force and effect to the Substitute Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of any substitution of property under this Section. The Authority and the City will execute, deliver and cause to be recorded all documents required to discharge the Site Lease, this Lease and the Assignment Agreement of record against the Former Property and to cause the Substitute Property to become subject to all of the terms and conditions of the Site Lease, this Lease and the Assignment Agreement. SECTION 3.3. Release of Property. With the prior written consent of the Bank (which shall be at its sole discretion), the City has the option at any time and from time to time to release any portion of the Leased Property from this Lease (the "Released Property") provided that the City has satisfied all of the following requirements which are hereby declared to be conditions precedent to such release: -14- (a) The City shall certify to the Bank and the Authority that no Event of Default has occurred and is continuing, and no event giving rise to an abatement of Lease Payments under this Lease has occurred or is continuing with respect to the Leased Property that will continue to be subject to this Lease following release of the Released Property. (b) The City has filed with the Authority and the Bank, and caused to be recorded in the office of the Sonoma County Recorder sufficient memorialization of, an amendment hereof which removes the Released Property from the Site Lease and this Lease. (c) The City has certified in writing to the Authority and the Bank that the value of the Leased Property which remains subject to this Lease following such release is at least equal to the Original Principal Amount, and the fair rental value of the Leased Property which remains subject to this Lease following such release is at least equal to the Lease Payments thereafter coming due and payable hereunder. (d) The City shall file with the Bank and the Authority such other information, documents and instruments as the Bank and the Authority shall reasonably request, including (if requested by the Bank) evidence of the insurable value of the Leased Property remaining subject to this Lease following release of the Released Property, indicating that such value is in excess of the then unpaid principal component of the Lease Payments and such endorsements to the title policy delivered on the Closing Date. Upon the satisfaction of all such conditions precedent, the Term of this Lease will thereupon end as to the Released Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release. The Authority and the City shall execute, deliver and cause to be recorded all documents required to discharge the Site Lease, this Lease and the Assignment Agreement of record against the Released Property. ARTICLE IV LEASE OF LEASED PROPERTY; TERM OF THIS LEASE; LEASE PAYMENTS SECTION 4.1. Lease of Leased Property. The Authority hereby leases the Leased Property to the City and the City hereby leases the Leased Property from the Authority, upon the terms and conditions set forth in this Lease. SECTION 4.2. Term. The Term of this Lease commences on the Closing Date and ends on the date on which the Lease Payments have been paid in full or provision for such payment has been made in accordance with Section 9.1. The provisions of this Section are subject to the provisions of Section 6.2 relating to the taking in eminent -15- domain of the Leased Property in whole or in part. If on August 1, 2025, the Lease Payments payable hereunder shall have been abated at any time and for any reason and not otherwise paid from rental interruption insurance or other sources, or the City shall have defaulted in its payment of Lease Payments hereunder or any Event of Default has occurred and continues without cure by the City, then the term of this Lease shall be extended for the actual period of abatement or for so long as the default remains uncured, as necessary to accommodate the final payment of all Lease Payments due hereunder, not to exceed ten years. The provisions of this Section 4.2 are subject to the provisions of Section 6.1 relating to the taking in eminent domain of the Leased Property or any portion thereof. SECTION 4.3. Lease Payments. (a) Obligation to Pay. Subject to the provisions of Sections 6.2 and 6.3 and the provisions of Article IX, the City agrees to pay to the Authority, its successors and assigns, the Lease Payments in the respective amounts specified in Appendix B attached to this Lease, to be due and payable in immediately available funds on each of the respective Lease Payment Dates 'specified in Appendix B. The Lease Payments payable in any Rental Period are for the use of the Leased Property during that Rental Period. The interest components of the Lease Payments have been calculated based on an interest rate equal to the Original Rate on the basis of a 360 -day year of twelve 30 -day months. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, then such payment shall be made on the next succeeding Business Day, and such later payment shall have the same force and effect as if made on the date of payment or the date fixed for prepayment, and no additional interest shall accrue for the period after such date and prior to the date of payment or prepayment. (b) Payments Upon Determination of Taxability. Upon the occurrence of a Determination of Taxability, with respect to this Lease, the City shall, with respect to future payments of the Lease Payments, begin making Lease Payments calculated at the Gross Up Rate, but in no event shall the present value of such Lease Payments at the Gross -Up Rate exceed the fair rental value of the Property. In addition, the City shall make immediately upon demand of the Bank a payment to the Bank sufficient to indemnify the Bank and supplement Prior Lease Payments with respect to such obligation to the Gross Up Rate, and such obligation shall survive the termination of this Lease Agreement. (c) Effect of Prepayment. If the City prepays all Lease Payments in full under Sections 9.2 or 9.3, the City's obligations under this Section will thereupon cease and terminate, including but not limited to the City's obligation to pay Lease Payments under this Section; subject however, to the provisions of Section 9.1 in the case of prepayment by application of a security deposit. If the City prepays the Lease Payments in part but not in whole under Section 9.3, the amount of such prepayment shall be applied first to the interest component of the Lease Payments then due, and thereafter to the principal components of the remaining Lease Payments on a pro rata basis. (d) Rate on Overdue Payments; Payments after Other Events of Default. If the City fails to make any of the payments required in this Section, the payment in default will continue as an obligation of the City until the amount in default has been fully paid, -16- and the City agrees to pay the same with interest thereon, from the date of default to the date of payment at the Default Rate. In addition, if any other Event of Default occurs hereunder, the interest rate on the unpaid principal component shall, from and after such Event of Default until such time as it has been cured, accrue interest at the Default Rate. (e) Fair Rental Value. The aggregate amount of the Lease Payments and Additional Rental Payments coming due and payable during each Rental Period constitute the total rental for the Leased Property for such Rental Period, and are payable by the City in each Rental Period for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Leased Property during each Rental Period. The parties hereto have agreed and determined that the total Lease Payments represent the fair rental value of the Leased Property. In making that determination, consideration has been given to the estimated value of the Leased Property, other obligations of the City and the Authority under this Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the City and the general public. (f) Assignment. The City understands and agrees that all Lease Payments have been assigned by the Authority to the Bank under the Assignment Agreement, and the City hereby assents to such assignment. As a result of such assignment, the City shall pay all Lease Payments when due directly to the Bank, in accordance with such payment instructions as the Bank shall provide to the City from time to time. As of the Closing Date, the City shall pay the Lease Payments to the Bank by wire transfer in accordance with the following wire transfer instructions: [Compass Mortgage Corporation c/o Compass Bank 201 North Hwy 183 Leander, 78646 (512) 421-5715 ABA#: 113-010-547 For Credit to: Account 90124099 bbi: DO NOT POST. CONTACT LDFCPublicFinance@bbvacompass.com Reference: City of Petaluma] (f) Allocation of Lease Payments. All Lease Payments received shall be applied first to the interest components of the Lease Payments due hereunder, then to the principal components of the Lease Payments due hereunder, but no such application of any payments that are less than the total rental due and owing shall be deemed a waiver of any default hereunder. (g) No Offsets. Notwithstanding any dispute between the Bank and the City, the City shall make all Lease Payments when due without deduction or offset of any kind and shall not withhold any Lease Payments pending the final resolution of such dispute. SECTION 4.4. Source of Payments; Covenant to Budget and Appropriate. The Lease Payments are payable from any source of available funds of the City, subject to the provisions of Section 6.4. The City covenants to take all actions required to include -17- the Lease Payments and Additional Rental Payments in each of its budgets during the Term of this Lease and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. The foregoing covenant of the City contained constitutes a duty imposed by law and each and every public official of the City is required to take all actions required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by the City. SECTION 4.5. Additional Rental Payments. In addition to the Lease Payments, the City shall pay when due the following amounts of Additional Rental Payments in consideration of the lease of the Leased Property by the City from the Authority hereunder: (a) all taxes and assessments of any nature whatsoever, including but not limited to excise taxes, ad valorem taxes, ad valorem and specific lien special assessments and gross receipts taxes, if any, levied upon the Leased Property or upon any interest of the Bank therein or in this Lease[; provided, however, the City may, at the City's expense and in its name, in good faith contest any such taxes and assessments and, in the event of such contest, may permit such taxes and assessments to remain unpaid during the period of such contest and appeal therefrom unless the Bank shall notify the City that, in the opinion of Bond Counsel, by nonpayment of any such items, the interest of the Bank in the Leased Property will be materially endangered or the Leased Property, or any portion thereof, will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes and assessments or provide the Bank with full security against any loss which may result from nonpayment, in form satisfactory to the BankJ (b) insurance premiums, if any, on all insurance required under the provisions of Article V; (c) any other reasonable fees, costs or expenses incurred by the Bank in connection with the execution, performance or enforcement of this Lease or any of the transactions contemplated hereby or related to the Leased Property, including, without limitation, any amounts which may become due; provided, however, the City shall not be responsible for any costs incurred by the Bank associated with any assignment of this Lease; (d) all fees and expenses incurred by the Authority in connection with or by reason of its leasehold estate in the Leased Property, when due, (e) all compensation and indemnification payable to the Bank under Section 7.3, (f) the reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged to prepare audits, financial statements, reports, opinions or provide such other services required under this Lease, M (g) amounts coming due and payable as Excess Investment Earnings in accordance with Section 7.6(e), and (h) the reasonable out-of-pocket expenses of the Authority in connection with the execution and delivery of this Lease, or incurred by the Authority in connection with any litigation which may at any time be instituted involving this Lease or any of the other documents contemplated hereby, or otherwise incurred in connection with the administration of this Lease. SECTION 4.6. Quiet Enjoyment. Throughout the Term of this Lease, the Authority shall provide the City with quiet use and enjoyment of the Leased Property and the City will peaceably and quietly have and hold and enjoy the Leased Property, without suit, trouble or hindrance from the Authority, except as expressly set forth in this Lease. The Authority will, at the request of the City and at the City's cost, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority has the right to inspect the Leased Property as provided in Section 7.2. SECTION 4.7. Title. At all times during the Term of this Lease, the City shall hold title to the Leased Property, including all additions which comprise fixtures, repairs, replacements or modifications thereto, subject to Permitted Encumbrances and subject to the provisions of Section 7.2. Upon the termination of this Lease (other than under Section 8.2(b) hereof), all right, title and interest of the Authority in and to the Leased Property shall transfer to and vest in the City. Upon the payment in full of all Lease Payments allocable to the Leased Property, or upon the deposit by the City of security for such Lease Payments as provided in Section 9.1, all right, title and interest of the Authority and the Bank in and to the Leased Property shall be transferred to and vested in the City. The Authority and the Bank shall take any and all steps and execute and record any and all documents reasonably required by the City to consummate any such transfer of title. -19- ARTICLE V MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS SECTION 5.1. Maintenance, Utilities, Taxes and Assessments. Throughout the Term of this Lease, as part of the consideration for the rental of the Leased Property, all improvement, repair and maintenance of the Leased Property are the responsibility of the City, and the City will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Lease Payments herein provided, the Authority agrees to provide only the Leased Property. The City waives the benefits of subsections 1 and 2 of Section 1932, Section 1933(4) and Sections 1941 and 1942 of the California Civil Code, but such waiver does not limit any of the rights of the City under the terms of this Lease. The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Leased Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall pay only such installments as are required to be paid during the Term of this Lease as and when the same become due. [Except as otherwise set forth in Section 4.5, the City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority notifies the City that, in its reasonable opinion, by nonpayment of any such items the interest of the Authority in the Leased Property will be materially endangered or the Leased Property or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the Bank.] SECTION 5.2. Modification of Leased Property. The City has the right, at its own expense, to make additions, modifications and improvements to the Leased Property or any portion thereof. All additions, modifications and improvements to the Leased Property will thereafter comprise part of the Leased Property and become subject to the provisions of this Lease. Such additions, modifications and improvements may not in any way damage the Leased Property, or cause the Leased Property to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made thereto under this Section, must be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. The City will not permit any mechanic's or other lien to be established or remain against the Leased Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or -20- replacements made by the City under this Section; except that if any such lien is established and the City first notifies or causes to be notified the Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture that might arise from the nonpayment of any such item, in form satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the City. The City shall promptly notify the Bank of any tax, assessment, utility or other charge it elects to contest. SECTION 5.3. Liability, Property Damage and Workers' Compensation Insurance. The City shall maintain or cause to be maintained throughout the Term of this Lease, a standard commercial general liability insurance policy or policies in protection of the Authority, the Bank, the City, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage with limits of at least $3,000,000 per occurrence, $5,000,000 in the aggregate, for bodily injury and property damage coverage, and excess liability umbrella coverage of at least $5,000,000, and in all events in form and amount (including any deductibles) satisfactory to the Bank. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part, with the Bank's prior written consent, in the form of self-insurance by the City, subject to the provisions of Section 5.7, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance must be applied toward extinguishment or satisfaction of the liability with respect to which paid. If required by applicable California law, the City shall carry workers' compensation insurance covering all employees on, in, near or about the Leased Property and, upon request, shall furnish to the Bank certificates evidencing such coverage throughout the Term of this Lease. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City and may be maintained in whole or in part in the form of the participation by the City in a joint powers authority or other program providing pooled insurance. SECTION 5.4. Casualty Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, casualty insurance against loss or damage to all buildings situated on the Leased Property, in an amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate unpaid principal components of the Lease Payments. Such insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and must include earthquake insurance if available at reasonable cost from reputable insurers in the judgment of the City. Such insurance shall be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that -21- such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance must be applied as provided in Section 6.2. SECTION 5.5. Rental Interruption Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of any of the hazards covered in the insurance required by Section 5.4, in an amount at least equal to the maximum such Lease Payments coming due and payable during any consecutive two full Fiscal Years. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, shall be paid to the Bank and applied as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable. SECTION 5.6. Recordation Hereof,- Title Insurance. On or before the Closing Date the City shall, at its expense, (a) cause the Site Lease, the Assignment Agreement and this Lease, or a memorandum hereof or thereof in form and substance approved by Bond Counsel, to be recorded in the office of the Sonoma County Recorder, and (b) obtain a CLTA title insurance policy insuring the Authority's leasehold estate under the Site Lease and the City's leasehold estate hereunder in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the Original Principal Amount. All Net Proceeds received under any such title insurance policy shall be applied towards the prepayment of the remaining Lease Payments under Section 9.3. The Bank shall be named as an additional insured party under the CLTA title policy. SECTION 5.7. Insurance Net Proceeds; Form of Policies. Each policy of insurance maintained under Sections 5.4, 5.5 and 5.6 must name the City and the Bank as insureds and the Bank as loss payee and shall include a lender's loss payable endorsement for the benefit of the Bank. In the case of coverage pursuant to Section 5.03, the Bank shall be added as an additional insured. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease. All such policies shall provide that the Bank is given 30 days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. The City shall file with the Bank annually, within 30 days following the close of each Fiscal Year, a certificate of the City stating that all policies of insurance required hereunder are then in full force and effect and will deposit with the Bank policies (and riders and endorsements, if applicable) evidencing any such insurance procured by it, or a certificate or certificates of the respective insurers stating that such insurance is in full force and effect. The Bank has no responsibility for the sufficiency, adequacy or amount of any insurance or self-insurance herein required and is fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. SECTION 5.8. Installation of City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other personal property in or upon the Leased Property. All such items shall remain the sole property of the City, in which neither the -22- Authority nor the Bank has any interest, and may be modified or removed by the City at any time, provided that the City must repair all damage to the Leased Property resulting from the installation, modification or removal of any such items. Nothing in this Lease prevents the City from purchasing or leasing items to be installed under this Section under a lease or conditional sale agreement, or subject to a vendor's lien or security agreement, as security for the unpaid portion of the purchase price thereof, so long as no such lien or security interest attaches to any part of the Leased Property. SECTION 5.9. Liens. The City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Leased Property, other than as herein contemplated and except for such encumbrances as the City certifies in writing to the Bank do not materially and adversely affect this leasehold estate of the City and the Authority in the Leased Property hereunder or the leasehold estate of the Authority under the Site Lease, and for which the Bank provides its prior written consent (which shall be at its sole discretion). Except as expressly provided in this Section 5.9, the City will promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible; provided that the City is not required to do so prior to the time when such mortgage, pledge, lien, charge, encumbrance or claim actually causes such material adverse effect. The City will reimburse the Authority and the Bank for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. SECTION 5.10. Advances. If the City fails to perform any of its obligations under this Article V, the Authority may (but is not required to) take such action as it deems necessary to cure such failure, including the advancement of money, and the City shall repay all such advances as Additional Rental Payments hereunder, with interest at the Default Rate. SECTION 5.11. Information Provided to the Bank. The City shall provide the following information and documentation to the Bank: (a) Immediate notice by telephone, promptly confirmed in writing, of any event, action or failure to take any action which constitutes an Event of Default, together with a detailed statement by an Authorized Representative of the City describing the steps being taken by the City to cure the effect of such Event of Default. (b) Prompt written notice of any Material Litigation, or any investigation, inquiry or similar proceeding by any Governmental Authority. (c) Promptly upon notice thereof, any termination or cancellation of any insurance policy which the City is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting the City property in excess of an aggregate of $500,000. (d) Prompt written notice of any Material Adverse Effect. 51491 (e) With reasonable promptness, such other information respecting the City and the operations, affairs and financial condition of the City as the Bank may from time to time reasonably request. SECTION 5.12. Environmental Covenants. (a) Compliance with Laws; No Hazardous Substances. The City will comply with all Applicable Environmental Laws with respect to the Leased Property and will not use, store, generate, treat, transport, or dispose of any Hazardous Substance thereon or in a manner that would cause any Hazardous Substance to later flow, migrate, leak, leach, or otherwise come to rest on or in the Leased Property. Notwithstanding the preceding sentence, the City may store and use on the Leased Property products and materials which may be considered Hazardous Substances, but only to the extent such products and materials are used in the ordinary course of City's operation of the Leased Property for its intended purpose as airport hangers. (b) Notification of Bank. The City will transmit copies of all notices, orders, or statements received from any governmental entity concerning violations or asserted violations of Applicable Environmental Laws with respect to the Leased Property and any operations conducted thereon or any conditions existing thereon to the Bank, and the City will notify the Bank in writing immediately of any release, discharge, spill, or deposit of any Hazardous Substance that has occurred or is occurring that in any way affects or threatens to affect the Leased Property, or the people, structures, or other property thereon, provided that no such notification shall create any liability or obligation on the part of the Bank. (c) Access for Inspection. The City will permit the Bank, its agents, or any experts designated by the Bank to have full access to the Leased Property during reasonable business hours for purposes of such independent investigation of compliance with all Applicable Environmental Laws, provided that the Bank has no obligation to do so, or any liability for any failure to do so, or any liability should it do so. ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS SECTION 6.1. Application of Net Proceeds of Insurance. (a) Any Net Proceeds of insurance against damage to or destruction of any part of the Leased Property collected by the City in the event of any such damage or destruction shall be deposited by the City promptly upon receipt thereof in a special fund with the Bank designated as the "Insurance and Condemnation Fund." (b) Within 90 days following the date of such deposit,. the City shall determine and notify the Bank in writing of its determination either (i) that the replacement, repair, restoration, modification or improvement of the Leased Property is not economically feasible or in the best interest of the City and the Net Proceeds, together with other -24- moneys available therefor, are sufficient to cause the prepayment of the principal components of all unpaid Lease Payments pursuant to Section 9.3, or (ii) that all or a portion of such Net Proceeds are to be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Leased Property and the fair rental value of the Leased Property following such repair, restoration, replacement, modification or improvement will at least equal the unpaid principal component of the Lease Payments. (c) In the event the City determines not to replace, repair, restore, modify or improve the damaged or destroyed portions of the Leased Property, the Net Proceeds shall be promptly applied to the prepayment of Lease Payments under Section 9.3; provided, however, that in the event of damage or destruction of the Leased Property in full, such Net Proceeds may be so applied only if sufficient, together with other moneys available therefor, to cause the prepayment of the principal components of all unpaid Lease Payments, plus all accrued and unpaid interest, prepayment premiums and all other costs related to such prepayments under Section 9.3, and otherwise such Net Proceeds shall be applied to the prompt replacement, repair, restoration, modification or improvement of the Leased Property; provided further, however, that in the event of damage or destruction of the Leased Property in part, such Net Proceeds may be applied to the prepayment of Lease Payments only if the resulting Lease Payments following such prepayment from Net Proceeds represent fair consideration for the remaining portions of the Leased Property and otherwise such Net Proceeds shall be applied to the prompt replacement, repair, restoration, modification or improvement of the Leased Property, evidenced by a certificate signed by a City Representative. (d) In the event the City determines to replace, repair, restore, modify or improve the damaged or destroyed portions of the Leased Property, such Net Proceeds shall be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Leased Property by the City, and until the Leased Property has been restored to its prior condition, the City shall not place any lien or encumbrance on the Leased Property that is senior to this Lease without the prior written consent of the Bank, at its sole discretion. SECTION 6.2. Application of Net Proceeds of Eminent Domain. If all or any part of the Leased Property shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain) the Net Proceeds therefrom shall be deposited by the City in the Insurance and Condemnation Fund and shall be applied and disbursed as follows: (a) If the City has given written notice to the Bank of its determination that (i) such eminent domain proceedings have not materially affected the operation of the Leased Property or the ability of the City to meet any of its obligations with respect to the Leased Property under this Lease, and (ii) such proceeds are not needed for repair or rehabilitation of the Leased Property, the City shall so certify to the Bank and the Authority, and the City shall credit such proceeds towards the prepayment of the Lease Payments pursuant to Section 9.03 of this Lease. (b) If the City has given written notice to the Bank of its determination that (i) such eminent domain proceedings have not materially -25- affected the operation of the Leased Property or the ability of the City to meet any of its obligations with respect to the Leased Property under this Lease, and (ii) such proceeds are needed for repair, rehabilitation or replacement of the Leased Property, the City shall so certify to the Bank, and the City shall apply such amounts for such repair or rehabilitation. (c) If (i) less than all of the Leased Property shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and if the City has given written notice to the Bank of its determination that such eminent domain proceedings have materially affected the operation of the Leased Property or the ability of the City to meet any of its obligations with respect to the Leased Property under the Lease Agreement or (ii) all of the Leased Property shall have been taken in such eminent domain proceedings, then the City shall credit all of such proceeds towards the prepayment of the Lease Payments pursuant to Section 9.3. (d) In making any determination under this Section, the City may, but shall not be required to, obtain at its expense, the report of an independent engineer or other independent professional consultant, a copy of which shall be filed with the Bank. Any such determination by the City shall be final. SECTION 6.3. Application of Net Proceeds of Title Insurance. The Net Proceeds from a title insurance award shall be deposited by the City in the Insurance and Condemnation Fund and credited towards the prepayment of Lease Payments required to be paid pursuant to Section 9.3. SECTION 6.4. Termination or Abatement Due to Eminent Domain. If the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of this Lease thereupon ceases as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property is taken temporarily, under the power of eminent domain, then: (a) this Lease shall continue in full force and effect with respect thereto and does not terminate by virtue of such taking, and the parties waive the benefit of any law to the contrary; and (b) the Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property. The Lease Payments are also subject to abatement during any period in which by reason of damage or destruction (other than by eminent domain which is hereinbefore provided for) there is substantial interference with the use and occupancy by the City of the Leased Property or any portion thereof. The Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease -26- Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, this Lease continues in full force and effect and the City waives any right to terminate this Lease by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments under this Section 6.4 to the extent that (a) the proceeds of rental interruption insurance or (b) amounts in the Insurance and Condemnation Fund are available to pay Lease Payments which would otherwise be abated under this Section 6.4, it being hereby declared that such proceeds and amounts constitute special funds for the payment of the Lease Payments. SECTION 6.5. Substitution of Project in the Event of an Uninsured Loss. In the event that a casualty loss occurs with respect to the Leased Property or any portion thereof, or some other event occurs, including, without limitation, condemnation or other taking of all or a portion of the Leased Property, resulting in the abatement of all or a portion of Lease Payments and Additional Payments hereunder, and the net proceeds of insurance in the event of a casualty loss or the net proceeds of a condemnation or other taking of the Leased Property are not sufficient to prepay a sufficient amount of the Lease Payments to ensure that the Lease Payments and Additional Payments due hereunder are paid in full, the City shall use its best efforts to provide Substitute Property for the damaged or condemned portion of the Leased Property, provided that any such substitution shall be subject to the approval, by resolution, of the City Council of the City and the Governing Board of the Authority. To the extent practicable, any such Substitute Property shall meet the requirements set forth in Section 3.2 hereof, provided that no substitution occurring pursuant to this Section 6.5 shall be invalid due to one or more of the requirements set forth Section 3.2 hereof not being met. ARTICLE VII OTHER COVENANTS OF THE CITY SECTION 7.1. Disclaimer of Warranties. THE AUTHORITY AND THE BANK MAKE NO AGREEMENT, WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PROPERTY OR ANY PORTION THEREOF, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE AUTHORITY IS NOT A MANUFACTURER OF ANY PORTION OF THE LEASED PROPERTY OR A DEALER THEREIN, THAT THE CITY LEASES THE LEASED PROPERTY AS -IS, IT BEING AGREED THAT ALL OF THE AFOREMENTIONED RISKS ARE TO BE BORNE BY THE CITY. The Authority has no liability for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease for the existence, furnishing, functioning or use of the Leased Property by the City. SECTION 7.2. Access to the Leased Property. The City agrees that the Authority and any Authority Representative, and the Bank and its duly authorized representatives, shall have the right at all reasonable times to enter upon and to examine and inspect the 9XA Leased Property or any part thereof. The City further agrees that the Authority, any Authority Representative and the Bank and its duly authorized representatives, may have such rights of access to the Leased Property or any component thereof as reasonably necessary to cause the proper maintenance of the Leased Property if the City fails to perform its obligations hereunder; provided, however, that neither the Authority, the Bank nor any of their assigns has any obligation to cause such proper maintenance. The City further grants, conveys and confirms to the Bank, for the use, benefit and enjoyment of the Bank, its successors in interest to the Leased Property, including the Bank, and its sublessees, and their respective employees, invitees, agents, independent contractors, patrons, customers, guests and members of the public visiting the Leased Property, a right of entry which shall be irrevocable for the Term of this Lease over, across and under the property of the City adjacent to the Leased Property to and from the Leased Property for the purpose of: (a) ingress, egress, passage or access to and from the Leased Property by pedestrian or vehicular traffic; (b) installation, maintenance and replacement of utility wires, cables, conduits and pipes; and (c) other purposes and uses necessary or desirable for access to and from and for operation and maintenance of the Leased Property. SECTION 7.3. Release and Indemnification Covenants. To the extent permitted by law, the City hereby indemnifies the Bank, and its directors, officers, agents, employees, successors and assigns against all claims, losses and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on the Leased Property by the City or the City's employees, agents, contractors, invitees or licensees, (b) any breach or default on the part of the City in the performance of any of its obligations under this Lease, (c) any negligence or willful misconduct of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Property, (d) any intentional misconduct or negligence of any sublessee of the City with respect to the Leased Property, (e) the acquisition, construction, improvement and equipping of the Leased Property, (f) the clean-up of any Hazardous Substances or toxic wastes from the Leased Property, or (g) any claim alleging. violation of any Applicable Environmental Laws, or the authorization of payment of the costs thereof. No indemnification is made under this Section or elsewhere in this Lease for willful misconduct or gross negligence under this Lease by the Bank, or its respective officers, agents, employees, successors or assigns. The indemnification hereunder shall continue in full force and effect notwithstanding the full payment of all obligations under this Lease or the termination of the Term' of this Lease for any reason. The City and the Bank each agree to promptly give notice to each other and the Bank of any claim or liability hereby indemnified against following learning thereof. SECTION 7.4. Subleasing by the City. The City may sublease the Leased Property, or any portion thereof, subject to all of the following conditions: (a) this Lease and the obligation of the City to make Lease Payments hereunder must remain obligations of the City; (b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Bank a true and complete copy of such sublease; M (c) no such sublease by the City shall cause the Leased Property to be used for a purpose which is not authorized under the provisions of the laws of the State of California; (d) the City shall furnish to the Authority and the Bank a written opinion of Bond Counsel stating that such sublease does not cause the interest components of the Lease Payments to become included in gross income for purposes of federal income taxation or to become subject to personal income taxation by the State of California; and (e) Any such sublease shall be subject and subordinate in all respects to the Site Lease and this Lease. Notwithstanding the foregoing, in connection with any sublease entered into for financing purposes, the principal component of the then remaining Lease Payments plus the principal component of the sublease payments shall not exceed the fair market value of the Leased Property. SECTION 7.5. Assignment. Neither the Lease Payments nor this Lease may be assigned by the City, other than to a public agency which succeeds to the interests of the City and which (by operation of law, by contract or otherwise) becomes legally bound to all of the terms and provisions hereof. The Authority's rights under this Lease, including the right to receive and enforce payment of the Lease Payments, have been assigned to the Bank. The City hereby consents to such assignment. Whenever in this Lease any reference is made to the Authority and such reference concerns rights that the Authority has assigned to the Bank, such reference shall be deemed to refer to the Bank. The Bank has the right to make additional assignments of its interests herein, but no such assignment will be effective as against the City unless and until the Bank files with the City written notice thereof. The City shall pay all Lease Payments pursuant to the written direction of the Bank named in the most recent assignment or notice of assignment filed with the City. During the Term of this Lease, the City will keep a complete and accurate record of all such notices of assignment. SECTION 7.5. Amendment Hereof. The Authority and the City may at any time amend or modify any of the provisions of this Lease, but only with the prior written consent of the Bank. SECTION 7.6. Tax Covenants. (a) Generally. The City will not take any action or permit to be taken any action within its control which would cause or which, with the passage of time if not cured would cause, the interest components of the Lease Payments to become includable in gross income of the Bank for federal income tax purposes. (b) Private Business Use Limitation. The City shall assure that the proceeds of this Lease are not used in a manner which would cause this Lease to satisfy the private -29- business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (c) Federal Guarantee Prohibition. The City may not take any action or permit or suffer any action to be taken if the result of the same would be to cause this Lease to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (d) No Arbitrage. The City may not take or permit or suffer to be taken any action with respect to the proceeds of this Lease or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused this Lease to be "arbitrage bonds" within the meaning of Section 148(a) of the Tax Code. (e) Maintenance of Tax Exemption. The City shall take all actions necessary to assure the exclusion of interest components of the Lease Payments from the gross income of the Bank to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (f) Rebate of Excess Investment Earnings to United States. The City shall calculate or cause to be calculated the Excess Investment Earnings in all respects at the times and in the manner required under the Tax Code. The City shall pay the full amount of Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code. Such payments shall be made by the City from any source of legally available funds of the City, and shall constitute Additional Rental Payments hereunder. The City shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the payment or prepayment in full of the Lease Payments, records of the determinations made under this subsection (e). In order to provide for the administration of this subsection (e), the City may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the City may deem appropriate. SECTION 7.7. Records and Accounts. The City will keep proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the funds and accounts of the City. Said books shall, upon prior request, be subject to the reasonable inspection of the Authority or the Bank, or their representatives authorized in writing, upon not less than two Business Days' prior notice to the City. The City will cause its books and accounts to be audited annually by an Independent Accountant, and shall file a copy of such report with the Authority and the Bank within [180] days of the close of each Fiscal Year. Such report may be part of a combined financial audit or report covering all or part of the City's finances. The City may satisfy the requirement to deliver its audited financial statements to the Authority and the Bank within [180] days of the close of each Fiscal Year by posting the City's audited financial statements on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access website and by concurrently notifying the Bank of such posting. In addition, the City shall deliver to the Bank, not later than 30 days following the end of each Fiscal Year during the Term of this Lease, a copy of the City's adopted budget for -30- the then current Fiscal Year. The City hereby agrees to provide the Bank with such other information as may be reasonably requested by the Bank. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES SECTION 8.1. Events of Default Defined. Any one or more of the following events constitute an Event of Default hereunder: (a) Failure by the City to pay any Lease Payment or other payment required to be paid hereunder at the time specified herein. (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding subsection (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Bank. If in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 30 -day period, the failure will not constitute an Event of -Default if the City commences to cure the failure within such 30 -day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. (d) Any statement, representation or warranty made or deemed to be made by or on behalf of the City in this Lease or in any certificate, financial or other statement furnished by or on behalf of the City to the Authority or the Bank pursuant hereto or thereto shall prove to have been inaccurate, misleading or incomplete in any material respect when made or deemed to have been made. (e) This Lease or the Site Lease, or any material provision hereof or thereof, shall at any time for any reason cease to be the legal, valid and binding obligation of the City or shall cease to be in full force and effect, or shall be declared to be unenforceable, invalid or void, or the validity or enforceability thereof shall be contested by the City, or the City shall renounce the same or deny that it has any further liability hereunder or thereunder. -31- (f) Any court of competent jurisdiction with jurisdiction to rule on the validity of any provision of this Lease shall find or rule that this Lease is not valid or not binding on the City. (g) The occurrence of a Material Adverse Effect or a Determination of Taxability. SECTION 8.2. Remedies on Default. Whenever any Event of Default has happened and is continuing, the Authority may exercise any and all remedies available under law or granted under this Lease. Notwithstanding anything herein to the contrary, neither the Authority nor the Bank may accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. Each covenant hereof to be kept and performed by the City is expressly made a condition and upon the breach thereof the Authority may exercise any and all rights granted hereunder; except that no termination of this Lease may be effected either by operation of law or acts of the parties hereto, except only in the manner herein expressly provided. Upon the occurrence and during the continuance of any Event of Default, the Authority may exercise each and every one of the following remedies, subject in all respects to the limitations set forth in Section 8.3. (a) Enforcement of Payments Without Termination. If the Authority does not elect to terminate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the City agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions herein contained and shall reimburse the Authority for any deficiency arising out of the re-leasing of the Leased Property, or, if the Authority is unable to re -lease the Leased Property, then for the full amount of all Lease Payments to the end of the Term of this Lease, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as hereinabove provided for the payment of Lease Payments hereunder, notwithstanding such entry or re-entry by the Authority or any suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property or the exercise of any other remedy by the Authority. The City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to enter upon and re -lease the Leased Property upon the occurrence and continuation of an Event of Default and to remove all personal property whatsoever situated upon the Leased Property, to place the Leased Property in storage or other suitable place in the County of Sonoma for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Leased Property and the removal and storage of the Leased Property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease constitute full and sufficient notice of the right of the Authority to re -lease the Leased Property in the event of such re-entry without effecting a surrender of this Lease, and further agrees that no acts of the -32- Authority in effecting such re-leasing shall constitute a surrender or termination of this Lease irrespective of the term for which such re- leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease shall vest in the Authority to be effected in the sole and exclusive manner hereinafter provided for in subparagraph (b) hereof. The City agrees to surrender and quit possession of the Leased Property upon demand of the Authority for the purpose of enabling the Leased Property to be re - let under this paragraph, and the City further waives the right to any rental obtained by the Authority in excess of the Lease Payments and hereby conveys and releases such excess to the Authority as compensation to the Authority for its services in re-leasing the Leased Property. (b) Termination of Lease. If an Event of Default occurs and is continuing hereunder, the Authority at its option may terminate this Lease and re -lease all or any portion of the Leased Property. If the Authority terminates this Lease at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any re-entry upon the Leased Property by the Authority in any manner whatsoever or the re-leasing of the Leased Property), the City nevertheless agrees to pay to the Authority all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is herein provided in the case of payment of Lease Payments and Additional Rental Payments. Any surplus received by the Authority from such re- leasing shall be applied by the Authority to pay the Lease Payments due hereunder. Neither notice to pay rent or to deliver up possession of the premises given under law nor any proceeding in unlawful detainer taken by the Authority shall of itself operate to terminate this Lease, and no termination of this Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease. The City covenants and agrees that no surrender of the Leased Property, or of the remainder of the Term hereof or any termination of this Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Authority by such written notice. (c) Proceedings at Law or In Equity. If an Event of Default occurs and continues hereunder, the Authority may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due hereunder or to enforce any other of its rights hereunder. SECTION 8.3. No Remedy Exclusive. No remedy herein conferred upon reserved to the Authority is intended to be exclusive and every such remedy cumulative and in addition to every other remedy given under this Lease or now hereafter existing at law or in equity. No delay or omission to exercise any right -33- or is or or power accruing upon the occurrence of any Event of Default impairs any such right or power or operates as a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article VIII it is not necessary to give any notice, other than as expressly required in this Article VIII or by law. SECTION 8.4. Agreement to Pay Attorneys' Fees and Expenses. If the Authority or the City defaults under any of the provisions of this Lease and the nondefaulting party employs attorneys or incurs other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. SECTION 8.5. No Additional Waiver Implied by One Waiver. If the Authority or the City breaches any agreement in this Lease and thereafter the other party waives the breach, such waiver is limited to the particular breach so waived and does not operate to waive any other breach hereunder. SECTION 8.6. Application of Proceeds. All net proceeds received from the re- lease of the Leased Property under this Article VIII, and all other amounts derived by the City or the Authority as a result of the occurrence of an Event of Default, shall be paid to the Bank and applied towards the payment and prepayment of the Lease Payments. SECTION 8.7. Judicial Reference. (a) Judicial Reference. The Authority and the City hereby agree: (i) each proceeding or hearing based upon or arising out of, directly or indirectly, this Lease or any document related thereto, any dealings between the City and the Authority related to the subject matter of this Lease or any related transactions, and/or the relationship that is being established between the City and the Authority (hereinafter, a "Claim") shall be determined by a consensual general judicial reference (the "Reference") pursuant to the provisions of Section 638 et seq. of the California Code of Civil Procedure, as such statutes may be amended or modified from time to time; (ii) upon a written request, or upon an appropriate motion by either the Authority or the City, as applicable, any pending action relating to any Claim and every Claim shall be heard by a single Referee (as defined below) who shall then try all issues (including any and all questions of law and questions of fact relating thereto), and issue findings of fact and conclusions of law and report a statement of decision. The Referee's statement of decision will constitute the conclusive determination of the Claim. The Authority and the City agree that the Referee shall have the power to issue all legal and equitable relief appropriate under the circumstances before the Referee; (iii) the Authority and the City shall promptly and diligently cooperate with one another, as applicable, and the Referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of all Claims in accordance with the terms of this Section; (iv) either the Authority or the City, as applicable, may file the Referee's findings, conclusions and statement with the clerk or judge of any appropriate court, file a motion to confirm the Referee's report and have judgment entered thereon if the report is deemed incomplete by such court, the Referee may be required to complete the report and resubmit it; (v) the Authority and the City, as applicable, will each have such rights to assert such objections as are set forth in Section 638 et seq. of the California Code of Civil Procedure; and (vi) all proceedings -34- shall be closed to the public and confidential, and all records relating to the Reference shall be permanently sealed when the order thereon becomes final. (b) Selection of Referee; Powers. The parties to the Reference proceeding shall select a single neutral referee (the "Referee"), who shall be a retired judge or justice of the courts of the State of California, or a federal court judge, in each case, with at least ten years of judicial experience in civil matters. The Referee shall be appointed in accordance with Section 638 of the California Code of Civil Procedure (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts). If within ten days after the request or motion for the Reference, the parties to the Reference proceeding cannot agree upon a Referee, then any party to such proceeding may request or move that the Referee be appointed by the Presiding Judge of the Sonoma County Superior Court, or of the U.S. District Court for the Eastern District of California. The Referee shall determine all issues relating to the applicability, interpretation, legality and enforceability of this Section. (c) Provisional Remedies and Self Help. No provision of this Section shall limit the right of either the Authority or the City, as the case may be, to (i) exercise such self- help remedies as might otherwise be available under applicable law, or (ii) ) obtain or oppose provisional or ancillary remedies, including without limitation injunctive relief, writs of possession, the appointment of a receiver, and/or additional or supplementary remedies from a court of competent jurisdiction before, after, or during the pendency of any Reference. The exercise of, or opposition to, any such remedy does not waive the right of the Authority or the City to the Reference pursuant to this Section. (d) Costs and Fees. Promptly following the selection of the Referee, the parties to such Reference proceeding shall each advance equal portions of the estimated fees and costs of the Referee. In the statement of decision issued by the Referee, the Referee shall award costs, including reasonable attorneys' fees, to the prevailing party, if any, and may order the Referee's fees to be paid or shared by the parties to such Reference proceeding in such manner as the Referee deems just. SECTION 8.8. Assignee to Exercise Rights. Such rights and remedies as are given to the Authority under this Article VIII have been assigned by the Authority to the Bank and shall be exercised solely by the Bank. 9916`2 ARTICLE IX PREPAYMENT OF LEASE PAYMENTS SECTION 9.1. Security Deposit. Notwithstanding any other provision of this Lease, the City may on any date secure the payment of the Lease Payments in whole or in part by depositing with the Authority or a fiduciary reasonably satisfactory to the Authority, in trust, an amount of cash, which shall be held in a segregated trust or escrow fund under a trust or escrow agreement that is in form and content acceptable to the Authority, which cash so held is either (a) sufficient to pay such Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in Exhibit B, or (b) invested in whole in non -callable Federal Securities maturing not later than the dates such funds will be required to make Lease Payments or any prepayment in an amount which is sufficient, in the opinion of an independent certified public accountant (which opinion must be in form and substance, and with such an accountant, acceptable to the Authority and addressed and delivered to the Authority), together with interest to accrue thereon and without reinvestment and together with any cash which is so deposited, to pay such Lease Payments when due under Section 4.3(a) or when due on any optional prepayment date under Section 9.2, as the City instructs at the time of said deposit; provided, however, that at or prior to the date on which any such security deposit is established, the City shall deliver to the Authority an opinion of Bond Counsel (in form and substance acceptable to the Authority) to the effect that any such security deposit will not adversely affect the excludability of the interest component of Lease Payments from gross income of the Authority for federal income tax purposes. In the event of a security deposit under this Section with respect to all unpaid Lease Payments, (i) the Term of this Lease shall continue, (ii) all obligations of the City under this Lease, and all security provided by this Lease for said obligations, shall thereupon cease and terminate, excepting only (A) the obligation of the City to make, or cause to be made, all of the Lease Payments from such security deposit and, to the extent of any deficiency, as rent payable from other legally available funds of the City, and (B) the release and indemnification obligations of the City under subparagraphs (f) and (g) of Section 7.3, and (iii) under Section 4.5, the Authority's leasehold interest in the Leased Property will vest in the City on the date of said deposit automatically and without further action by the City or the Authority. The City hereby grants a first priority security interest in and the lien on said security deposit and all proceeds thereof in favor of the Authority. Said security deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease and, notwithstanding anything to the contrary herein, Lease Payments therefrom shall not be subject to abatement under Section 6.3 to the extent payable from the funds held by the Authority or the fiduciary as described in the first sentence of this Section 9.1. SECTION 9.2. Optional Prepayment. The City does not have the right to prepay the Lease Payments. SECTION 9.3. Mandatory Prepayment From Net Proceeds of Insurance or Eminent Domain. The City shall prepay the principal components of the Lease Payments allocable to the Leased Property in whole or in part on any date, from and to the extent of any Net Proceeds of insurance award or eminent domain award with respect to the Leased Property which are applied for that purpose under Article VI, plus all accrued and unpaid interest to the date of prepayment. Such Net Proceeds, to the -36- extent remaining after payment of any delinquent Lease Payments, will be credited towards the City's obligations under this Section and applied to the prepayment of the Lease Payments on the next available prepayment date. The City shall give written notice to the Bank of its intention to prepay the Lease Payments under this Section not less than 30 days prior to the prepayment date. ARTICLE X MISCELLANEOUS SECTION 10.1. Notices. Any notice, request, complaint, demand or other communication under this Lease shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by facsimile transmission or other form of telecommunication, at its number set forth below. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, (b) 48 hours after deposit in the United States of America first class mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The Authority, the City or the Bank may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the City City of Petaluma or the Authority: 11 English Street Petaluma, California 94952 Attention: Finance Director Fax: (707) If to the Bank: [Compass Mortgage Corporation c/o Compass Bank Commercial Banking Group 202 North Hunter Street, 2nd Floor Stockton, CA 95202 Attention: Erik Kapeller Telephone (209) 235-0931 Fax: (205) 524-3223] With a copy to: [Compass Bank 201 N. Hwy 183 (overnight delivery only) Leander, TX 78646 P.O. Box 1190 (mail delivery only) Leander, TX 78646 Attention: Nancy Allen] SECTION 10.2. Binding Effect. This Lease inures to the benefit of and binds the Authority, the City and their respective successors and assigns. SECTION 10.3. Severability. If any provision unenforceable by any court of competent jurisdiction, render unenforceable any other provision hereof. 1191159 of this Lease is held invalid or such holding will not invalidate or SECTION 10.4. Net -net -net Lease. This Lease is deemed and construed to be a "net -net -net lease" and the City hereby agrees that the Lease Payments are an absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever. SECTION 10.5. Third Party Beneficiary. The Bank is hereby made a third party beneficiary hereunder with all rights of a third party beneficiary. SECTION 10.6. Further Assurances and Corrective Instruments. The Authority and the City shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease. SECTION 10.7. Execution in Counterparts. This Lease may be executed in several counterparts, each of which is an original and all of which constitute but one and the same instrument. SECTION 10.8. Applicable Law. This Lease is governed by and construed in accordance with the laws of the State of California. SECTION 10.9. Authority and City Representatives. Whenever under the provisions of this Lease the approval of the Authority or the City is required, or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the Authority and for the City by an Authorized Representative thereof, and any party hereto may conclusively rely upon any such approval or request. SECTION 10.10. Captions. The captions or headings in this Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Section of this Lease. No IN WITNESS WHEREOF, the Authority and the City have caused this Lease to be executed in their respective names by their duly authorized officers, all as of the date first above written. Attest: Attest: Claire Cooper, CMC Secretary Claire Cooper, CMC City Clerk PETALUMA PUBLIC FINANCING AUTHORITY, as lessor John Brown Executive Director CITY OF PETALUMA, as lessee Ac -39- John Brown City Manager APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Petaluma, County of Sonoma, which is more particularly described as follows: APPENDIX B SCHEDULE OF LEASE PAYMENTS Lease Principal Interest Payment Date Component Component November 1, 2016 $390,000 May 1, 2017 November 1, 2017 415,000 May 1, 2018 November 1, 2018 425,000 May 1, 2019 November 1, 2019 435,000 May 1, 2020 November 1, 2020 445,000 May 1, 2021 November 1, 2021 460,000 May 1, 2022 November 1, 2022 470,000 May 1, 2023 November 1, 2023 480,000 May 1, 2024 November 1, 2024 495,000 May 1, 2025 November 1, 2025 510,000 Totals: Aggregate Lease Payment ATTACHMENT 6 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 475 Sansome Street, Suite 1700 San Francisco, California 94111 Attention: Stephen G. Melikian, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX UNDER SECTION 11929 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. SITE LEASE This SITE LEASE (this "Site Lease"), dated for convenience as of March 1, 2016, is between the CITY OF PETALUMA, a charter city duly organized and existing under the laws of the State of California, as lessor (the "City"), and the PETALUMA PUBLIC, FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California, as lessee (the "Authority"). BACKGROUND: 1. In order to provide financing and refinancing certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to the Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation, as lessor, and the City, as lessee. 2. The 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the redemption date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates. 3. In order to finance certain capital improvements to the Petaluma Municipal Airport, the City has heretofore borrowed $1,400,000 from the Department of Transportation of the State of California ("CalTrans") pursuant to a California Airport Loan Agreement (the "CalTrans Loan Agreement") dated February 16, 2005, between CalTrans and the City. 4. The loan made pursuant to the CalTrans Loan Agreement (the "2005 CalTrans Loan") is subject to prepayment, and in order to realize debt service savings the City has determined to refinance the 2005 CalTrans Loan. 5. In order to refinance the 2003 Certificates and the 2005 CalTrans Loan, the City has leased the real property, consisting generally of the land and improvements which constitute certain airport hangers at the City's municipal airport, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under a Site Lease dated as of March 1, 2016, which has been recorded concurrently herewith (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2003 Certificates and the 2005 CalTrans Loan. 6. In order to provide revenues which are sufficient to enable the Authority to pay the Site Lease Payment, the Authority has agreed to lease the Leased Property back to the City under that certain Lease Agreement dated as of March 1, 2016 which has been recorded concurrently herewith (the "Lease") under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property. 7. Funds required to pay the Site Lease Payment to the City will be provided by Compass Mortgage Corporation (the "Bank"), which will be secured by an assignment of substantially all of the Authority's rights hereunder and under the Site Lease, including the right to receive Lease Payments, under an Assignment Agreement dated as of March 1, 2016, between the Authority as assignor and the Bank as assignee, which has been recorded concurrently herewith. 8. The City and the Authority have found and determined that all acts and proceedings required by law necessary to make this Site Lease, when executed by the City and the Authority, the valid, binding and legal obligations of the City and the Authority, and to constitute this Site Lease a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Site Lease have been in all respects duly authorized. 10. Section 46 of the Petaluma Charter (the "Charter") provides that certain specified City actions, including actions to lease property, shall be done by ordinance, except where the Council takes action pursuant to general state law. 11. Section 37380 of the California Government Code authorizes cities to lease city owned and controlled property, and the Marks -Roos Local Bond Pooling Act of 1985 (the Bond Act), California Government Code Section 6584 and following, authorizes the creation of financing authorities pursuant to Bond Act and the Joint Exercise of Powers Law (the Joint Exercise Law), Government Code Section 6500 and following, to assist in the financing of local agency capital improvement projects. 12. The City of Petaluma adopted Resolution No. 96-131 on May 20th, 1996, to create the Petaluma Public Financing Authority (the Authority) pursuant to the Bond Act and the Joint Exercise Law, and as created, the powers of the Authority pursuant to the Bond Act include the power to lease land and structures as necessary or convenient for WA the financing of public capital improvements, in accordance with subdivision (h) of Section 6588 of the Bond Act. 13. As actions taken pursuant to the Bond Act and other general state law, actions of the City Council and the Authority to authorize issuance of refunding lease obligations as proposed are in accordance with Section 46 of the Charter.; AGREEMENT: In consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: SECTION 1. Lease of Property to Authority. The City hereby leases the Leased Property to the Authority and the Authority hereby leases the Leased Property from the City, on the terms and conditions hereinafter set forth. SECTION 2. Term; Possession. The term of this Site Lease commences on the Closing Date and ends on the date on which the Lease is discharged in accordance with Section 4.2 thereof. The provisions of this Section 2 are subject in all respects to any other provisions of this Site Lease relating to the termination hereof. SECTION 3. Rental. The Authority shall pay to the City as and for rental of the Leased Property hereunder, the sum of $ (the "Site Lease Payment"). The Authority and the City hereby find and determine that the total amount of the Site Lease Payment does not exceed the fair market value of the leasehold interest in the Leased Property which is conveyed hereunder by the City to the Authority. No other amount of rental is due and payable by the Authority for the use and occupancy of the Leased Property under this Site Lease. The site Lease Payment will be applied as provided in Section 3.1 of the Lease. SECTION 4. Leaseback to City. The Authority shall lease the Leased Property back to the City under the Lease. SECTION 5. Assignments and Subleases. Unless the City is in default under the Lease, the Authority may not assign its rights under this Site Lease or sublet all or any portion of the Leased Property, except as provided in the Assignment Agreement and in the Lease, without the prior written consent of the City. SECTION 6. Substitution or Release of Property. If the City exercises its option under Section 3.2 of the Lease to substitute property for the Leased Property in whole or in part, such substitution shall also operate to substitute property for the Leased Property which is leased hereunder. If the City exercises its option under Section 3.3 of the Lease to release a portion of the Leased Property from the Lease, such substitution shall also operate to release such portion of the Leased Property hereunder. The description of the Leased Property which is leased under the Lease shall conform at all times to the description of the Leased Property which is leased hereunder. SECTION 7. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property, or any portion thereof, at -3- any reasonable time to inspect the same or to make any repairs, improvements or changes necessary for the preservation thereof. SECTION 8. Termination. The Authority agrees, upon the termination of this Site Lease, to quit and surrender the Leased Property in the same good order and condition as the Leased Property was in at the time of commencement of the term hereof, reasonable wear and tear excepted, and agrees that all buildings, improvements and structures then existing upon the Leased Property shall remain thereon and title thereto shall vest thereupon in the City for no additional consideration. SECTION 9. Default. If the Authority defaults in the performance of any obligation on its part to be performed under the terms of this Site Lease, which default continues for 30 days following notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of this Site Lease and of the Lease shall be deemed to occur as a result thereof and no such remedy may include termination hereof; provided, however, that so long as the Lease remains in effect, the Lease Payments payable by the City under the Lease shall continue to be paid to the Bank. SECTION 10. Quiet Enjoyment. The Authority at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Leased Property, subject to the provisions of the Lease and subject only to Permitted Encumbrances (as that term is defined in the Lease). SECTION 11. Waiver of Personal Liability. All liabilities under this Site Lease on the part of the Authority are solely corporate liabilities of the Authority as a public entity, and the City hereby releases each and every member and officer of the Authority of and from any personal or individual liability under this Site Lease. No member or officer of the Authority or its governing board shall at any time or under any circumstances be individually or personally liable under this Site Lease for anything done or omitted to be done by the Authority hereunder. SECTION 12. Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property and any improvements thereon. SECTION 13. Eminent Domain. If the whole or any part of the Leased Property or any improvements thereon is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of the then unpaid Lease Payments payable under the Lease and the balance of the award, if any, shall be paid to the City. SECTION 14. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Site Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Site Lease shall be affected thereby, and each provision of this Site Lease shall be valid and enforceable to the fullest extent permitted by law. M SECTION 15. Notices. Any notice, request, complaint, demand or other communication under this Site Lease shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopy, telex or other form of telecommunication, at its number set forth below. Notice shall be effective either (a) upon transmission by telecopy, telex or other form of telecommunication, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The City, the Authority and the Bank may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the City City of Petaluma or the Authority: 11 English Street Petaluma, California 94952 Attention: Finance Director Fax: (707) If to the Bank: [Compass Mortgage Corporation c/o Compass Bank Commercial Banking Group 202 North Hunter Street, 2nd Floor Stockton, CA 95202 Attention: Erik Kapeller Telephone (209) 235-0931 Fax: (205) 524-32231 With a copy to: [Compass Bank 201 N. Hwy 183 (overnight delivery only) Leander, TX 78646 P.O. Box 1190 (mail delivery, only) Leander, TX 78646 Attention: Nancy Allen] SECTION 16. Amendment of this Site Lease. The Authority and the City may at any time amend or modify any of the provisions of this Site Lease, but only with the prior written consent of the Bank. SECTION 17. Governing Law. This Site Lease shall be construed in accordance with and governed by the Constitution and laws of the State of California. SECTION 18. Third Party Beneficiary. The Bank is hereby made a third party beneficiary under this Site Lease with all rights of a third party beneficiary. SECTION 19. Binding Effect. This Site Lease inures to the benefit of and is binding upon the Authority, the City, the Bank and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 20. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Site Lease. -5- SECTION 21. Execution in Counterparts. This Site Lease may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same lease. It is also agreed that separate counterparts of this Site Lease may be separately executed by the Authority and the City, all with the same force and effect as though the same counterpart had been executed by both the Authority and the City. SECTION 22. Defined Terms. All capitalized terms used herein and not otherwise defined have the respective meanings given those terms in the Lease. M IN WITNESS WHEREOF, the City and the Authority have caused this Site Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. Attest: Attest: Claire Cooper, CMC City Clerk Claire Cooper, CMC Secretary CITY OF PETALUMA,, as lessor John Brown City Manager PETALUM PUBLIC FINANCING AUTHORITY, as lessee John Brown Executive Director APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Petaluma, County of Sonoma, State of California, which is more particularly described as follows: A-1 TO BE RECORDED AND WHEN RECORDED ATTACHMENT 7 RETURN TO: Jones Hall, A Professional Law Corporation 475 Sansome Street, Suite 1700 San Francisco, California 94111 Attention: Stephen G. Melikian, Esq. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT (this "Agreement"), dated for convenience as of March 1, 2016, is between the PETALUMA PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California (the "Authority"), and COMPASS MORTGAGE CORPORATION, a corporation duly organized and existing under the laws of the State of Alabama (the "Bank"). BACKGROUND: 1. In order to provide financing and refinancing certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to the Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation, as lessor, and the City, as lessee. 2. The 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the redemption date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates. 3. In order to finance certain capital improvements to the Petaluma Municipal Airport, the City has heretofore borrowed $1,400,000 from the Department of Transportation of the State of California ("CalTrans"), pursuant to a California Airport Loan Agreement (the "CalTrans Loan Agreement") dated February 16, 2005, between CalTrans and the City. 4. The loan made pursuant to the CalTrans Loan Agreement (the "2005 CalTrans Loan") is subject to prepayment, and in order to realize debt service savings the City has determined to refinance the 2005 CalTrans Loan. 5. In order to refinance the 2003 Certificates and the 2005 CalTrans Loan, the City has leased the real property, consisting generally of the land and improvements which constitute certain airport hangers at the City's municipal airport, as more particularly described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"), to the Authority under a Site Lease dated as of March 1, 2016, which has been recorded concurrently herewith (the "Site Lease"), in consideration of the payment by the Authority of an upfront rental payment (the "Site Lease Payment") which is sufficient to provide funds for the prepayment of the 2003 Certificates and the 2005 CalTrans Loan. 6. In order to provide revenues which are sufficient to enable the Authority to pay the Site Lease Payment, the Authority has agreed to lease the Leased Property back to the City under that certain Lease Agreement dated as of March 1, 2016 which has been recorded concurrently herewith (the "Lease") under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property. 7. Funds required to pay the Site Lease Payment to the City will be provided by the Bank, which will be secured by an assignment of substantially all of the Authority's rights under the Lease and the Site Lease, including the right to receive Lease Payments, under this Assignment Agreement. AGREEMENT: In consideration of the material covenants contained in this Agreement, the parties hereto hereby formally covenant, agree and bind themselves as follows: SECTION 1. Defined Terms. All capitalized terms not otherwise defined herein have the respective meanings given those terms in the Lease. SECTION 2. Assignment. The Authority hereby assigns to the Bank all of the Authority's rights under the Lease and the Site Lease (excepting only the Authority's rights under Sections 4.5, 5.10, 7.3 and 8.4 of the Lease), including but not limited to: (a) the right to receive and collect all of the Lease Payments from the City under the Lease; (b) the right to receive and collect any proceeds of any insurance maintained thereunder with respect to the Leased Property, or any eminent domain award (or proceeds of sale under threat of eminent domain) paid with respect to the Leased Property; and (c) the right to exercise such rights and remedies conferred on the Authority under the Lease as may be necessary or convenient (i) to enforce payment of the Lease Payments and any amounts required to be deposited in the Insurance and Condemnation Fund -2- established under the Lease, or (ii) otherwise to protect the interests of the Bank in the event of a default by the City under the Lease. The assignment made under this Section 2 is absolute and irrevocable, and without recourse to the Authority. SECTION 3. Acceptance. The Bank hereby accepts the assignments made herein for the purpose of securing the payments due to it under the Lease, subject in all respects to the provisions of the Lease. SECTION 4. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which is an original and all together constitute one and the same agreement. Separate counterparts of this Agreement may be separately executed by the Bank and the Authority, both with the same force and effect as though the same counterpart had been executed by the Bank and the Authority. SECTION 5. Binding Effect. This Agreement inures to the benefit of and binds the Authority and the Bank, and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 7. Governing Law. This Agreement is governed by the Constitution and laws of the State of California. -3- IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as of the day and year first written above. Attest: Claire Cooper, CMC Secretary PETALUMA PUBLIC FINANCING AUTHORITY go John C. Brown Executive Director, as designee of the Chair COMPASS MORTGAGE CORPORATION Ac M Authorized Signatory DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Petaluma, County of Sonoma, which is more particularly described as follows: A-1 ATTACHMENT 8 ESCROW DEPOSIT AND TRUST AGREEMENT This ESCROW DEPOSIT AND TRUST AGREEMENT (this "Agreement"), dated as of March 1, 2016, is between the CITY OF PETALUMA, a charter city organized and existing under the laws of the State of California (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, acting as escrow agent hereunder and as trustee for the 2003 Certificates described below (the "Escrow Agent"). BACKGROUND: 1. In order to provide financing and refinancing certain capital improvements of the City of Petaluma (the "City"), including but not limited to certain improvements to the Petaluma Municipal Airport and certain street improvements, the City has previously caused the execution and delivery of the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airports Project) in the initial aggregate original principal amount of $6,295,000 (the "2003 Certificates"), which are secured by lease payments made by the City under a Lease Agreement dated as of December 1, 2003 (the "2003 Lease"), between the City of Petaluma Public Financing Corporation (the "Corporation"), as lessor, and the City, as lessee. 2. The 2003 Certificates are currently subject to prepayment, at the option of the City, on any date at a prepayment price equal to 100% of the principal amount thereof together with accrued interest thereon to the redemption date, without premium, and in order to realize debt service savings the City have determined to refinance the 2003 Certificates. 3. In order to provide funds to pay and prepay the 2003 Certificates in full, the Petaluma Public Financing Authority (the "Authority") and the City have entered into a Lease Agreement dated as of March 1, 2016 (the "Lease"), under which the Authority has agreed to provide funds for such purpose and in order to raise such funds the Authority has assigned its rights under the Lease to Compass Mortgage Company (the "Assignee") under an Assignment Agreement dated as of March 1, 2016 (the "Assignment Agreement'), between the Authority and the Assignee. 5. The City wishes to appoint the Escrow Agent for the purpose of establishing an irrevocable escrow fund to be funded, invested, held and administered for the purpose of providing for the payment and prepayment of the 2003 Certificates in full. AGREEMENT: In consideration of the premises and the material covenants contained herein, the City and the Escrow Agent hereby agree as follows: SECTION 1. Appointment of Escrow Agent; Establishment of Escrow Fund. The City hereby appoint the Escrow Agent to act as escrow agent for purposes of administering the funds required to pay and prepay the 2003 Certificates in full in accordance with Section 4.01(b) of the Trust Agreement (the "2003 Certificate Trust Agreement") dated as of December 1, 2003, among the City of Petaluma Public Financing Corporation (the "Corporation"), the City and U.S. Bank National Association. The Escrow Agent is hereby directed to establish an escrow fund (the "Escrow Fund") to be held by the Escrow Agent in trust as an irrevocable escrow securing the payment and prepayment of the 2003 Certificates in accordance with the 2003 Certificate Trust Agreement. If at any time the Escrow Agent receives actual knowledge that the cash in the Escrow Fund will not be sufficient to make any payment required by Section 4, the Escrow Agent shall notify the City of such fact and the City shall immediately cure such deficiency from any source of legally available funds. The Escrow Agent has no liability for any such insufficiency. By making the deposits described herein and prepaying the 2003 Certificates as described herein, the City is discharging its obligations under the Lease Agreement dated as of December 1, 2003, between the Corporation and the City. SECTION 2. Deposit of Amounts in Escrow Fund. On March _, 2016 (the "Closing Date"), the City shall cause to be transferred to the Escrow Agent for deposit into the Escrow Fund the amount of $ in immediately available funds, to be derived from the payment made by the Assignee under the Assignment Agreement. Additionally, $ available under the 2003 Certificate Trust Agreement shall also be deposited in the Escrow Fund making the total deposit thereto SECTION 3. Investment of Amounts in Escrow Fund. On the Closing Date, the Escrow Agent shall invest all amounts on deposit in the Escrow Fund in the security set forth on Schedule A hereto. SECTION 4. Application of Amounts in Escrow Fund. On April _, 2016 (the "Prepayment Date"), the Escrow Agent shall apply the amounts on deposit in the Escrow Fund to pay and prepay the outstanding 2003 Certificates, in accordance with the following schedule: Interest Prepaid Total Payment Date Payment Principal Payment April _, 2016 $ $ SECTION 5. Irrevocable Election to Prepay 2003 Certificates. The Authority has previously given written instructions to the Escrow Bank indicating its irrevocable election to redeem all of the outstanding 2003 Certificates on April _, 2016, in accordance with the provisions of Section 4.01(b) of the 2003 Certificate Trust -2- Agreement. The Escrow Agent, in its role as trustee (the "2003 Trustee") for the 2003 Certificates, shall send, on the date hereof, the notice of prepayment of the 2003 Certificates in the form attached hereto as Exhibit A in accordance with Section 4.03 of the 2003 Certificate Trust Agreement, at the expense of the City. SECTION 6. Transfer of Funds Held Under 2003 Certificate Trust Agreement. On the Prepayment Date, the Escrow Bank, in its capacity as 2003 Trustee, shall withdraw all remaining amounts held by it under the 2003 Certificate Trust Agreement and transfer such amounts to the City to be applied by the City towards the payment of its next lease payments coming due and payable under the Lease. SECTION 7. Compensation to Escrow Agent. The City shall pay the Escrow Agent full compensation for its services under this Agreement, including out-of-pocket costs such as publication costs, prepayment expenses, legal fees and other costs and expenses relating hereto. Under no circumstances shall amounts deposited in or credited to the Escrow Fund be deemed to be available for said purposes. The Escrow Agent has no lien upon or right of set off against the cash at any time on deposit in the Escrow Fund. The City shall indemnify, defend and hold harmless the Escrow Agent and its officers, directors, employees, representatives and agents, from and against and reimburse the Escrow Agent for any and all claims, obligations, liabilities, losses, damages, actions, suits, judgments, reasonable costs and expenses (including reasonable attorneys' and agents' fees and expenses) of whatever kind or nature regardless of their merit, demanded, asserted or claimed against the Escrow Agent directly or indirectly relating to, or arising from, claims against the Escrow Agent by reason of its participation in the transactions contemplated hereby, except to the extent caused by the Escrow Agent's gross negligence or willful misconduct. The provisions of this Section 6 shall survive the termination of this Agreement or the earlier resignation or removal of the Escrow Agent. SECTION 8. Immunities and Liability of Escrow Agent. The Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not have any liability hereunder except to the extent of its gross negligence or willful misconduct. In no event shall the Escrow Agent be liable for any special, indirect or consequential damages. The Escrow Agent shall not be liable for any loss from any investment made by it in accordance with the terms of this Agreement. The Escrow Agent may consult with legal counsel of its own choice and the Escrow Agent shall not be liable for any action taken or not taken by it in good faith in reliance upon the opinion or advice of such counsel. The Escrow Agent shall not be liable for the recitals or representations contained in this Agreement and shall not be responsible for the validity of this Agreement, the sufficiency of the Escrow Fund or the moneys to pay the principal, interest and prepayment premium with respect to the 2003 Certificates. Whenever in the administration of this Agreement the Escrow Agent deems it necessary or desirable that a matter be proved or established prior to taking or not taking any action, such matter may be deemed to be conclusively proved and established by a certificate of an authorized representative of the City and shall be full -3- protection for any action taken or not taken by the Escrow Agent in good faith reliance thereon. The Escrow Agent may conclusively rely as to the truth and accuracy of the statements and correctness of any opinions or calculations provided to it in connection with this Agreement and shall be protected in acting, or refraining from acting, upon any notice, instruction, request, certificate, document, opinion or other writing furnished to the Escrow Agent in connection with this Agreement and believed by the Escrow Agent to be signed by the proper party, and it need not investigate any fact or matter stated therein. None of the provisions of this Agreement shall require the Escrow Agent to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder. The Escrow Agent may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed. The Escrow Agent shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term "force majeure" means an occurrence that is beyond the control of the Escrow Agent and could not have been avoided by exercising due care. Force majeure shall include acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences. The Escrow Agent may at any time resign by giving 30 days written notice of resignation to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release the resigning Escrow Agent from its obligations hereunder by written instrument, a copy of which instrument shall be delivered to each of the City, the resigning Escrow Agent and the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor. Any bank, corporation or association into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any bank, corporation or association resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, or any bank, corporation or association succeeding to all or substantially all of the corporate trust business of the Escrow Agent shall be the successor of the Escrow Agent hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except on the part of any of the parties hereto where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. The Escrow Agent agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Agent shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated -4- persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Escrow Agent e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Agent in its discretion elects to act upon such instructions, the Escrow Agent's understanding of such instructions shall be deemed controlling. The Escrow Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Agent's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Escrow Agent, including without limitation the risk of the Escrow Agent acting on unauthorized instructions, and the risk of interception and misuse by third parties. SECTION 9. Termination of Agreement. Upon payment and prepayment in full of the 2003 Certificates, and upon payment of all fees, expenses and charges of the Escrow Agent as described above, this Agreement shall terminate and the Escrow Agent shall be discharged from any further obligation or responsibility hereunder. SECTION 10. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -5- SECTION 11. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. U.S. BANK NATIONAL ASSOCIAITION, as Escrow Agent and as 2003 Trustee Authorized Officer CITY OF PETALUMA in in City Manager SCHEDULE A Escrow Fund Security [to come] Exhibit A Notice of Full Prepayment City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airport Project) Amount Maturity Date Interest Rate *CUSIP # $ 235,000 08/01/16 4.350% 715868DZ5 250,000 08/01/17 4.450 715868EA9 260,000 08/01/18 4.550 715868EB7 275,000 08/01/19 4.700 715868EC5 285,000 08/01/20 4.750 715868ED3 300,000 08/01/21 4.800 715868EE1 315,000 08/01/22 4.850 715868EF8 335,000 08/01/23 4.900 715868EG6 1,955,000 08/01/28 5.125 715868EH4 NOTICE is hereby given to the owners of the above -captioned certificates of participation that the City of Petaluma (the "City") has called for prepayment on April _, 2016 (the "Prepayment Date") the outstanding City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airport Project) (the "Certificates"), as described above, at a price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for prepayment (the "Prepayment Price"). The Certificates are being called for prepayment on the Prepayment Date subject to the provisions of the succeeding paragraph of this notice, and pursuant to the provisions of the governing documents of the Certificates. The Notice of Full Prepayment, and the payment of the Prepayment Price of the Certificates on the Prepayment Date, is subject to the receipt of funds by U.S. Bank National Association, as trustee (the "Trustee") in an amount sufficient to pay in full the Prepayment Price of all of the Certificates on or before the Prepayment Date. In the event such funds are not received by the Trustee by the Prepayment Date, this notice shall be null and void and of no force and effect. The Certificates delivered for prepayment shall be returned to the respective owners thereof, and said Certificates shall remain outstanding as though this notice of conditional prepayment had not been given. Notice of a failure to receive funds, and cancellation of this prepayment, shall be given by the Trustee by first class mail, postage prepaid, to the registered holders of the Certificates. On the Prepayment Date, the Prepayment Price will become due and payable upon each Certificate and interest with respect shall cease to accrue from and after the Prepayment Date. Payment of principal will be made upon presentation on and after April _, 2016, at the following addresses: If by Mail: U.S. Bank National Association Corporate Trust Services P.O. Box 64111 St. Paul, MN 55164-0111 If by Hand or Overnight Mail: U.S. Bank National Association Global Corporate Trust Services 111 Fillmore Avenue East St. Paul, MN 55107 Please call Bondholder Services at (800) 934-6802 with any questions. Holders of the Certificates presenting their certificates in person for same day payment must surrender their certificate(s) by 1:00 P.M. CST on the Prepayment Date and a check will be available for pick up after 2:00 P.M CST. Checks not picked up by 4:30 P.M. will be mailed out to the Certificate holder via first class mail. If payment of the Prepayment Price is to be made to the registered owner of the Certificate, you are not required to endorse the Certificate to collect the Prepayment Price. Interest with respect to the principal amount designated to be prepaid and shall cease to accrue from and after the Prepayment Date. REQUIREMENT INFORMATION For a list of prepayment requirements please visit our website at www.usbank.com/corporatetrust and click on the "Bondholder Information" link. IMPORTANT NOTICE Under the Job and Growth Tax Relief Reconciliation Act of 2003 (the "Act"), 28% will be withheld if tax identification number is not properly certified. *The Undersigned shall not be held responsible for the selection or use of the CUSIP number, nor is any representation made as to their correctness indicated in this Notice of Full Prepayment. It is included solely for convenience of the Certificateholders. By U. S. Bank National Association, as Trustee Date: March_, 2016 -2- ATTACHMENT 9 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 475 Sansome Street, Suite 1700 San Francisco, California 94111 Attention: Stephen G. Melikian, Esq. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. TERMINATION AGREEMENT This TERMINATION AGREEMENT (this "Termination Agreement"), dated for convenience as of March 1, 2016, is between the CITY OF PETALUMA, a charter city duly organized and existing under the laws of the State of California, as lessor (the "City"), the CITY OF PETALUMA PUBLIC FINANCING CORPORATION, a nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California (the "Corporation"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee "). BACKGROUND: 1. The City and the Corporation have entered into the following leases (collectively, the "Prior Financing Agreements") in connection with the City of Petaluma 2003 Certificates of Participation (Refunding Certificates and Airport Project) originally executed and delivered in the aggregate original principal amount of $6,295,000 (the "2003 Certificates"), relating to the real property described in Appendix A attached hereto and by this reference incorporated herein (the "Leased Property"): (a) Site Lease dated as of December 1, 2003, between the City as lessor, and the Corporation, as lessee of the Leased Property, which was recorded on December 16, 2003, in the Office of the Sonoma County Recorder as Instrument No. 2003254877; and (b) Lease Agreement dated as of December 1, 2003, between the Corporation as lessor and the City as lessee of the Leased Property, which was recorded on December 16, 2003, in the Office of the Sonoma County Recorder as Instrument No. 2003254877; 2. The 2003 Certificates have been fully discharged, and each of the Prior Financing Agreements has terminated in accordance with its respective provisions. 3. The Corporation, the City and the Trustee have entered into this Termination Agreement for the purpose of evidencing the termination of the Prior Financing Agreements. AGREEMENT: In consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: SECTION 1. Termination. The City and the Corporation hereby represent and warrant that the 2003 Certificates have been discharged in full and retired, and are no longer outstanding, and that as a result thereof the Prior Financing Documents have been terminated in accordance with their respective terms. The City and the Corporation each hereby terminate the Prior Financing Documents. SECTION 2. Recordation Hereof, Further Assurances. The City shall cause an executed copy of this Termination Agreement to be filed in the Office of the Sonoma County Recorder. The City, the Corporation and the Trustee agree that they will execute and deliver any and all such further agreements, instruments, financing statements or other assurances as may be reasonably necessary or requested by the other party to carry out the intention or to facilitate the performance of this Termination Agreement. SECTION 3. Execution in Counterparts. This Termination Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 4. Governing Law. This Termination Agreement shall be construed in accordance with and governed by the Constitution and laws of the State of California. -2- IN WITNESS WHEREOF, the parties have executed this Termination Agreement by their duly authorized officers as of the day and year first written above. CITY OF PETALUMA PUBLIC FINANCING CORPORATION John Brown Secretary/Treasurer CITY OF PETALUMA John Brown City Manager U.S. BANK NATIONAL ASSOCIATION, as Trustee Im Authorized Officer APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of Petaluma, County of Sonoma, State of California, which is more particularly described as follows: POLICE FACILITY BUILDING All that certain real property situated in the City of Petaluma, County of Sonoma, State of California, described as follows: Parcel 2, as shown upon City of Petaluma Parcel Map No. 11, filed on March 10, 1969 in Book 109 of Maps, page 20, Sonoma County Records. COMMUNITY CENTER Being a portion of the Northwest half of Lot 218 of the Petaluma Rancho, according to the map made by Wesley Rowe Esq., said portion also being described as Lands of the City of Petaluma (1694 O.R. 475), Sonoma County Records; more particularly described as follows: Parcel One Beginning at a point on the north easterly line of McDowell Boulevard (80.00 feet wide) said point being the most westerly corner of the Lands of the City of Petaluma (1694 O.R 475); thence leaving said point of beginning and proceeding along the most westerly border of the City of Petaluma property a distance of 550 feet to a point. Thence parallel to the north easterly line of McDowell Boulevard North to the westerly edge of a manmade lake. Thence parallel and coincident with said lake to a point. Thence from said point in a southerly direction to a point that is measured 700 feet easterly from the point of beginning along the north easterly line of McDowell Boulevard North. Thence from said point 700 feet along the north easterly line of McDowell Boulevard North to the point of beginning. Parcel Two Being a portion of the lands conveyed to Quantas Development Corporation by deed recorded in Book 2922 O.R 962 being more particularly described as Petaluma Hospital District, dba Hillcrest Hospital, to City of Petaluma a California municipal corporation by quitclaim recorded in Book 3139 O.R 921 Sonoma County Records. The intent of this general description is to describe the area that bounds the Community Center building and parking improvements as shown on Sheet Number C-1 on Page 33 of 69 City Map File Number 10-215 Improvement Plans for Petaluma Community Center. A-1 CITY AIRPORT All that certain real property situated in the City of Petaluma, County of Sonoma, State of California; and being the lands of the City of Petaluma, a Charter City and municipal corporation, as described in document numbers 86-041912, 85-065898, 88-109129, 89- 009366, and 89-033234 which are more particularly described as follows: Parcel One Beginning at a set iron pipe marking the most northerly corner of the said lands of the City of Petaluma as also shown as the most northerly corner of Parcel B-1 on that certain record of survey for the City of Petaluma filed for record in Book 377 of Maps, pages 21 and 22, Sonoma County records; thence from said point of beginning S 54° 33' 00" E, 2,143.89 feet to an iron pipe; thence N 35° 25' 34" E, 255.50 feet to an iron pipe; thence S 54° 32'40" E, 2,179.89 feet to an iron pipe; thence S 350 27' 24" W, 255.29 feet to an iron pipe; thence S 54° 33' 00" E, 1,051.49 feet to an iron pipe; thence S 35° 27' 40" W, 449.37 feet to a point; thence N 54° 33' 22" W, 5,373.78 feet to a point on the northwesterly line of the said lands of City of Petaluma and said line also is the southeasterly line of Washington Street as shown on the said record of survey; thence N 35° 20' 55" E, 449.95 feet along said northwesterly line to the point of beginning. Parcel Two Beginning at the most westerly corner of the above described parcel 1 said corner being on the most northwesterly line of the said lands of the City of Petaluma and said line is also on the southeasterly side of Washington Street as shown on the said record of survey; thence from said point of beginning S 54° 33' 33" E, 5,373.78 feet along the southwesterly line of the above described parcel 1; thence N 35° 27' 40" E, 243.61 feet to an iron pipe; thence S 54° 32' 20" E, 854.30 feet to an iron pipe; thence S 37° 25' 50" W, 1,036.15 feet to an iron pipe; thence N 54° 32' 20" W, 1,192.23 feet to an iron pipe; thence N 540 32' 20" W 677.86 feet to an iron pipe; thence S 35° 27' 06" W, 116.22 feet, to an iron pipe marking the most southerly corner of Parcel "C" of said record of survey; thence N 54° 33' 00" W, 2,179.03 feet to an iron pipe; thence S 350 25' 34" W, 442.55 feet to a point; thence N 54° 33' 00" W, 2,140.99 feet to an iron pipe; thence N 350 20' 55" E, 1,350.05 feet to the point of beginning. All iron pipes are 1/2 inch diameter, tagged RCE 11226, and were set during a survey in July, 1983 and January, 1984 by Burton Engineers, Petaluma, CA. A-2 ATTACHMENT 10 LEASE AGREEMENT dated as of March 1, 2016, between the CITY OF PETALUMA and the PETALUMA PUBLIC FINANCING AUTHORITY INVESTOR LETTER I, the undersigned authorized signatory of Compass Mortgage Corporation, an Alabama corporation, as purchaser (the "Purchaser") do hereby certify as follows with regard to the captioned $ City of Petaluma Lease Agreement (the "Lease"): 1. The Purchaser has full power and authority to carry on its business as now conducted, deliver this certificate and make the representations and certifications contained herein. 2. The Purchaser is a lender that regularly extends credit by purchasing loans in the form of state and local government obligations such as the Lease; has knowledge and experience in local governmental financial and business matters that make it capable of evaluating the City of Petaluma (the "City"), the Lease, and the risks associated with the purchase of the Lease; has the ability to bear the economic risk of an investment in the Lease; and is an "accredited investor" as defined in Section 501(a)(1), (2) or (3) of Regulation D promulgated under the Securities Act of 1933, as amended. The Purchaser is not acting as a broker, dealer or municipal securities underwriter in connection with its purchase of the Lease. 3. The Purchaser has conducted its own independent investigation of the financial condition of the City, the purpose for which the Lease is being executed and delivered, and the security for the payment of the principal and interest on the Lease pursuant to the Resolution, adopted by the City Council of the City on March 7, 2016, and has obtained such information regarding the Lease, the City and its operations, financial condition and financial prospects as the Purchaser deems necessary to make an informed investment decision with respect to the purchase of the Lease. In connection therewith, the City has had the opportunity to ask and have answered questions regarding the Lease and the transactions contemplated thereby, the City and its operations, financial condition and financial prospects, and has been furnished with all documents and information regarding the City, the Petaluma Public Financing Authority (the "Authority"), the Lease and the security therefor and the transactions and documents related to or contemplated by the foregoing, and all matters related thereto, that it has requested. 4. The Purchaser is purchasing the Lease at the price of par, for its own account solely, and not with a present view to any distribution of the Lease or any interest therein or portion thereof or without a present intention of distributing or reselling the Lease or any interest therein or portion thereof, provided that the Purchaser retains the right at any time to dispose of the Lease or any interest therein or portion thereof as it may determine to be in its best interests. In the event that the Purchaser disposes of the Lease or any part thereof in the future, the Purchaser understands that it has the responsibility for complying with any applicable federal and state securities laws and all rules and regulations promulgated pursuant thereto, and that the transferee must be either an "accredited investor" as defined in Section 501(a)(1), (2) or (3) of Regulation D promulgated under the Securities Act of 1933, as amended, or a "qualified institutional investor" under Rule 144A promulgated under the Securities Act of 1933, and deliver to the City an investor letter to the same effect as this Investor Letter, with no substantive revisions except as may be approved in writing by the City. Failure to deliver such investor letter shall cause the purported transfer to be null and void. 5. The Purchaser recognizes that the Lease involve significant risks, that there is no established market for the Lease and that none is likely to develop and, accordingly, that the Purchaser must bear the economic risk of the Lease for an indefinite period of time. 6. The Purchaser acknowledges that the Lease has not been registered under the Securities Act of 1933, as amended, or under any state securities laws and that such registration is not legally required. The Purchaser also acknowledges that the Lease is exempt from Rule 15c2 -12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, pursuant to Section (d) of the Rule. The Purchaser agrees that it will comply with any applicable state and federal securities laws then in effect with respect to any subsequent disposition of the Lease, and further acknowledges that any current exemption from registration of the Lease does not affect or diminish this requirement. 7. The undersigned is a duly appointed, qualified, and acting authorized signatory of the Purchaser, is authorized to cause the Purchaser to make the certifications, representations and warranties contained herein, and is authorized to execute and deliver this letter, and the other instruments and documents required to be executed by the Purchaser in connection with the purchase of the Lease. 8. The Purchaser has been informed that the Lease (i) has not been and will not be registered or otherwise qualified for sale under the "Blue Sky" laws and regulations of any jurisdiction, (ii) will not be listed on any stock or other securities exchange, (iii) will not carry any rating from any rating service, and (iv) will not be delivered through the facilities of the Depository Trust Company. 9. Except as provided in the closing certificates and opinions enclosed in the closing transcript for the Lease, none of the City, the Authority, their members, their governing body, or any of their employees, counsel or agents nor its special counsel, Jones Hall, A Professional Law Corporation, or its financial advisor, Steven Gortler, will have any responsibility to the Purchaser for the accuracy or completeness of information obtained by the Purchaser from any source (other than the City) regarding the City or its financial condition or regarding the Lease, the provision for payment thereof, or the sufficiency of any security therefor. The Purchaser acknowledges that, as between the Purchaser and all of such parties, the Purchaser has assumed responsibility for obtaining such information and making such review as the Purchaser deemed necessary or desirable in connection with its decision to purchase the Lease. Dated: March _, 2016 COMPASS MORTGAGE CORPORATION, an Alabama corporation Authorized Signatory -2-